Do I Report Car Payments from My Girlfriend as Income?

by Loella Haskew, CPA

My girlfriend and I are buying a car together. She plans to give me a check every month for her part of the payment. Do I have to report what she gives me as income?

Purchasing an asset with another person can cause problems. Some things to consider are:

• How the title to the asset is held?
• What happens if only one of you wants to sell and the other wants to keep the asset?
• If something happens to your relationship, how do you divide the asset?
• How do you divide the maintenance or insurance expense?
• Who is personally liable on the loan?

These are only some of the issues that should be addressed before you go into the transaction.

You do not provide specific information about the details of the car transaction, so I will assume the following: the car is in your own name, you are personally liable for the car loan, and you are paying the insurance and other upkeep expenses. Given these assumptions, there are three reasonable scenarios regarding the tax consequences.

1. You have sold half of the car to your girlfriend. If that’s the case, it is best to have a written agreement to show the IRS. At some point, you will have to put her on title as a part owner. In that case, you will report the sale on your tax return. If the sales price is equal to your cost basis, there will be no gain or loss and, thus, no tax.
2. Your girlfriend is making cash gifts to you. If that’s the case, as long as the total of all the gifts she gives you do not exceed the annual gift exclusion amount ($12,000 in 2008), there is nothing to report. If all her gifts exceed the exclusion amount, she would have to file a gift tax return.
3. Your girlfriend is simply reimbursing you for the expenses related to her own use of the car. As long as the payment covers only those expenses, you do not have a reportable transaction.

Loella Haskew is a Walnut Creek, Calif., CPA with the firm of Buckley Patchen Riemann & Hall. You can reach her at (925) 937-2727.

In accordance with IRS Circular 230, the information on this website is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.