Splitting Car Purchase and Maintenance Expenses for a Shared Car

Here’s how to split costs when you share use or co-own a car with a neighbor or friend.

By , Attorney · UC Berkeley School of Law

If you co-own a car with your neighbor or simply share use of a car you own, you'll need to figure out how to split the costs—and you'll want to prepare a carsharing agreement. Read on to learn how you might consider sharing expenses for a car that has one or two owners.

How to Share Car Expenses: One Owner

A few different ways to calculate costs if you own a car that you share with a neighbor or friend include:

• your neighbor could pay a fee based on mileage or a flat monthly fee based on estimated use
• you can calculate car expenses at the end of each month,
• or you could use a combination of these methods.

Charging for Mileage

The benefit of charging based on mileage is that it's easy to keep track of and add up. The hard part is figuring out how much to charge per mile. If you decide to use a straightforward mileage method, you can adopt either the standard mileage rate set each year by the IRS (generally, 58 cents in 2019) or a different per-mile cost, depending on gas price fluctuations during the year and your car's age.

To come up with an accurate mileage rate, you could use the Annual Car Expenses Worksheet shown here to find out your annual car expenses, estimating fuel, maintenance, and other variable costs based on how many combined miles you and your neighbor expect to drive. Divide your annual total by that number of miles for an approximate per mile cost.

No matter how you calculate mileage, if the rate factors in the cost of fuel, then the owner of the car should be responsible for paying all fuel costs. The non-owner driver can buy gas, keep receipts, and subtract the gas costs from the total mileage costs.

 Worksheet: Annual Car Expenses Type of Expense Annual Costs Costs to Share a Car Costs to Carpool Annual registration cost License fees Smog check (where applicable) Insurance (average is \$850 per year) Depreciation Interest on car loan (finance charges) Roadside assistance program membership Fuel Parking Maintenance (regular replacements, tires, fluids, filters, tune-ups, windshield wipers, cleaning) Major repairs Tolls Title fee and transfer tax (usually applies only when car changes ownership) Total

Sharing Expenses Without Using Mileage

Another way to share expenses when someone else uses your car is to split overhead costs and then divide variable expenses based on how much you each use the car. The overhead costs include insurance and registration; these costs will be relatively static, or vary only slightly based on how much you drive your car. You could even calculate in the cost of three oil changes and one tune-up per year, and an annual roadside assistance membership.

It might also be appropriate to ask your cosharer to pay part of the monthly interest charges on your loan—the loan is one of the expenses of owning a new car, after all. And rather than asking the cosharer to help you pay off the principal, you can share the cost of the vehicle by asking for a contribution to the cost of the depreciation (discussed below), which represents the gradual loss of value of the car. The biggest variable cost is fuel, which you can each pay for based on how much you drive.

How to Calculate a Car's Depreciation

Depreciation is a measure of how much value your car loses every year. The best way to calculate how much your car has depreciated is to figure out how much less you would get for it if you sold it this year than if you had sold it last year. You can get a good rough figure using Kelley Blue Book, a generally accepted measure of a car's resale value. Plug in your car's year, make, model, features, and mileage and find a value for it. Then, look up the value of the same make and model, but one year older and with the additional mileage you expect to put on the car in one year of your sharing arrangement.

For example, let's say your car's current value is \$11,000, and the value of the same car from the previous year and with 15,000 more miles is \$9,800. You can use those figures to estimate that your car will depreciate \$1,200 this year, or \$100 per month. You can ask your sharing partner to split this cost with you by paying you \$50 each month. At the end of each year, you should reconcile your figures by using the mileage you actually put on the car to come up with its current value, then subtract that from the car's actual value at the start of the year. If this actual depreciation figure is significantly different from the estimate you used, one of you might owe the other some money. You can also use your actual mileage to come up with a new depreciation figure for the coming year.

How to Handle Ongoing Maintenance and Repairs

The cost of "wear and tear" on the car is partially covered by depreciation, but not entirely because wear and tear is partially remedied each time you do maintenance or make repairs. If you are the owner of the car, it might not be fair to ask for your sharing partner to split the cost of expensive replacements, such as brakes, the transmission, or the timing belt. After all, you could end the sharing arrangement any time, and it's difficult to calculate how much your cosharer will have benefited from such a repair. One way to deal with this is to discuss the costs and find out whether there is an amount your cosharer could contribute which you will both feel is fair.

Keep Track of Whatever Method You Use to Charge for Car Sharing

Keep in mind that turning a profit could lead to trouble. If your neighbor pays expenses in a way that clearly profits you, you could run into trouble with your insurance company (which might refuse to pay an insurance claim because you didn't disclose this "business" arrangement) or with the IRS (which could require you to pay taxes on what you earned).

To avoid these problems, make sure the expenses you charge are "reasonably calculated so as not to exceed" the actual expenses of owning and driving the car. You should write down your method of calculating expenses and keep good records, in case the IRS ever questions you. Include this information in your carsharing agreement with the other owner.

How to Allocate Car Purchase and Maintenance Expenses: Two Owners

Sharing expenses is more straightforward if you both own the car. Either of you could pay for gas, maintenance, insurance, registration, and so on, and each keep your receipts in a separate file. Periodically, you could get together, add up each set of receipts, split the total down the middle (or some other division if one of you drives more than the other), and reconcile it with the amount each of you paid. Alternatively, you could do a 50/50 split on all costs except for fuel, which you could divide based on how much you each drive.

If you want to be even more precise, you could each keep track of the number of miles you drive the car and pay in proportion to use. But keeping a mileage log can be a hassle. Rather than calculate precise mileage, you could simply guess at the difference in the amount each of you drives the car.

Really, you could probably come up with all kinds of ways to calculate expenses. However, most experienced sharers would advise you to keep it simple, even if it means you might pay a little more than your share. When you try to make everything even out perfectly, it gets tedious and dampens the spirit of generosity that leads people to share in the first place.