Car Sale/Income Tax Question

[squiffy]

When I have more time, I will post the details of my car sale negotiations.

I bought a car in 1999 for 18K or so. As of Sept. 2006, it had about 70K miles on it.

I initially considered selling it. Bluebook value on the car was about 5,000 to 4,700 depending on condition.

First, question, if I had sold it, would I have had to pay any income tax? I believe the answer is clearly no. I pay 18K, sell for say 5K, so I make no profit. My cost basis exceeds my sale price.

Second question, in California, does the buyer owe a sales tax, and how does he pay it?

Third question. What if I give the car to my girlfriend as a gift. (This is what really happened.) What are the tax consequences if she sells it?

Since I gave the car as a gift, and it was worth less than $12,000, then the giver owes no gift tax. In addition, since it was a gift, she owes no income tax and I owe no income tax.

She had to pay a DMV fee to transfer the title into her name. But I assume she did not owe any sales tax, as there was a gift, and no sale.

But here is the question. If she gets a car worth $5,000 for free, then sells it for $4,700, does she owe INCOME TAX?

I would assume the answer is no. Because the cost basis of the car was $18 K. So if I couldn't make a profit selling the car at $4,700, then she could not really be deemed to have made a profit, by receiving the car as a gift, then reselling it.

We want the money as a downpayment on a new car for her.

Anyway, if anyone has a tax or accounting background, I would appreciate hearing their analysis.