Next to wanting to contribute to charitable causes, perhaps your biggest motivation to donate your car is the substantial tax break it can give you. Don’t be misled by information about your return, because the tax breaks you can get from a car donation may not be as big as you think.

If your car donation is worth more than $500, then you should read “Revenue Provisions” in Section 884 of Title VIII. This details the new restrictions on car donations value at more than the aforementioned amount.

In a nutshell, the provision caps the allowable amount of tax deductions to the gross proceeds received by the recipient (the charitable organization you donate your car to) from the sale of your donated vehicle. When you donate a vehicle with a claimed value of $500 or more, your tax-deductible amount will depend on how the charity uses the vehicle. For example, if the charity sells the car, then you can only deduct the amount of gross proceeds that the charity received from the sale. On the other hand, if the charity plans to use the car for tax-approved charitable work as approved by the law, you can claim the car’s fair market value.

The same law also requires the charity to provide you with a written acknowledgment of the contribution within 30 days from the day you make the donation. If your recipient gives you a false or fraudulent acknowledgment, they will face a penalty.

In many instances the tax breaks you get from donating your car are enough to cover (or exceed) the amount you could have sold the car for. Remember that you usually do not have to pay for any paperwork or dealer fees when you donate your car. In the end it is still more sensible to donate you car rather than sell it. This way you don’t only make a profit – you also help worthy causes.