The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) was signed into law on December 18, 2015. One item covered under the law was the permanent extension of the option to take a qualified charitable distribution (QCD). This option, first available in 2006, allows IRA participants to exclude up to $100,000 from gross income for donations paid directly to a qualified charity from their IRA.
A QCD is a distribution from an IRA owned by an age 70 ½ or over taxpayer that would otherwise be taxable that is paid directly from the IRA to a qualified charity.
An IRA owner can exclude up to $100,000 of gross income for a year. The amount of QCD is not included in the charitable contribution deduction determination. The QCD can also be used to satisfy the Required Minimum Distribution requirement for the year.
As of this article, Publication 17 has still not been updated:
Qualified charitable distributions (QCDs). The provision for tax-free distributions from IRAs for charitable purposes does not apply for 2015 or later years.
At the time this publication was prepared for printing, Congress was considering legislation that would extend qualified charitable distributions from IRAs. To see if the legislation was enacted, go to www.irs.gov/pub17.
Publication 590-B (2015) provides more detailed guidance and an example:
Qualified charitable distributions. A qualified charitable distribution (QCD) is generally a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax deductible contributions. You must be at least age 70½ when the distribution was made. Also, you must have the same type of acknowledgment of your contribution that you would need to claim a deduction for charitable contribution. See Records To Keep in Pub. 526.
The maximum annual exclusion for QCDs is $100,000. Any QCD in excess of the $100,000 exclusion limit is included in income as any other distribution. If you file a joint return, your spouse can also have a QCD and exclude up to $100,000. The amount of the QCD is limited to the amount of the distribution that would otherwise be included in income. If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income.
A QCD will count towards your required minimum distribution, discussed earlier.
You cannot claim a charitable contribution deduction for any QCD not included in your income.
Example.
On December 23, 2015, Jeff, age 75, directed the trustee of his IRA to make a distribution of $25,000 directly to a qualified 501(c)(3) organization (a charitable organization eligible to receive tax-deductible contributions). The total value of Jeff's IRA is $30,000 and consists $20,000 of deductible contributions and earnings and $10,000 of nondeductible contributions (basis). Since Jeff is at least age 70½ and the distribution is made directly by the trustee to a qualified organization, the part of the distribution that would otherwise be includible in Jeff's income ($20,000) is a QCD.
In this case, Jeff has made a QCD of $20,000 (his deductible contributions and earnings). Because Jeff made a distribution of nondeductible contributions from his IRA, he must file Form 8606 with his return. Jeff includes the total distribution ($25,000) on line 15a of Form 1040. He completes Form 8606 to determine the amount to enter on line 15b of Form 1040 and the remaining basis in his IRA. Jeff enters -0- on line 15b. This is Jeff's only IRA and he took no other distributions in 2015. He also enters “QCD” next to line 15b to indicate a qualified charitable distribution.
After the distribution, his basis in his IRA is $5,000. If Jeff itemizes deductions and files Schedule A with Form 1040, the $5,000 portion of the distribution attributable to the nondeductible contributions can be deducted as a charitable contribution, subject to AGI limits. He cannot take the charitable contribution deduction for the $20,000 portion of the distribution that was not included in his income.
