These payments cannot exceed 50% of the taxpayer’s contribution basis for the 2006 – 2007 tax years for contributions consisting of items other than appreciated capital gain property; the limits change to 30% if made to a non-operating private foundation and certain other IRC Sec. 170(b)(1)(B) organizations.  With a special election made by the taxpayer, contributions made to organizations qualifying under IRC Sec. 170(b)(1)(A) are deductible up to 30% of the taxpayer’s contribution basis.  Contributions of IRC Sec. 170(b)(1)(B) consisting of appreciated capital gain property are deductible up to 20% of the contribution base.  An exclusion from gross income (not to exceed $100,000) is available for otherwise taxable IRA distributions.  Since this income is excluded from the taxpayer’s gross income, it will not increase AGI for purposes of phaseout of itemized deductions, personal exemptions, or any other deduction, exclusion, or tax credit that is limited to lost completely when AGI reaches certain specific levels. 

To qualify as a charitable distribution, the distribution must be made after the IRA owner attains age 70 1/2 and the distribution must be made directly by the IRA trustee to a Code Sec. 170(b)(1)(A) organization.  Also, to be excludible from gross income the distribution must otherwise be entirely deductible as a charitable contribution deduction under Code Sec. 170 without regard to the charitable deduction percentage limits discussed above. 

Though the annuity rules of Code Sec. 72 under which a pro rata part of the distribution will not be treated as made out of non-deductible contributions won’t apply, proper adjustments must be made in applying the Code Sec. 72 annuity rules to reflect the amount treated as a qualified charitable distribution under this special rule.

 Even though a direct distribution from an IRA to a charity is not included in the taxpayer’s gross income, it is taken into account in determining the owner’s required minimum distribution for the year.  Thus, if the amount distributed directly from the IRA to an eligible charity at least equals the amount of the owner’s required minimum distribution for the tax year, he/she will not be required to take any other distribution from the IRA for that tax year.

If you have questions regarding the applicability of this information to your personal taxes, please contact our tax professionals by using the “contact us” tab at the top of this page.