Question: Lisa wants to complete a qualified charitable distribution (QCD) from her traditional IRA. If she contributes the money to a 501(c)3 education fund, she will receive a state tax credit of 50%. If she completes this transaction, will this reduce her federal charitable deduction amount? Does this transaction require the tax-free QCD to be reduced because of the state tax credit?
Answer: The qualified charitable distribution does not qualify as a federal charitable deduction on Form 1040 Schedule A. Under §408(d)(8), the qualified charitable distribution allows the taxable income distribution from her traditional IRA to be tax-free because the money is donated to a charity. She will not receive a federal charitable deduction for this donation because this would be considered a double deduction.
No reduction to the tax-free QCD is required. Under §170, the state tax credit was not given by the charity, so this is not a quid pro quo scenario requiring reduction of the tax-free amount for the QCD.