Untitled Document

August 2025

The IRS is Changing the Reporting for QCDs of the 2025 Form 1099-R

IRA custodians/trustees will need to report QCDs differently for tax year 2025 versus prior years. In prior years a Code 7 was used to report a QCD. You must check with your core vendor to make sure they have made the following discussed changes so your bank’s 1099-R forms for 2025 can be prepared correctly.

The IRS finally concluded it was a good idea to have a special code for a qualified charitable distribution. The IRS chose code Y. The IRS instructions discuss that two codes are to be used in the following situations:

There are new Codes Y7, Y4 or YK for Box 7 of the 2025 Form 1099-R

Y7 - QCD made by an eligible living IRA accountholder

Y4 - QCD made by an eligible beneficiary

YK - QCD which contains hard to value IRA assets made by either an eligible living IRA accountholder or an eligible beneficiary.

Code Q was unavailable as it is used whenever a Roth IRA distribution is qualified.

The IRS uses the description of assets not having a readily determinable value rather than hard to value assets.

Note, the IRS did not revise the explanation for an IRA custodian/trustee for completing boxes 1, 2a and 2b. Box 2a reports the taxable amount. This amount is to be the same as the amount in box 1 except in certain listed situations. The making of a QCD is not one of the listed situations.

The copy of the Form 1099-R which is given to the taxpayer states with respect to Code Y, “QCD claimed by taxpayer under section 408(d)(8).” This statement is not all that helpful. Presumably, when the IRS finalizes the 2025 instructions for completing Form 1040, 1040X and 1040NR it will continue the approach that the taxpayer must complete their tax return to show the distribution is not taxable because they made a QCD.

The IRS thought it sufficiently important for it to understand how many QCDs were being made by beneficiaries and how often hard to value assets were being used. The IRS must have seen that taxpayers were making QCDs with hard to value assets. It would be possible for a taxpayer to exceed the annual limit (currently $108,000) if the QCD was made with hard to value assets. A determination of value really should be made at the time the QCD is made, but apparently taxpayers and IRA custodians/trustees may not be doing so.