How to Calculate a Charitable Remainder Trust Tax Deduction

To calculate a charitable remainder trust tax deduction, you subtract the present value of the income payments the trust will make to you (or other non-charitable beneficiaries) from the fair market value of the assets you contribute. What’s left is the present value of the charity’s remainder interest, and that’s your deduction. Three inputs drive the number: the payout rate you choose, how long the trust will last, and the Section 7520 interest rate the IRS publishes each month. The arithmetic itself comes out of IRS actuarial tables; the planning work is choosing the inputs that produce the largest legitimate result.

Start With the Trust Type

The calculation method depends on which of the two charitable remainder trust formats you’re using.

A charitable remainder annuity trust (CRAT) pays a fixed dollar amount every year, set at funding and locked in. Fund a CRAT with $1 million and a 6% payout, and you receive $60,000 annually regardless of how the investments perform. A CRAT accepts no additional contributions after funding.¹

A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust’s net fair market value, revalued each year. The same $1 million at 6% pays $60,000 in year one, $66,000 if the trust grows to $1.1 million, $54,000 if it drops to $900,000. A CRUT accepts additional contributions.¹

Both types must pay out at least 5% and no more than 50% of trust value each year, and the charity’s expected remainder must be worth at least 10% of what you contributed. A trust that violates those limits doesn’t produce a smaller deduction. It fails to qualify as a CRT at all.²

The Three Inputs That Drive the Number

Payout Rate

A lower payout rate leaves more projected value for the charity, which raises your deduction. A higher payout rate does the reverse. Donors who are optimizing the upfront deduction typically set the payout rate at or near the 5% floor. Donors who need more current income accept a smaller deduction for a bigger annual check.

Trust Term

Payments can last for a set number of years, up to 20, or for the lifetime of one or more individuals living when the trust is created.¹ A shorter term means the charity receives its money sooner, so the present value of the remainder is larger. For life-based trusts, the IRS uses actuarial life expectancy tables to project how long payments will continue. A younger beneficiary is projected to receive payments for more years, which drops the deduction. The same contribution with a 45-year-old beneficiary versus a 70-year-old can produce deduction figures tens of thousands of dollars apart.

Section 7520 Rate

The Section 7520 rate is the IRS discount rate used to convert future dollars into present value. It equals 120% of the federal mid-term rate, rounded to the nearest two-tenths of a percent, and the IRS publishes a new rate each month. For early 2026, the rate has hovered between 4.6% and 4.8%.³

The rate’s effect on the deduction depends on the trust type and runs in opposite directions. For a CRAT, a higher Section 7520 rate generally produces a larger deduction, because the fixed annuity stream is discounted more heavily and the remainder grows by comparison. For a CRUT, a lower Section 7520 rate typically produces the larger deduction, because of how the adjusted payout rate compounds against the discount rate. The interaction is complicated enough that practitioners routinely run the numbers at multiple rates before funding.

You are not stuck with the rate from the month you fund. The statute lets you elect the rate from either of the two preceding months instead.⁴ That three-month window gives you room to pick the most favorable rate for your trust type.

Running a CRAT Calculation

For a CRAT, you subtract the present value of the annuity stream from the fair market value of the contributed assets. For a term-of-years trust, you apply a standard present-value-of-annuity calculation at the Section 7520 rate. For a life-based trust, you use the annuity factors in IRS Publication 1457 or the single-life factors the IRS publishes alongside the Section 7520 rates.

A simplified illustration: fund a CRAT with $500,000, a 5% payout ($25,000 per year), a 15-year term, and a Section 7520 rate of 4.6%. You calculate the present value of $25,000 per year for 15 years discounted at 4.6%, then subtract that from $500,000. The remainder is your deduction. In a setup like this, the deduction would typically land somewhere around 35% to 40% of the contributed amount, depending on the payment frequency adjustment and the precise actuarial factor.

Running a CRUT Calculation

The CRUT calculation is more involved because the annual payment moves with the trust’s value. Instead of discounting a fixed stream, the IRS uses an “adjusted payout rate” that reflects both the stated unitrust percentage and the payment frequency (monthly, quarterly, or annually). That adjusted rate feeds into remainder factors from IRS tables: Table D for a term-of-years trust, Table S (keyed to the beneficiary’s age and the Section 7520 rate) for a life-based trust.⁵

The core formula for a term-of-years CRUT is straightforward: Deduction = Fair Market Value × Remainder Factor. For a life-based CRUT, the mortality tables replace the fixed term. Either way, the IRS supplies the factors; you don’t compute them from scratch. In practice no one does these by hand. Trust counsel, CPAs, and planned-giving officers run the inputs through IRS-approved software and model different payout rates, trust types, and Section 7520 rate months in minutes.

CRUT Variations Change the Inputs

Not every CRUT uses the standard calculation. The variation you pick changes the factors and the deduction amount.

A standard CRUT pays the stated percentage of annual trust value each year. This is what the basic calculation above describes.
A net income CRUT (NICRUT) pays the lesser of the trust’s actual net income or the stated percentage. If the trust earns 3% and the stated payout is 6%, you receive 3%. The deduction is often larger because the IRS assumes the trust retains more.
A net income with makeup CRUT (NIMCRUT) works like a NICRUT, but shortfalls accumulate in a makeup account and get paid in later years when income exceeds the stated percentage. This design is common for trusts holding illiquid assets like real estate.
A flip CRUT starts as a NIMCRUT and converts to a standard CRUT on a triggering event, often the sale of a contributed asset. The deduction calculation treats it as a NIMCRUT before the flip and a standard CRUT after.

The IRS publishes specific factors and calculation rules for each variation, so the software inputs change along with the trust design.

The 10% Remainder Floor

Every CRT has to clear a threshold test at funding: the present value of the charitable remainder must equal at least 10% of the net fair market value of the contributed assets.¹ Fall below 10% and the trust fails to qualify as a CRT. You lose the income tax deduction entirely, and the trust is treated as an ordinary taxable trust rather than a tax-exempt vehicle.

This test typically fails when the payout rate is high, the term is long, or (depending on trust type) the Section 7520 rate works against you. A young donor who wants a lifetime CRAT with a 7% payout may discover the combination can’t clear the 10% test. The usual fixes are dropping the payout rate, shortening the term, or waiting for a more favorable Section 7520 rate month.

The 5% Probability-of-Exhaustion Test for CRATs

CRATs face a second hurdle that CRUTs do not. Because a CRAT pays a fixed dollar amount regardless of investment performance, the trust could theoretically run out of money before the beneficiary dies. The IRS requires less than a 5% probability of the trust being exhausted during the beneficiary’s lifetime. Exceed 5% and the deduction is denied. This test applies only to CRATs with lifetime payment terms. Term-of-years CRATs and all CRUTs are exempt (a CRUT’s payment automatically shrinks if the trust value drops).

One workaround: the CRAT agreement can include an early-termination provision stating that if the trust corpus falls to 10% of its initial value, the trust terminates and the remainder goes to the charity. A CRAT with that language can qualify even if it would otherwise fail the probability test.

What You Can Actually Claim in One Year

The calculation gives you the gross deduction. The amount you can actually claim on your return in any single year is capped by your adjusted gross income, and the cap depends on both what you contributed and what type of charity receives the remainder.⁶

Cash to a public charity: up to 60% of AGI.
Long-term appreciated property to a public charity: up to 30% of AGI.
Cash to a private non-operating foundation: up to 30% of AGI.
Long-term appreciated property to a private non-operating foundation: up to 20% of AGI.

This is where donors get caught off guard. A calculated deduction of $400,000 against $500,000 of AGI, with appreciated stock going to a public charity remainder trust, gets you $150,000 in year one (30% of $500,000). The unused $250,000 isn’t lost; the IRS lets you carry it forward and deduct it over the next five tax years, subject to the same annual percentage cap each year.⁶ Track the balance. Any carryforward still unused after year five is gone.

One election worth knowing about: when you contribute long-term appreciated property, you can elect to deduct the cost basis instead of fair market value. Doing that moves you into the 60% AGI bracket for public charities instead of the 30% bracket. It occasionally helps when basis is close to fair market value. For highly appreciated assets, which is the typical CRT scenario, it rarely does.

Documenting the Number on Your Return

You claim the CRT deduction on Schedule A (Form 1040) as an itemized deduction.⁷ If you contributed noncash property and the total deduction exceeds $500, you also complete and attach Form 8283, Noncash Charitable Contributions.⁸ When the noncash deduction exceeds $5,000, you need a qualified appraisal performed by a qualified appraiser, and the appraiser’s signature must appear on Section B of Form 8283.⁹ The IRS takes the appraisal rule seriously. Skipping it or using an unqualified appraiser can get the entire deduction disallowed, no matter how carefully the actuarial calculation was done.

Separately, the trustee files Form 5227, Split-Interest Trust Information Return, every year the trust exists.¹⁰ That’s the trustee’s obligation, not yours, but a lapse there can jeopardize the trust’s qualified status, which in turn can put your deduction at risk on audit.

1
Office of the Law Revision Counsel. 26 USC 664 – Charitable Remainder Trusts
2
Internal Revenue Service. Charitable Remainder Trusts
3
Internal Revenue Service. Section 7520 Interest Rates
4
Office of the Law Revision Counsel. 26 USC 7520 – Valuation Tables
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Internal Revenue Service. Instructions for Form 5227 – Split-Interest Trust Information Return
6
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc, Contributions and Gifts
7
Internal Revenue Service. Topic No. 506, Charitable Contributions
8
Internal Revenue Service. About Form 8283, Noncash Charitable Contributions
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Internal Revenue Service. Instructions for Form 8283
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Internal Revenue Service. Instructions for Form 5227