IRC 7520 Valuation Rules: Rates, Tables, and Limitations

The IRC Section 7520 valuation rules govern how the IRS values partial interests in property, such as annuities, life estates, remainders, and reversions, for federal estate, gift, and income tax purposes. Every valuation combines a monthly interest rate published by the IRS with a prescribed mortality table. The Section 7520 rate for January 2026 is 4.6%, drawn from 120% of the federal midterm rate and rounded to the nearest two-tenths of a percent.¹ Getting the inputs right matters: a substantial valuation understatement triggers a 20% accuracy-related penalty under Section 6662.²

What Section 7520 Actually Values

Section 7520 applies whenever the Internal Revenue Code requires the present value of a partial interest in property. Estate and gift tax situations are the most common setting, but the same rules govern income tax charitable deductions when a donor gives a split interest to charity.³ The statute covers four categories:

Annuities, meaning the right to a fixed payment for a set period or for someone’s life.
Life estates and term interests, meaning the right to use property or take its income for a life or a fixed number of years.
Remainder interests, meaning the right to receive property after a preceding interest ends.
Reversionary interests, meaning the transferor’s right to get the property back after a preceding interest terminates.

These pieces show up throughout estate planning. A Grantor Retained Annuity Trust splits an annuity to the grantor from a remainder to beneficiaries. A Charitable Remainder Trust splits an annuity or unitrust to a non-charitable beneficiary from a remainder to charity. A Qualified Personal Residence Trust splits a term interest in a home from a remainder. In each vehicle, Section 7520 dictates how the pieces are valued.⁴

Unitrust interests work slightly differently from fixed annuities. A unitrust pays a fixed percentage of the trust’s fair market value, recomputed each year, so the payment fluctuates with the trust. The IRS requires an adjusted payout rate that accounts for payment timing and frequency, drawn from tables in Publication 1458 and combined with the Section 7520 rate to produce a valuation factor.⁵

The Two Inputs: Interest Rate and Mortality Table

Every Section 7520 valuation has two moving parts. The interest rate reflects what the IRS assumes property will earn over time. The mortality table predicts how long a measuring life will last.

The Monthly Interest Rate

The Section 7520 rate equals 120% of the federal midterm rate under Section 1274(d)(1), compounded annually, for the month of the transfer, rounded to the nearest two-tenths of one percent.⁶ The IRS publishes it monthly in the Internal Revenue Bulletin, typically through a Revenue Ruling.⁷

The 2026 rates published so far show how the rate can shift month to month:

January 2026: 4.6% (unrounded 4.57%)
February 2026: 4.6% (unrounded 4.63%)
March 2026: 4.8% (unrounded 4.72%)
April 2026: 4.6% (unrounded 4.59%)

A two-tenths-of-a-percent difference sounds small. On a multimillion-dollar trust funded for a long term, it can change the taxable value of a gift by hundreds of thousands of dollars.¹

The Mortality Table

When a valuation depends on someone’s life expectancy, Table 2010CM is the required mortality table. It took effect for valuation dates on or after June 1, 2023, replacing Table 2000CM, and the statute requires the IRS to update the tables at least once every ten years.⁴ The current single-life, two-life, and term-certain factors appear in IRS Publications 1457, 1458, and 1459.⁸

The mortality component is fixed by law. You cannot argue that a healthy 70-year-old should be valued using a longer life expectancy than the table provides. The tables assume average mortality for someone of that age, and that assumption is mandatory in nearly all circumstances.

Which Month’s Rate Applies

The default valuation date is the date of the transfer. For gifts, that is the date the gift is completed. For estates, it is the date of death, unless the executor elects the alternate valuation date under Section 2032.⁹ Whichever month contains the valuation date supplies the rate.

For charitable contributions (income, estate, or gift tax), the taxpayer may elect to use the Section 7520 rate from either of the two months preceding the transfer month.⁴ For gift tax purposes, the election is made by attaching a statement to the gift tax return identifying the chosen month, and it can be made or revoked on an amended return within the regulatory window.¹⁰ Parallel rules apply for income tax charitable deductions.³ Which of the three eligible months produces the best answer depends on the interest being valued.

How the Rate Direction Cuts

The Section 7520 rate is not neutral. Whether a higher or lower rate helps you depends on which interest you want to minimize or maximize.

A lower rate helps GRATs and Charitable Lead Annuity Trusts. In a GRAT, the IRS assumes trust assets will earn only the Section 7520 rate; any actual return above that passes to the remainder beneficiaries free of gift tax. A lower assumed rate is an easier hurdle and also lowers the taxable value of the remainder. Charitable Lead Annuity Trusts follow the same logic: a lower rate raises the present value of the lead annuity going to charity and increases the charitable deduction.

A higher rate helps Charitable Remainder Trusts and Qualified Personal Residence Trusts. For a Charitable Remainder Trust, a higher rate raises the present value of the charity’s remainder, which enlarges the donor’s income tax deduction. For a Qualified Personal Residence Trust, a higher rate reduces the taxable value of the remainder gift to family, because the retained term interest is worth more when discounted at a higher rate.

The three-month election matters most here. If a charitable transfer is going into a Charitable Remainder Trust and the rate was higher two months ago than it is today, electing that earlier month can meaningfully enlarge the deduction.

When the Standard Tables Cannot Be Used

Certain circumstances push the transaction outside the standard tables.

Terminal Illness

If the individual whose life measures the interest is terminally ill at the time of the transfer, the standard mortality table cannot be used. Someone is considered terminally ill when there is at least a 50% probability of death within one year, and the interest must be valued based on the person’s actual health rather than average mortality.¹¹

There is a safe harbor built into the regulations. If the individual survives 18 months or longer after the transfer, they are presumed not to have been terminally ill at the time, and that presumption can only be overcome with clear and convincing evidence.¹² An IRS challenge premised on alleged terminal illness becomes much harder to sustain once the measuring life has been alive that long.

Restricted Interests and the Exhaustion Test

The standard tables are also set aside when the terms of the instrument make it highly unlikely the beneficiary will actually receive the projected payments. The most familiar example is the exhaustion test for Charitable Remainder Trusts: if there is a greater than 5% probability that the trust will run out of money before the charitable remainder beneficiary receives anything, the standard tables cannot be used and the trust fails to qualify. That constraint sets a practical ceiling on aggressive combinations of high payout rate and long term.

More broadly, when a beneficial interest is so restricted or contingent that the standard assumptions about income and mortality cannot reasonably apply, fair market value must be determined from all facts and circumstances rather than the prescribed tables.

Penalties for Getting It Wrong

Section 6662 imposes a 20% accuracy-related penalty on any underpayment attributable to a substantial estate or gift tax valuation understatement. An understatement is “substantial” when the value claimed on the return is 65% or less of what the IRS determines is correct, and no penalty applies unless the resulting underpayment exceeds $5,000.² For gross valuation misstatements, the penalty doubles to 40%.

Relief is available on a showing of reasonable cause and good faith. The IRS weighs the complexity of the valuation issue, the steps the taxpayer took to determine the correct value, and reliance on a competent advisor who had all relevant information.¹³ Documenting reliance on a qualified professional who used the current Section 7520 rate and the current mortality tables is the strongest defense.

1
Internal Revenue Service. Section 7520 Interest Rates
2
Office of the Law Revision Counsel. 26 US Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
3
eCFR. 26 CFR 1.7520-2 – Valuation of Charitable Interests
4
Office of the Law Revision Counsel. 26 US Code 7520 – Valuation Tables
5
Internal Revenue Service. Publication 1458 (Rev. 6-2023) Actuarial Valuations Version 4B
6
eCFR. 26 CFR 25.7520-1 – Valuation of Annuities, Unitrust Interests, Interests for Life or Terms of Years, and Remainder or Reversionary Interests
7
Internal Revenue Service. 26 CFR 20.7520-1 – Valuation of Annuities, Unitrust Interests, Interests for Life or Terms of Years, and Remainder or Reversionary Interests
8
Internal Revenue Service. Actuarial Tables
9
eCFR. 26 CFR 20.7520-1 – Valuation of Annuities, Unitrust Interests, Interests for Life or Terms of Years, and Remainder or Reversionary Interests
10
eCFR. 26 CFR 25.7520-2 – Valuation of Charitable Interests
11
Internal Revenue Service. Private Letter Ruling 201928003
12
eCFR. 26 CFR 20.7520-3 – Limitation on the Application of Section 7520
13
Internal Revenue Service. Penalty Relief for Reasonable Cause