To calculate your charitable gift annuity tax deduction, subtract the present value of the annuity payments you’re expected to receive over your lifetime from the amount you transferred to the charity. The leftover figure, called the remainder interest, is what you deduct. Three variables drive the math: your age at the time of the gift, the annuity payout rate, and the IRS Section 7520 interest rate in effect when you make the contribution.
Why You Don’t Deduct the Full Gift
A charitable gift annuity is a contract. You transfer cash or property irrevocably, and the charity promises to pay you a fixed dollar amount every year for the rest of your life. Because part of your transfer benefits you (the income stream) and part benefits the charity (whatever remains after payments stop), the IRS treats it as a split-interest gift. Only the charity’s share qualifies as a charitable deduction.
The IRS calculates that share by figuring out how much your future annuity payments are worth today, then subtracting that number from the total gift. A 70-year-old making a $100,000 gift will have a smaller expected payment stream in present-value terms than a 50-year-old, simply because the older donor is expected to collect payments for fewer years. More of the gift is treated as going to the charity, producing a larger deduction.
The Three Numbers That Drive the Deduction
Your Age
The IRS uses mortality tables to estimate how many years of payments you’ll receive. Valuations rely on Table 2010CM, published in IRS Publication 1457, which has been the required table since June 1, 2023.1Internal Revenue Service. Actuarial Tables The older you are, the fewer payments the IRS expects you to collect, which shrinks the present value of your income stream and increases your deduction.
The Annuity Payout Rate
The payout rate determines how much you receive each year as a percentage of your original gift. Most charities follow suggested maximum rates published by the American Council on Gift Annuities, which are designed so that roughly 50% of the original contribution remains for the charity after all payments are made. Under the rate schedule effective January 1, 2024, a 65-year-old receives a suggested maximum rate of 5.7%, a 75-year-old receives 7.0%, and someone age 90 or older receives 10.1%. A higher payout rate means more money flows back to you over your lifetime, leaving less for the charity and shrinking your deduction.
The Section 7520 Interest Rate
The Section 7520 rate is the discount rate the IRS uses to convert your future annuity payments into a single present-value figure. It equals 120% of the federal midterm rate, compounded annually and rounded to the nearest two-tenths of one percent.2Office of the Law Revision Counsel. 26 USC 7520 – Valuation Tables The IRS publishes a new rate each month. For early 2026, the rate has ranged from 4.6% to 4.8%.3Internal Revenue Service. Section 7520 Interest Rates
A higher Section 7520 rate works in your favor. When the discount rate is higher, the present value of your future annuity payments shrinks, which makes the remainder interest larger and increases your deduction. You also get to pick the most favorable rate from a three-month window: you can use the rate from the month you make the gift or the rate from either of the two preceding months.2Office of the Law Revision Counsel. 26 USC 7520 – Valuation Tables If you’re giving near a month boundary, check all three rates.
Working Through an Example
The concept is straightforward even though the actuarial arithmetic is complex enough that the issuing charity or a planned-giving calculator handles it in practice. Here is what happens under the hood for a $100,000 cash gift by a 65-year-old at a 5.7% payout rate:
- Determine the annual annuity payment. $100,000 multiplied by 5.7% equals $5,700 per year.
- Calculate the present value of those payments over your statistical life expectancy, using the Section 7520 rate as the discount factor and the Table 2010CM mortality data from IRS Publication 1457. If the present value works out to $62,000, that represents the IRS’s estimate of what your income stream is worth today.4Internal Revenue Service. Publication 1457 – Actuarial Valuations
- Subtract the present value of the annuity payments from the total gift. $100,000 minus $62,000 equals a $38,000 charitable deduction.
You don’t need to run these numbers yourself. The charity issuing your annuity will provide a substantiation letter showing the deductible amount and the present value of the annuity. But understanding the inputs lets you see why timing, age, and the interest rate environment all matter when planning a gift.
Adjustments for Two-Life and Deferred Annuities
If you name a second annuitant, the charity must pay until both of you have died. Two-life rates are lower than single-life rates to account for the longer expected payment period. The ACGA suggested rate for two 65-year-olds is 5.0%, compared with 5.7% for a single 65-year-old. Even with the lower rate, the present value of payments over two lifetimes is typically higher than over one, which reduces the remainder interest and produces a smaller deduction. The younger the second annuitant, the more pronounced the effect.
A deferred gift annuity pushes the start of payments into the future, sometimes by a decade or more. During the deferral period, no payments go out, so the present value of the annuity stream is smaller and a larger share of the gift is treated as a charitable remainder. The result is a bigger upfront deduction and a higher payment rate when distributions eventually begin.
AGI Caps and the Five-Year Carryforward
The deduction you calculate isn’t necessarily what you claim in a single tax year. Annual caps apply based on your adjusted gross income and the type of property you contributed. If you funded the annuity with cash, the deduction in any single year cannot exceed 60% of your AGI.5Internal Revenue Service. Charitable Contribution Deductions If you used long-term appreciated property, the cap drops to 30% of AGI.6Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
When your deduction exceeds the applicable cap, the excess carries forward for up to five additional tax years.6Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts Any unused deduction that hasn’t been claimed within the five-year window is lost permanently.
Funding with Appreciated Property
Funding a gift annuity with long-term appreciated stock or real estate triggers bargain-sale treatment. The IRS treats the transaction as part charitable gift and part sale, and your cost basis in the property gets split between the two. Only a fraction of your original basis offsets the annuity portion, so you’ll recognize capital gain on the difference between the annuity’s present value and the allocated basis. For a nonassignable annuity where you’re the annuitant, the gain is spread ratably over your life expectancy rather than hitting in one year.7eCFR. 26 CFR 1.1011-2 – Bargain Sale to a Charitable Organization The deduction itself is still calculated as the remainder interest; the bargain-sale rules affect how the transfer is taxed, not the size of the deduction.
Substantiation and Forms
Claiming the deduction requires itemizing on Schedule A of Form 1040.8Internal Revenue Service. Topic No. 506, Charitable Contributions The limited above-the-line cash deduction of up to $1,000 ($2,000 for joint filers) that begins in tax year 2026 is unlikely to cover the remainder interest from a split-interest gift. If you don’t itemize, the gift annuity deduction is effectively unavailable.
If any portion of your contribution was noncash property and the deduction for that portion exceeds $500, you must file Form 8283 with your return. When the claimed deduction for the noncash property exceeds $5,000, a qualified appraisal is generally required and you must complete Section B of Form 8283.9Internal Revenue Service. Instructions for Form 8283 – Noncash Charitable Contributions Publicly traded securities are an exception to the appraisal requirement. The charity must also provide a written acknowledgment showing the amount transferred, a description of the annuity payments, and a good-faith estimate of the deductible amount. Keep this letter. If you funded the annuity with property and fail to file Form 8283, the IRS can disallow the entire deduction.
One Exception: IRA-Funded Gift Annuities
If you’re 70½ or older and fund a gift annuity using a one-time qualified charitable distribution from your IRA (up to $55,000 in 2026, within the overall $111,000 annual QCD cap), the calculation above doesn’t apply.10Internal Revenue Service. Retirement Topics – IRA Contribution Limits Because the IRA funds were never taxed going in, you don’t get a charitable deduction for the transfer at all. The benefit comes from excluding the distribution from gross income, not from a Schedule A deduction.