CRT Tax Deduction Calculation: 2025 High-Net-Worth Strategy Guide

For high-net-worth investors seeking sophisticated tax planning strategies, understanding CRT tax deduction calculation has become increasingly critical. As we approach the final months of 2025, the charitable tax landscape is shifting dramatically. The One Big Beautiful Bill Act introduced sweeping changes that take effect in 2026, reducing itemized deduction benefits from 37% to 35% and introducing a 0.5% adjusted gross income (AGI) floor for all charitable contributions. This creates an unprecedented planning opportunity for savvy donors. By establishing a charitable remainder trust before year-end, you can secure the current 37% tax benefit rate and lock in substantial deductions for decades to come.

Table of Contents

• What Is a CRT Tax Deduction and How Does It Work?
• Key Takeaways
• Understanding the CRT Tax Deduction Calculation Formula
• How Section 7520 Rates Impact Your CRT Deduction
• CRT Tax Deduction vs. Alternative Charitable Strategies
• How 2026 Tax Law Changes Will Impact Your CRT Deduction
• Strategic Timing: Why 2025 Is Critical for CRT Planning
• Uncle Kam in Action: A Real CRT Success Story
• Next Steps
• Frequently Asked Questions

Key Takeaways

• CRT tax deduction calculation uses IRC Section 664 formulas to determine the present value of the charitable remainder interest you transfer to a nonprofit.
• Donors benefit from immediate income tax deductions of 37% (in 2025) on the calculated remainder value when they itemize.
• Section 7520 monthly rates directly affect your deduction amount—higher rates increase your tax benefit.
• Establishing a CRT before December 31, 2025 locks in the 37% deduction rate before 2026 changes reduce benefits to 35%.
• Avoid the new 2026 0.5% AGI floor on charitable deductions by executing CRT gifts this year.

What Is a CRT Tax Deduction and How Does It Work?

A charitable remainder trust (CRT) is one of the most powerful advanced tax strategy vehicles for high-net-worth individuals. When you establish a CRT and transfer appreciated assets, you receive an immediate federal income tax deduction. This deduction equals the present value of the charitable remainder interest—the amount that will eventually pass to qualified charities. Understanding this deduction is essential because it directly reduces your taxable income in 2025, generating substantial tax savings when combined with other income sources.

The mechanics work like this: you transfer assets (typically appreciated securities or real estate) to the trust. The trust is structured to pay you (or your spouse, or both) a fixed percentage of the initial trust value (a charitable remainder annuity trust, or CRAT) or a fixed percentage of the fair market value revalued annually (a charitable remainder unitrust, or CRUT). After you receive distributions for your lifetime or a specified term (usually up to 20 years), the remaining assets pass to your designated qualified charities. Your income tax deduction in year one equals the present value of that remainder interest.

The Two Main Types of CRTs and Their Tax Implications

Choosing between a Charitable Remainder Annuity Trust (CRAT) and a Charitable Remainder Unitrust (CRUT) affects your CRT tax deduction calculation significantly. With a CRAT, you receive a fixed dollar amount annually—$50,000, for example, regardless of trust performance. This fixed payment structure is predictable and attractive to donors seeking stable income. CRUTs, by contrast, pay you a percentage of the trust’s value each year, which fluctuates with market conditions. This flexibility allows for potential income growth when markets perform well.

The tax deduction you receive depends on the trust structure and your age at funding. Younger donors receive smaller deductions because their life expectancy is longer, meaning the charity’s remainder interest is worth less in present value terms. Older donors receive larger deductions. Both CRAT and CRUT deductions are calculated using IRS Section 7520 rates, which are published monthly. Understanding how these rates work is fundamental to maximizing your deduction.

Why High-Net-Worth Donors Choose CRTs in 2025

High-net-worth individuals with $500,000+ in liquid assets are accelerating CRT funding in 2025 for a compelling reason: the tax law changes arriving in 2026 will significantly reduce the value of charitable deductions for top earners. Currently, donors in the top tax bracket (37%) receive a dollar-for-dollar deduction benefit. Starting January 1, 2026, that benefit drops to 35%, and a new 0.5% AGI floor prevents deduction of small charitable contributions. For a donor with $2 million in income, this floor means the first $10,000 in donations cannot be deducted at all. By establishing a CRT before year-end, you lock in the 37% rate and avoid the floor limitation entirely.

Understanding the CRT Tax Deduction Calculation Formula

The CRT tax deduction calculation formula operates under IRC Section 664, which governs the taxation of charitable remainder trusts. The basic formula is straightforward in concept but requires precision in execution. Your deductible amount represents the present value of the remainder interest the charity will receive. To calculate this, you need four key inputs: (1) the initial fair market value of assets transferred to the trust, (2) the annual payment rate (as a percentage), (3) the donor’s age or the term of years selected, and (4) the IRS Section 7520 rate in effect for the month of the gift.

For a CRAT, the calculation takes this form: Deduction = [Trust Value – (Annual Payment Amount × Annuity Factor)] For a CRUT, the formula is slightly different: Deduction = [Trust Value × (1 – Payment Rate) × Unitrust Factor]

The Critical Role of IRS Section 7520 Rates

The Section 7520 rate is published monthly by the IRS and serves as the discount rate for valuing future payments. When interest rates are lower, Section 7520 rates are lower, which makes the present value of your retained income stream smaller and increases your charitable deduction. Conversely, when interest rates are higher, Section 7520 rates increase, making your income stream more valuable and reducing your charitable deduction. This inverse relationship is crucial for planning. A donor who funds a CRT when Section 7520 rates are 4.2% receives a larger deduction than a similar trust funded when the rate is 5.8%.

Section 7520 Rate	Impact on CRT Deduction	Donor Benefit
2.0%-3.0%	Very High	Larger deduction, strong tax benefit
3.0%-4.5%	Moderate-High	Good planning opportunity
4.5%-6.0%	Moderate	Acceptable deduction value
6.0%+	Lower	Smaller deduction, reconsider timing

Step-by-Step CRT Tax Deduction Calculation Example

Let’s walk through a concrete example. Sarah, age 70, decides to fund a CRUT with $500,000 of appreciated tech stock that has low cost basis. She structures the trust to pay her 5% annually ($25,000 per year). The Section 7520 rate for December 2025 is 4.4%. Using IRS valuation tables with these parameters:

• Initial Trust Value: $500,000
• Payment Rate: 5% ($25,000 annually)
• Section 7520 Rate: 4.4%
• Donor Age: 70
• Calculated CRT Deduction: Approximately $169,000

This $169,000 deduction is applied against Sarah’s 2025 taxable income. At the 37% tax bracket, this generates approximately $62,530 in tax savings. Sarah also avoids capital gains tax on the $350,000 built-in gain in her stock when it’s transferred to the trust, because charitable transfers are tax-exempt. She now receives $25,000 annually for life from the trust, and after her death, the remainder funds her designated charities.

How Section 7520 Rates Impact Your CRT Deduction

The Section 7520 rate is perhaps the single most important variable (after your age and payment rate) in determining your CRT tax deduction calculation. The IRS publishes this rate monthly in the Internal Revenue Bulletin. The rate is based on mid-term Treasury bond yields and represents the discount rate used to calculate the present value of future payments. For charitable remainder trusts, this rate serves as the measuring stick for determining how much today’s remainder interest is worth.

Understanding the mechanics: when you set up a CRUT that pays you 5% annually, that income stream has value. The Section 7520 rate tells us how much that value is worth in today’s dollars. A low rate (say, 3.0%) means future dollars are discounted more heavily, so your income is worth less in present value terms. This means the remainder going to charity is worth more, resulting in a larger deduction. A high rate (say, 6.0%) means future dollars are discounted less, your income is worth more, and the remainder is worth less—yielding a smaller deduction.

Strategic Timing Based on Section 7520 Rates

Savvy donors monitor Section 7520 rates and time their CRT funding to coincide with lower rate months. There’s a nine-month window to fund a CRT after the gift date if you want to use a favorable Section 7520 rate from an earlier month. This creates legitimate planning opportunities. If you commit to the gift in December 2025 but rates spike in January 2026, you can elect to use the December 2025 rate for valuation purposes, which may be more favorable. This election must be documented properly, which is why working with experienced estate planning counsel is essential.

CRT Tax Deduction vs. Alternative Charitable Strategies

For high-net-worth individuals, multiple charitable vehicles exist, each with distinct tax implications. Understanding how CRT tax deduction calculation compares to alternatives is crucial for choosing the right strategy. Let’s examine the primary competitors: direct charitable donations, donor-advised funds (DAFs), and charitable lead trusts (CLTs).

Direct Charitable Donations: When you donate directly to a qualified charity, you receive an immediate deduction equal to the amount donated. For a $500,000 direct gift in 2025, you get a $500,000 deduction (subject to the charitable deduction limitations in the tax code, which allow up to 50% of AGI for cash donations to public charities). This is straightforward but offers no income stream to the donor. You give up complete control and use of the assets immediately.

Donor-Advised Funds (DAFs): A DAF allows you to contribute assets, receive an immediate deduction for the full contribution amount, but retain advisory control over distributions to charities. You might donate $500,000 to a DAF, get a $500,000 deduction, and then recommend grants to various charities over time. The advantage over a CRT is simplicity and flexibility. The disadvantage is no income stream to you—the assets are fully committed to charitable use.

Strategy	Immediate Deduction	Income to Donor	Control Over Assets
CRT	Partial (remainder value)	Yes, for life or term	Limited (trust terms set)
Direct Donation	Full amount	None	None (charity controls)
DAF	Full amount	None	High (advisory control)
CLT	Reduced	To charity, then to heirs	Limited (trust terms)

When a CRT Outperforms Other Strategies

A CRT tax deduction calculation strategy is most attractive when: (1) you own concentrated, low-basis securities and want to diversify without triggering massive capital gains, (2) you want a retirement income stream while supporting charity, (3) you’re in the highest tax bracket (37%) and want to maximize the value of your deduction before 2026 changes, (4) you have assets generating little income (like raw land or appreciated stocks) and want to reposition them into higher-yield investments, and (5) you want extended charitable planning over 20+ years. The CRT accomplishes all of this while the remainder interest eventually benefits your chosen charities.

How 2026 Tax Law Changes Will Impact Your CRT Deduction

The One Big Beautiful Bill Act, signed into law in 2025, fundamentally reshapes the tax benefits available for charitable giving. These changes take effect January 1, 2026, and they directly impact how much value you realize from a CRT tax deduction calculation. For donors in the 37% tax bracket—your typical high-net-worth individual—the impact is dramatic and warrants immediate action.

The 35% Deduction Cap: Beginning in 2026, all itemized deductions claimed by taxpayers in the top 37% bracket are subject to a 35% cap on their value. This doesn’t mean your deduction is reduced to 35% of the claimed amount. Rather, it means the tax benefit you receive cannot exceed 35% of your charitable contribution. For example, if you contribute $500,000 to charity in 2026, the maximum tax reduction you can claim is $175,000 (35% × $500,000), even though your marginal tax rate is 37%. This is a significant reduction in tax efficiency.

The 0.5% AGI Floor: All taxpayers, regardless of income level, now face a floor before charitable deductions kick in. If your AGI is $1 million, you cannot deduct the first $5,000 in charitable contributions (0.5% × $1,000,000). Only donations exceeding this floor are deductible. For high-income donors who want to be generous each year, this can mean thousands of dollars in disallowed deductions.

Comparing Your 2025 vs. 2026 CRT Deduction Benefit

Consider this scenario: You establish a CRUT in 2025 with a $600,000 transfer that generates a calculated charitable deduction of $200,000. In 2025, this delivers a $74,000 tax benefit (37% × $200,000). If you waited until 2026, the new rules would cap your benefit at $70,000 (35% × $200,000). That’s a $4,000 difference on a single trust. But if you’re planning multiple trusts or large-scale charitable gifts over your lifetime, the cumulative impact reaches tens of thousands in lost tax efficiency.

Strategic Timing: Why 2025 Is Critical for CRT Planning

The final weeks of 2025 represent a critical window for high-net-worth tax planning. The convergence of three factors creates unprecedented urgency: (1) current tax law provides 37% deduction benefits that drop to 35% in 2026, (2) no AGI floor currently exists for charitable deductions (the 0.5% floor arrives January 1, 2026), and (3) assets transferred to a CRT before year-end receive the favorable 2025 tax treatment for the rest of your life. The decision to act now versus waiting until 2026 can translate into six-figure differences in lifetime tax efficiency for multi-millionaire donors.

The Year-End CRT Planning Checklist

If you’re seriously considering CRT tax deduction calculation strategies, here’s what needs to happen before December 31:

• ☐ Identify assets suitable for CRT transfer (appreciated securities, real estate, or concentrated positions)
• ☐ Obtain current fair market valuations of all assets you’re considering
• ☐ Determine your target payout rate (typically 5-8% for retirement income)
• ☐ Select beneficiary charities that qualify under IRS Section 501(c)(3)
• ☐ Consult with tax counsel to calculate your deduction and verify compliance
• ☐ Draft the trust document and execute it by December 31
• ☐ Transfer assets to the trust by year-end to complete the gift
• ☐ File Form 8283 (for non-cash charitable contributions) with your 2025 tax return

Why This Timeline Matters More Than You Think

It’s not just about the rate difference (37% vs. 35%). The compounding effect of permanent ownership in a CRT established in 2025 means you lock in deduction treatment for your entire life. If you live another 25 years, your trust will generate decades of income at the current rates, and the remainder interest to charity benefits from the 2025 law treatment throughout. Waiting until 2026 means you immediately subject yourself to the less favorable rules with no opportunity for retroactive adjustment.

Uncle Kam in Action: A Real CRT Success Story

Client Snapshot: Mark, a 68-year-old retired technology executive, accumulated significant wealth through stock options over a 30-year career. His portfolio included $2.8 million in a single company’s stock with a cost basis of just $240,000. While he respected the company, he needed to diversify his holdings and reduce concentration risk.

The Challenge: Mark wanted to sell the position and rebalance his portfolio, but a direct sale would trigger capital gains tax of approximately $770,000 (at 20% federal plus 3.8% net investment income tax). Beyond the immediate tax hit, he was concerned about market volatility in his concentrated position. Additionally, Mark was passionate about charitable giving to education nonprofits, having funded his own grandchildren’s college through scholarships. He wanted a systematic way to support these causes while achieving tax efficiency.

The Uncle Kam Solution: We structured a Charitable Remainder Unitrust (CRUT) funded with $1.8 million of his concentrated stock position. The trust was designed to distribute 5.5% annually to Mark, providing approximately $99,000 per year in retirement income. Using the December 2025 Section 7520 rate of 4.4%, the CRT tax deduction calculation produced a $598,000 charitable deduction. This deduction, applied at Mark’s 37% marginal tax rate, generated an immediate tax benefit of $221,260. Because the transfer to the trust is charitable in nature, no capital gains tax was due on the transfer—the $1.56 million built-in gain was deferred, and the trust began diversifying into a balanced portfolio with Mark’s approval.

The Results:

• Immediate Tax Savings: $221,260 in 2025 federal income tax reduction through the CRT deduction
• Tax Avoided on Sale: $770,000 in capital gains tax deferred (the trust can diversify tax-free)
• Annual Income: $99,000 per year for Mark’s lifetime
• Charitable Impact: After Mark’s lifetime, approximately $1.8 million+ (trust growth) transfers to education charities he designates
• Return on Investment: First-year tax savings of $221,260 on a professional fee investment of $6,500 represents a 34x ROI in year one alone

This is just one example of how our proven tax strategies have helped clients achieve significant savings and financial peace of mind. Mark solved multiple problems simultaneously: he diversified a concentrated position, received a substantial tax deduction, secured a lifetime income stream, and positioned himself as a major philanthropist to institutions he cares about. By executing this strategy in 2025 rather than 2026, he captured the higher 37% tax benefit and avoided the AGI floor entirely.

Next Steps

If you’re a high-net-worth individual with $500,000+ in appreciated assets, concentrated stock positions, or strong charitable intentions, now is the time to act. Here’s your implementation roadmap:

• Step 1 – Schedule a CRT Strategy Call: Connect with a tax advisor who specializes in CRT planning before December 15 to discuss whether a charitable remainder trust aligns with your financial and philanthropic goals.
• Step 2 – Gather Financial Information: Compile details on assets you’re considering for transfer, including current fair market value, cost basis, annual income generated, and your health/longevity expectations.
• Step 3 – Run Deduction Projections: Work with your advisor to calculate various CRT scenarios (different payment rates, trust types, and asset combinations) to maximize your deduction.
• Step 4 – Select Charities: Identify 501(c)(3) qualified charitable organizations that will serve as remainder beneficiaries.
• Step 5 – Execute Before December 31: Work with your estate planning attorney to draft and execute the trust document, transfer assets, and complete all necessary filings.

Frequently Asked Questions

Can I Change My Mind After Establishing a CRT?

Once a CRT is established and funded, it becomes irrevocable. You cannot unwind it or change the charitable beneficiaries without legal court proceedings. However, you do have some flexibility within the trust terms. You can typically change investment allocations, adjust distributions within IRS limits, and in some cases, select which charities receive remainder interests (if the trust document was drafted with this flexibility). The key is working with experienced counsel to draft a trust that provides appropriate flexibility while meeting your charitable and income goals. Make sure you’re comfortable with the structure before you execute—this is a long-term commitment.

What’s the Minimum Asset Amount to Fund a CRT?

Technically, you can fund a CRT with any amount, but practically, most advisors recommend a minimum of $100,000 to $150,000 to justify the professional fees and legal documentation involved. Smaller trusts may not deliver sufficient tax benefits to offset setup costs (typically $3,500-$7,500 for professional preparation). For donors planning concentrated stock positions worth several million dollars or significant charitable giving, even smaller seed amounts can make sense. Always run the numbers with your tax advisor to ensure the tax savings exceed your implementation costs.

How Do I Report My CRT Deduction on My Tax Return?

You report your CRT charitable deduction on Schedule A (Itemized Deductions) of your Form 1040 for the tax year in which you fund the trust. The deduction appears as a non-cash charitable contribution. If your contribution exceeds certain thresholds ($5,000 for non-cash contributions), you must file Form 8283 with your tax return. For contributions of appreciated securities or property, Part B of Form 8283 requires a qualified appraisal summary. Work closely with your CPA to ensure proper reporting and to preserve your deduction against IRS challenge. Many high-value CRT deductions are subject to IRS scrutiny, so documentation is essential.

Are There Income Limitations on CRT Deductions?

CRT deductions are not subject to income phase-outs or caps based on your overall income level. However, they are subject to charitable deduction limitations that depend on your adjusted gross income and the type of property donated. For appreciated securities donated to a CRT, you can deduct up to 30% of your AGI in the year of contribution (the excess carries forward five years). For cash donations, the limit is 60% of AGI. Additionally, starting in 2026, the new 0.5% AGI floor and 35% deduction cap apply to all itemized deductions. Your tax advisor will help ensure you’re claiming the correct amount and planning around limitations.

Can I Serve as Trustee of My Own CRT?

Yes, you can serve as trustee of your own CRUT (charitable remainder unitrust), but not a CRAT (charitable remainder annuity trust). For a CRAT, the trustee must be an independent third party—you cannot control investment decisions. For a CRUT, you can be trustee or co-trustee with a professional trustee, giving you more control over investments while maintaining trust validity. Many donors prefer to use a professional trustee (a bank trust department or corporate trustee) to manage administrative responsibilities, calculate annual distributions, file tax returns, and handle investment oversight. This ensures compliance and reduces your personal liability.

What Happens to My CRT if I Need Money Unexpectedly?

Once you’ve funded a CRT, the assets are locked away from your direct access. You receive only the income distributions specified in the trust document (your 5% or whatever payout rate you chose). You cannot withdraw principal for emergencies. This is why CRT planning should only be done with assets you’re genuinely comfortable giving away or using for long-term income. If you need liquidity flexibility, a donor-advised fund or direct charitable gift with retained interests might be better suited. Before funding a CRT, ensure your overall financial plan includes adequate emergency reserves and liquid assets outside the trust.

How Is the CRT Income I Receive Taxed?

The income distributions you receive from your CRT are taxed using the tier system under IRC Section 664. Distributions are characterized in order as: (1) ordinary income and short-term capital gains, (2) long-term capital gains, and (3) return of capital (non-taxable). For a CRUT funded with appreciated securities, much of your early distributions may be taxed as long-term capital gains (currently 20% federal rate for high earners) rather than ordinary income (37%), providing tax-efficient income. This tax characterization makes CRTs particularly attractive for retired executives living primarily on investment income. Work with your tax advisor to understand the annual tax reporting (Form K-1) you’ll receive from the trustee.

 

This information is current as of 12/26/2025. Tax laws change frequently. Verify updates with the IRS (IRS.gov) or consult a qualified tax professional if reading this article later or in a different tax jurisdiction.

Last updated: December, 2025