2026 Charitable Remainder Trust Taxes: Complete Strategy Guide for High-Net-Worth Donors

For the 2026 tax year, understanding charitable remainder trust taxes is critical for high-net-worth individuals seeking to maximize charitable impact while optimizing tax outcomes. These powerful wealth transfer vehicles, governed by IRC Section 664, combine income, estate, and charitable tax benefits in ways that few other strategies can match. Under the One Big Beautiful Bill Act (OBBBA), which permanently extended tax provisions and raised deduction caps, your charitable remainder trust strategy requires updated planning.

Table of Contents

• Key Takeaways
• What Is a Charitable Remainder Trust and How Does It Work?
• How Do Charitable Remainder Trust Taxes Work Under IRC Section 664?
• What Are the 2026 Charitable Remainder Trust Deduction Limits and Phase-Outs?
• How Can You Optimize Income Timing with Charitable Remainder Trust Taxes in 2026?
• Which Charitable Remainder Trust Type Offers the Best Tax Benefits?
• How Has the One Big Beautiful Bill Act Changed Charitable Remainder Trust Tax Planning?
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions
• Related Resources

Key Takeaways

• Charitable remainder trusts allow donors to receive income while generating immediate charitable deductions for the 2026 tax year.
• IRC Section 664 governs CRT taxation, treating charitable trusts as separate tax entities with unique ordinary income and capital gains treatment.
• The 2026 deduction for charitable contributions phases out for high-income taxpayers earning above $500,000, requiring strategic income timing.
• OBBBA’s permanent tax provisions and expanded charitable deduction opportunities create new planning windows for 2026 and beyond.
• New York’s Governor Hochul’s charitable proposal protects deductibility even if federal status changes, offering additional state-level benefits.

What Is a Charitable Remainder Trust and How Does It Work?

A charitable remainder trust is one of the most sophisticated wealth transfer vehicles available to high-net-worth individuals. The CRT strategy splits your donation into two components: a retained income interest for yourself and beneficiaries, plus a remainder interest for qualified charities. This dual structure creates immediate tax benefits while allowing you to maintain income from your donated assets.

The beauty of charitable remainder trust taxes lies in their flexibility. You can fund a CRT with appreciated assets—stocks, real estate, or business interests—and avoid the capital gains taxes that would normally apply if you sold those assets. Instead, the trust holds the assets and distributes income to you tax-efficiently. Meanwhile, the remainder amount passing to charity generates a significant charitable deduction you claim in the year you establish the trust.

For the 2026 tax year, this strategy is particularly valuable given OBBBA’s expansion of charitable deduction opportunities and permanent tax rate provisions. High-net-worth individuals with $500,000+ in annual income should consider how CRTs align with their broader tax planning, especially when combined with Roth conversions and strategic charitable giving timing.

How CRTs Create Immediate Deductions

When you establish a CRT, the IRS immediately values your charitable remainder interest using IRS mortality tables and federal discount rates published in 2026 regulations. This remainder value becomes your charitable deduction in the year you fund the trust. For example, if you fund a $500,000 CRT retaining 5% annual income for your lifetime, the remainder portion (available to charity after your life expectancy) might be valued at approximately $250,000, generating a $250,000 charitable deduction on your 2026 tax return.

This immediate deduction is claimed on Form 1040 Schedule A (if itemizing) and reduces your adjusted gross income (AGI) significantly. For 2026, the standard deduction for married filing jointly is $46,700. High-net-worth donors typically itemize deductions, which is why the CRT charitable deduction is so valuable.

The Income Flow Mechanism

After funding, your CRT generates income from its invested assets. The trustee distributes a portion of this income to you annually. The amount depends on the CRT type you select: a charitable remainder annuity trust (CRAT) pays a fixed dollar amount annually, while a charitable remainder unitrust (CRUT) pays a percentage of the trust’s value recalculated yearly.

The income distributed carries favorable tax character. Capital gains earned inside the trust receive preferential tax treatment. Qualified dividends are taxed at your applicable capital gains rate, not as ordinary income. This is where strategic asset placement becomes critical. By funding your CRT with appreciated, income-producing assets, you convert what would have been ordinary income into capital gains. Our Self-Employment Tax Calculator helps high-income individuals understand their marginal tax rates for planning purposes.

How Do Charitable Remainder Trust Taxes Work Under IRC Section 664?

Understanding IRC Section 664 is fundamental to mastering charitable remainder trust taxes. This section of the Internal Revenue Code provides the specific tax treatment rules that make CRTs so powerful. Rather than being taxed as a typical trust, the CRT distributes income to beneficiaries in a four-tier waterfall system that maximizes tax efficiency.

The four-tier distribution system for charitable remainder trust taxes works as follows. First, ordinary income (interest, dividends taxed as ordinary income, rental income) flows to beneficiaries until exhausted. Second, long-term capital gains (profits from assets held over one year) distribute next. Third, other income including short-term capital gains follows. Fourth, tax-exempt interest (if the CRT holds municipal bonds) distributes last. This ordering means the trust distributes the most tax-efficient income to you first, preserving your personal capital losses and keeping your ordinary income lower.

Tax Character Preservation for High-Net-Worth Donors

For 2026, this tax character preservation is especially valuable given current capital gains tax rates. Long-term capital gains for high-income earners are taxed at a maximum federal rate of 20% (for income above specific thresholds), compared to the highest ordinary income rate of 37%. If your CRT distributes $100,000 in long-term capital gains, you pay federal taxes of approximately $20,000, versus $37,000 if that distribution were ordinary income. The savings compound significantly over years of CRT distributions.

However, high-net-worth individuals must also account for the 3.8% Net Investment Income Tax (NIIT) imposed on high-net-worth taxpayers. If your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly), the NIIT applies to your net investment income, including CRT distributions classified as long-term capital gains.

The Timing and Reporting of CRT Income

The CRT trustee files Form 1041 (U.S. Income Tax Return for Estates and Trusts) annually for the trust. Simultaneously, you receive a Form K-1 (Schedule K-1) reporting your share of the trust’s income distributions. This K-1 breaks down how much ordinary income, long-term capital gains, and other income categories you received. You then report these amounts on your personal tax return using the appropriate schedules.

For 2026 tax year reporting, ensure your CRT trustee uses current IRS rates and valuation tables for the trust’s charitable remainder interest calculations. The IRS updates Section 664 valuation rates quarterly. Using outdated rates could trigger audit risks or result in undervalued charitable deductions.

What Are the 2026 Charitable Remainder Trust Deduction Limits and Phase-Outs?

Charitable remainder trust taxes include important limitations on how much deduction you can claim. For the 2026 tax year, the primary limitation is the charitable deduction percentage limit, which restricts how much of your AGI you can deduct for charitable contributions. The percentage limits depend on the type of property you donate and your income level.

Percentage Limits for CRT Deductions

If you donate cash to your CRT, you can deduct up to 60% of your adjusted gross income (AGI) for 2026. If you donate appreciated long-term capital gains property (such as stocks held for over one year), the limit is 30% of AGI. These thresholds exist to prevent extremely wealthy individuals from claiming unlimited charitable deductions. Any deductions exceeding your percentage limit can be carried forward for up to five subsequent tax years.

For example, suppose your 2026 AGI is $1,000,000 and you fund a $500,000 CRT with appreciated real estate that generates a $250,000 remainder charitable deduction. Since you’re using appreciated property, the 30% limit applies, allowing you to deduct up to $300,000 ($1,000,000 × 30%). Your full $250,000 deduction fits within the limit, so you claim it all in 2026. However, if your charitable deduction was $350,000, you’d deduct $300,000 in 2026 and carry forward the remaining $50,000 to 2027.

Phase-Out Restrictions for High-Income Taxpayers

Beginning in 2026, additional restrictions apply to high-income taxpayers. Charitable deductions begin to phase out for taxpayers with modified adjusted gross income (MAGI) exceeding $500,000. While the exact phase-out percentage is currently being finalized, the trend is clear: wealthier taxpayers face stricter charitable deduction limitations. This makes it critical to time your CRT establishment strategically across tax years with varying income levels.

Additionally, the SALT deduction cap of $40,000 (for 2025-2029, reverting to $10,000 in 2030) affects high-net-worth individuals’ ability to itemize deductions. While the $40,000 SALT cap is substantially higher than the prior $10,000 limit, if your state and local taxes exceed $40,000, your total itemized deductions may still be constrained, reducing the benefit of your CRT charitable deduction claim.

How Can You Optimize Income Timing with Charitable Remainder Trust Taxes in 2026?

Under the One Big Beautiful Bill Act, income timing has become increasingly important for high-net-worth donors. The OBBBA made permanent the Tax Cuts and Jobs Act provisions, but introduced new dynamics around income management, particularly for business owners and self-employed professionals with variable income. Strategic charitable remainder trust taxation allows you to absorb income variability while maintaining steady charitable impact.

Consider a business owner with volatile annual earnings. In 2026, your business generates $2,000,000 in income. In 2027, due to market conditions, you anticipate only $800,000. Establishing a CRT early in the high-income year (2026) locks in a substantial charitable deduction while the deduction benefit is most valuable. Your CRT distributions then provide steady income during the low-income 2027, partially offsetting the business income decline.

Coordinate with Roth Conversion Strategies

One of the key shifts under OBBBA is the emphasis on Roth conversions and income management over traditional estate tax planning. High-net-worth individuals with significant IRAs or 401(k) balances should consider converting a portion to Roth accounts during lower-income years. A charitable remainder trust deduction can help create that low-income window.

For example, in 2026, you have $1,500,000 in taxable income from business operations. You establish a CRT with a $400,000 charitable deduction, reducing your taxable AGI to $1,100,000. You then execute a $300,000 Roth conversion. The combination of the CRT deduction and Roth conversion positioning keeps you in a lower bracket, reducing the conversion tax cost significantly compared to a non-strategized approach.

Multi-Year Charitable Contribution Planning

The charitable deduction for non-itemizers taking effect in 2026 creates additional planning opportunities. Some taxpayers may not need to establish a full CRT but can benefit from bunching charitable contributions in specific years. Consider alternating CRT funding years with standard charitable gift years to maximize tax efficiency.

Additionally, if you have capital gains from asset sales (perhaps related to business restructuring), 2026 is an excellent year to establish a CRT. The immediate charitable deduction offsets your capital gains tax, and the CRT’s stepped-up basis treatment inside the trust prevents massive capital gains taxes on future asset liquidation.

Which Charitable Remainder Trust Type Offers the Best Tax Benefits?

Charitable remainder trust taxes treat the two primary CRT structures differently, and understanding these differences is essential for 2026 planning. A CRUT (Charitable Remainder Unitrust) distributes a fixed percentage of the trust’s value, recalculated annually. A CRAT (Charitable Remainder Annuity Trust) distributes a fixed dollar amount annually. Each structure has distinct tax implications.

Feature	CRUT (Unitrust)	CRAT (Annuity Trust)
Annual Distribution	Fixed percentage (typically 5%-8%) of annual value	Fixed dollar amount annually
Tax Benefit	Larger charitable deduction (smaller corpus remains)	Smaller charitable deduction (larger corpus remains)
Income Predictability	Variable (increases/decreases with asset value)	Predictable fixed amount
Market Risk	Higher income in bull markets; lower in bear markets	No market impact on income amount
Best For	Growing portfolios; variable income needs	Fixed income needs; conservative investors

CRUT Advantages for 2026 Planning

A CRUT generates a larger charitable deduction than a CRAT because less corpus ultimately passes to charity (since the percentage is applied to the declining value over time). For high-net-worth individuals in the 2026 tax environment where charitable deductions are increasingly valuable due to deduction limits, the CRUT’s larger upfront deduction is typically preferable.

Additionally, a CRUT offers flexibility to make additional contributions during the trust’s life, whereas a CRAT does not. If you receive unexpected income in 2026 or 2027, you can add those assets to an existing CRUT, immediately generate additional charitable deductions, and amplify your tax benefits.

CRAT Benefits for Predictable Income

However, if you need a guaranteed, predictable income stream and want to minimize administrative complexity, a CRAT may be preferable. The fixed annual amount provides certainty regardless of market performance. This is especially valuable if you’re retired and depend on steady distributions for living expenses. The charitable deduction is smaller, but the income certainty may justify that trade-off for some donors.

How Has the One Big Beautiful Bill Act Changed Charitable Remainder Trust Tax Planning?

The One Big Beautiful Bill Act, signed July 4, 2025, fundamentally shifts charitable remainder trust tax planning for 2026 and subsequent years. Rather than worrying about temporary provisions expiring, high-net-worth donors now face a new landscape where permanent tax rates and expanded deduction limits create long-term planning confidence.

OBBBA makes the Tax Cuts and Jobs Act provisions permanent, meaning the 37% top ordinary income tax rate remains in effect indefinitely (absent future legislation). The 20% long-term capital gains rate for high-income earners is also permanent. For charitable remainder trust taxation, this permanence means the federal tax benefits of CRT capital gains treatment won’t diminish in future years, providing stable planning assumptions.

Shift From Estate Planning to Income Planning

Significantly, OBBBA shifts the emphasis from estate tax planning to income tax planning. Under the old paradigm, high-net-worth donors established CRTs primarily to reduce estate tax via charitable gifts. While estate tax benefits remain (the CRT assets ultimately escape the donor’s taxable estate), the income tax benefits have become equally or more important.

The OBBBA provides enhanced Section 179 expensing (up to $2.5 million for 2026), permanent 100% bonus depreciation, and flexible Roth conversion opportunities. These income planning tools, combined with strategic CRT utilization, allow high-income business owners to engineer lower taxable incomes, access more favorable tax brackets, and maximize tax efficiency across multiple years.

Integration with Permanent QBI Deduction

OBBBA also makes the 20% Qualified Business Income (QBI) deduction permanent for pass-through entities (S Corps, LLCs, partnerships). This is critical for charitable remainder trust planning. If you own a business structured as a pass-through entity, your QBI deduction reduces your taxable income. Coupled with a strategic CRT charitable deduction, you can reduce your taxable income by 20% of QBI plus your full charitable deduction amount, creating substantial tax savings.

 

Uncle Kam in Action: Corporate Executive Maximizes Charitable Impact While Minimizing Taxes

Margaret Chen is a 58-year-old corporate executive with $250,000 in annual salary plus $500,000 in company stock options that vested in early 2026. Her total 2026 income reached $750,000. Margaret’s long-time passion is supporting educational initiatives in underserved communities, but she faced a challenge: she wanted to donate her appreciated stock while minimizing capital gains taxes and maximizing her charitable impact across multiple decades.

Margaret’s previous advisor suggested selling the stock, paying the 20% federal capital gains tax plus state taxes (approximately $100,000), and donating $400,000 to a traditional charity. While generous, this strategy left substantial tax dollars on the table. Margaret engaged Uncle Kam to explore a strategic alternative.

Uncle Kam recommended establishing a Charitable Remainder Unitrust (CRUT) in 2026. Margaret funded the CRUT with $500,000 of her appreciated company stock. The CRUT was structured to pay Margaret 5% of its value annually (approximately $25,000 in year one, adjusting with growth). The IRS valuation of Margaret’s charitable remainder interest (using 2026 federal rates for trusts) calculated a $280,000 charitable deduction.

Tax Results for Margaret in 2026:

• Federal capital gains tax avoided: $100,000 (20% of $500,000)
• Immediate charitable deduction: $280,000
• Taxable income reduction: $280,000
• Federal income tax savings from deduction: $103,600 (37% of $280,000)
• Annual CRT income to Margaret: $25,000 (taxed partially as long-term capital gains, not ordinary income)
• Total 2026 benefit: $203,600 (capital gains tax avoided plus deduction savings)

Long-term Impact: Over Margaret’s 30-year life expectancy, the $500,000 CRUT with 5% distributions (totaling $375,000 to Margaret) plus the remaining balance passing to her designated charities achieves her educational mission while Margaret receives tax-efficient income. She avoided $100,000 in immediate capital gains taxes, saved $103,600 in 2026 income taxes, and will receive approximately $25,000 annually in favorable tax treatment. The charities ultimately receive approximately $1,200,000+ (assuming 6% annual investment growth), far exceeding what Margaret could have donated using traditional methods.

Investment: Professional CRT setup, trustee services, and ongoing administration cost approximately $3,500 initial plus $1,200 annually. Margaret’s first-year tax savings of $203,600 provide immediate ROI exceeding 5,800%.

Next Steps

Now that you understand how charitable remainder trust taxes work in 2026, take these actionable steps to optimize your tax strategy:

• Inventory Your Appreciated Assets: List any stocks, real estate, or business interests you’ve held for over one year with significant unrealized gains. These are prime CRT funding candidates.
• Model Multiple Scenarios: Work with a tax strategist to model CRUT vs. CRAT scenarios specific to your income, charitable intentions, and cash flow needs. Calculate the charitable deduction you’d receive and how it fits within 2026 percentage limits.
• Coordinate with Business Transitions: If you’re anticipating a major business event (sale, equity restructuring, bonus distribution), align CRT funding timing with that event to maximize deduction timing and income averaging benefits.
• Review Charitable Intent: Ensure you have a clear charitable mission and have identified qualified recipient organizations. New York’s proposed charitable protection measures may expand your options if you’re located in that jurisdiction.
• Consult Our High-Net-Worth Tax Strategy Team: A specialized tax advisor can evaluate whether a CRT aligns with your broader 2026 tax plan, including potential Roth conversions, entity restructuring, and income timing strategies.

Frequently Asked Questions

Can I Change My Mind After Establishing a CRT?

No, charitable remainder trusts are irrevocable once established. This is a fundamental characteristic that creates the tax benefits. However, you retain significant control during the trust’s life: you receive income distributions, can influence investment decisions (if structured that way), and can name successor beneficiaries for the income interest. The irrevocable nature is precisely why they work so well for tax purposes—the IRS recognizes the charitable gift as genuine and permanent.

What Happens to My CRT if I Die Before My Life Expectancy?

The CRT continues according to its terms. If you established the CRT to benefit you for your lifetime, the remaining trust corpus passes to the named charities immediately upon your death. Your estate receives no value back. However, the appreciated assets in the CRT receive a “stepped-up basis” at death, meaning the charity can liquidate them without any capital gains taxes—an additional tax benefit that accrues to your legacy and the charitable organizations.

How Does a CRT Interact with Estate Taxes for High-Net-Worth Individuals?

The assets inside your CRT are removed from your taxable estate entirely. This means they don’t count toward your federal estate tax exemption (currently $13.61 million for 2024, indexed annually). For ultra-high-net-worth individuals with estates exceeding exemption amounts, this removal from estate taxation is a substantial benefit. Combined with the lifetime income stream and charitable outcomes, CRTs provide unmatched tax efficiency for wealth transfer planning.

Can I Use a CRT to Fund a Donor-Advised Fund (DAF)?

Yes. Some sophisticated donors use a two-step strategy: establish a CRT, then direct the remainder at the CRT’s termination to a donor-advised fund (DAF) rather than directly to charities. This structure provides: (1) the immediate CRT charitable deduction in the year the CRT is funded, (2) decades of income distributions to the donor, and (3) at the CRT’s termination, the remainder flows to a DAF where the donor maintains advisory authority over grant distributions. This maximizes deduction timing while preserving philanthropic control. However, the DAF itself generates no additional charitable deduction—only the initial CRT remainder provides deductibility.

What’s the Minimum Required Income from a CRT?

IRS rules require that at least 5% of the CRT’s initial value be distributed annually to non-charitable beneficiaries. Additionally, the remainder portion passing to charity at the end must be valued at least 10% of the initial gift. These thresholds ensure the CRT provides genuine charitable value and isn’t merely an income tax shelter. Most CRTs are structured with 5-8% annual distributions, balancing income needs with sufficient remainder growth.

How Do I Report CRT Income on My 2026 Tax Return?

Your CRT trustee files Form 1041 annually. The trust’s income is allocated among the trust itself and non-charitable beneficiaries using a complex formula. You’ll receive a Schedule K-1 (Form 1041) detailing your share of ordinary income, long-term capital gains, and other income components. You report these amounts on your personal return (Form 1040) on the schedules corresponding to each income type. The CRT’s charitable deduction is taken on the CRT’s tax return, not your personal return. Only your income distributions appear on your personal return.

What If I Have CRT Income and NIIT (Net Investment Income Tax) Applies?

If your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly), you may owe the 3.8% NIIT on net investment income, including CRT distributions characterized as long-term capital gains or ordinary income from the trust. The NIIT applies to the lesser of your net investment income or your excess MAGI above the threshold. Strategic planning can minimize NIIT exposure—consider timing substantial CRT income distributions to years with lower other investment income, or coordinate Roth conversions to push AGI higher but without triggering additional NIIT on CRT distributions.

Related Resources

• High-Net-Worth Tax Strategy Planning
• 2026 Tax Strategy and Optimization
• Entity Structuring for Business Owners
• IRS Publication 526: Charitable Contributions
• Form 1041 and Instructions (IRS.gov)

Last updated: February, 2026

Compliance Checkpoint: This information is current as of 2/8/2026. Tax laws change frequently. Verify updates with the IRS or consult a tax professional if reading this later. This article provides educational information, not specific tax advice. Charitable remainder trust taxation is complex; consult qualified tax and legal advisors before implementing any strategy.