Charitable Gift Annuity With Real Estate: 2026 Tax Split

What the Code and regulations say, rule by rule

A gift annuity is the simplest of the charitable life-income deals: you transfer property, the charity signs a contract to pay you (and sometimes one other person) a fixed amount for life, and the payments are a general promise of the charity rather than income from a trust. The tax rules come from three places: the deduction rule for buying an annuity, the bargain-sale rules, and the annuity rules of section 72. Here is each rule with its source.

Source: 26 CFR 1.170A-1 and 1.1011-2 (eCFR, version of October 22, 2026); 26 U.S.C. 170, 501, 514, 1011 and 1411 (Cornell Legal Information Institute); IRS Publication 939 (Rev. 12-2025). Our reading is flagged in the text.

Two points are easy to miss. First, Example 8 in the regulation is dated 1970 and uses the old Table I multiple of 15.0. Annuities starting after June 30, 1986 use Table V, which is the same table printed in IRS Publication 939 (Rev. 12-2025), and the age is “the age at the birthday nearest to the annuity starting date”. Second, Pub. 939 says the multiples may need adjusting “if the payments are made quarterly, semiannually, or annually”; we model monthly payments, for which no adjustment applies.

Our worked case: a $600,000 rental, age 72, 6.0% payout

The inputs are assumptions, not quotes: a building and land appraised at $600,000, an adjusted basis of $150,000 after depreciation, an annuitant who is 72 at the nearest birthday, and a charity that offers a 6.0% payout, which is $36,000 a year paid monthly. The charity sets the payout; we do not publish a rate table. The IRS factors are Table S (2010CM) at 6.2%, age 72, annuity factor 8.5038, and Table K for monthly payments at 6.2%, 1.0281. The expected-return multiple at age 72 is 14.6 (Table V, 26 CFR 1.72-9).

Source: our arithmetic (script sources/cga_arithmetic.py) from IRS Table S (2010CM), Table K, 26 CFR 1.72-9 Table V, 26 U.S.C. 1011(b) and 26 CFR 1.1011-2. Unrounded; the regulation example rounds the ratio to one decimal, which moves a result by a few dollars.

The ordering matters. The investment in the contract is the annuity’s present value, $314,739, not the donor’s basis (“the investment in the contract is $59,755, that is, the present value of the annuity” in Example 8). The exclusion is therefore large, but most of it is gain that the rules push into the same years. Over the 14.6 years the schedule is:

Source: our arithmetic. The exclusion ends when the investment in the contract is recovered (26 U.S.C. 72(b)(2)); see our annuity exclusion ratio guide for the same mechanism on a purchased annuity.

Compare it with selling the building and keeping the cash. A $450,000 gain taxed at the top federal rates of 20% (26 U.S.C. 1(h)(1)(D)) plus 3.8% (26 U.S.C. 1411) is $107,100 in the year of the sale (our arithmetic; state tax ignored). Part of that gain, up to the depreciation taken, is “unrecaptured section 1250 gain” taxed at up to 25% (26 U.S.C. 1(h)(1)(E)); our depreciation recapture guide and capital gains guide explain it. Under the gift annuity only $16,168 of gain arrives in year 1, and $213,946 of the gain is never taxed, but you also gave away $285,261 of value and keep a fixed payment instead of the building. That is a trade, not a saving. Because the gain and the annuity income raise income each year, see our IRMAA guide and NIIT guide.

Which month’s Section 7520 rate: 5.2%, 5.4%, 5.6% or 6.2%

The Section 7520 rate for November 2026 is 6.20% (Rev. Rul. 2026-21, Table 5). The rulings for the three earlier months set 5.20% for August (Rev. Rul. 2026-13), 5.40% for September (Rev. Rul. 2026-17) and 5.60% for October (Rev. Rul. 2026-19). The statute says that if a charitable deduction is allowable “the taxpayer may elect to use such Federal midterm rate for either of the 2 months preceding the month in which the valuation date falls”, and the election is made by “a statement that the prior-month election under section 7520(a) of the Internal Revenue Code is being made and that identifies the elected month”, attached to the return or an amended return filed within 24 months (26 CFR 1.7520-2(b)).

The valuation date is the date of the transfer, which for real estate is a deed delivered and accepted, not the date a charity’s board meets. Our case at each rate:

Source: our arithmetic; age 72, 6.0% payout, monthly payments, $600,000 property, $150,000 basis; Table S (2010CM) and Table K; rates from Rev. Rul. 2026-13, 2026-17, 2026-19 and 2026-21.

A higher Section 7520 rate raises the deduction and lowers the gain, because it lowers the value of the annuity you are said to have bought. A gift made on any day of November 2026 can use 6.2%, the highest of its three choices. A gift made in October 2026 is limited to 5.6% or lower, and a gift in December 2026 can use 5.6% (October) or 6.2% (November) or whatever the December ruling sets; the December ruling is not out yet. Gifts that move a deed across a month end are therefore worth a conversation about dates, and the effect is about $12,659 of deduction between 5.6% and 6.2% on this case. The payment schedule matters too: the same gift with the annuity paid once a year has a deduction of $293,863 (our arithmetic), against $286,822 for quarterly and $285,261 for monthly payments.

The 90 percent test, and a deduction grid by age and payout

A charity that pays an annuity is not treated as borrowing (acquisition indebtedness) only if the annuity is the sole consideration “if, at the time of the exchange, the value of the annuity is less than 90 percent of the value of the property received in the exchange”, is payable over one life or two lives in being, and has no guaranteed minimum or maximum and no adjustment by reference to income from the property (26 U.S.C. 514(c)(5)). Section 501(m)(5) makes the same 514(c)(5) test part of the definition of a charitable gift annuity. In plain terms, a payout high enough to make the annuity worth 90% or more of the property leaves too little gift for the structure to work as a gift annuity.

The table shows the charitable contribution as a share of the property value at the 6.2% rate, for annual payouts of 4% to 8% of the property. These are inputs to the arithmetic, not rates any charity offers.

Source: our arithmetic, Table S (2010CM) at 6.2%, Table K monthly, Table V. Multiplying a share by the property value gives the contribution before the 30% limit and the 0.5% floor.

The payout that reaches the 90% line, at the 6.2% rate, is 7.75% at age 60, 8.55% at 65, 9.70% at 70, 10.29% at 72, 11.39% at 75, 13.97% at 80, 18.04% at 85 and 24.28% at 90 (our arithmetic). At the 5.2% rate of August the figures are lower: 7.07% at 60 and 9.63% at 72. Section 514(c)(5) also requires that the annuity be the only consideration, apart from a mortgage covered by 514(c)(2)(B); in our reading a cash payment to you at closing would break the test.

Many charities do not set their own payout rates from scratch. A practitioner article from PG Calc, a gift-planning software firm, notes that if the annuity is issued in a regulated state to which the charity has submitted a schedule of rates, “it cannot vary from those rates, except to offer a lower rate with the donor’s knowledge and consent”. A lower rate is also how charities price in the risk of a slow sale, as we explain below. We have not used any published payout-rate schedule in this page.

What changes when the asset is a building

The charity has to want it. The deduction math is the same for stock or a building, but the charity’s risk is not. The PG Calc article says that in accepting real estate for a gift annuity the charity “commits itself to fixed payments without knowing when the property will sell or for how much” and “must use its own funds to make the annuity payments” before the sale. That is why policies differ. The University of Central Florida Foundation’s real estate policy states that it does not accept “real estate to fund a charitable gift annuity” and will take real estate only to establish certain trusts. New York’s Insurance Department took the position, in OGC Opinion 04-02-07 of February 13, 2004, that its gift-annuity statute permits “gifts of money” and that real property lacks “sufficient objective indicia of ready marketability” to serve as consideration. The opinion notes that a donor may sell the property and give the proceeds. We could not read the current text of the New York statute, and we did not survey the other states, so a charity’s own policy and its state’s insurance rules decide whether a building is possible.

The sale-then-gift trap. If the charity is bound to sell the building before the gift is complete, the IRS can treat the sale as yours. PG Calc says a sale “will not be considered prearranged, and the donor will not be taxed on the capital gain, if the charity is under no binding obligation to sell the property”, citing Revenue Ruling 78-197, which we did not read. The same article warns that if the deal is built so that the donor in effect sold the property and gave the net proceeds, “the donor might be taxed on all of the capital gain in the property in the year it was sold”. This is a legal question for your attorney, not something to settle by reading the annuity contract.

Depreciation and ordinary income. If a sale at fair market value would have produced gain that is not long-term capital gain, the contribution is reduced by that amount (26 U.S.C. 170(e)(1)(A)). That covers property held a year or less, a dealer’s inventory and a flip, and depreciation recapture on section 1245 property such as items from a cost segregation study. IRS Publication 544 says that for a bargain sale of such property to a charity “your ordinary income from depreciation is figured under different rules”: figure the ordinary income as if you had sold at fair market value, then allocate it between sale and gift in the same proportion as basis. Section 1250 ordinary recapture applies only to “additional depreciation”, the amount above straight-line (IRS Publication 544), so a building depreciated on a straight-line basis normally has none, but the depreciation you took is still taxed as unrecaptured section 1250 gain at up to 25%.

A mortgage. The regulation treats the debt as an amount realized, so the gain on the debt part is recognized in the year of the gift. Our variant uses a $100,000 balance and a 6.0% payout on the $500,000 of equity ($30,000 a year, monthly), 72, 6.2%:

Source: our arithmetic from 26 CFR 1.1011-2(a)(3) and (b). Our reading is that gain on the debt is recognized in the year of the gift and gain on the annuity part follows Example 8; the regulation does not work a mortgage example. A practitioner article says the same.

For the charity, a mortgage can create taxable debt-financed income unless it was “placed on the property more than 5 years before the gift” and the donor held the property more than 5 years (26 U.S.C. 514(c)(2)(B)), which is one reason policies discourage mortgaged gifts. The UCF policy, for example, says acceptance of mortgaged property “is discouraged”.

Reporting. A gift of real estate worth more than $5,000 needs a qualified appraisal and Form 8283, Section B: the Instructions say items in Section B “require a written qualified appraisal by a qualified appraiser”, and column (g) asks for the amount received on a bargain sale. See our donate real estate guide for the appraisal and the 30% limit.

Gift annuity, charitable remainder trust, donor-advised fund, QCD

The same Table S arithmetic produces the remainder for a charitable remainder annuity trust, so the deduction for a 6% annuity at the same age and rate would be of the same size (our reading). What differs is who pays, who is taxed and what the charity can refuse.

Source: 26 U.S.C. 664(c) and (d)(1); 26 CFR 1.1011-2; PG Calc article (2012). See our guides to the charitable remainder trust, the donor-advised fund and the charitable lead trust (the mirror image: charity first, family second).

An IRA owner who wants a gift annuity can fund one only through a one-time qualified charitable distribution, and the annuity must be “funded exclusively by qualified charitable distributions and commences fixed payments of 5 percent or greater not later than 1 year from the date of funding” (26 U.S.C. 408(d)(8)(F)); the limit is $55,000 in 2026 per our QCD guide. A building cannot be used for that.

What a reader can do with this

• Start with the charity, not the tax. Ask in writing whether it accepts real estate for a current gift annuity, what it requires (appraisal, environmental review, title work, no mortgage or a low one), and whether its state’s insurance rules allow it.
• Ask for the payout rate and how it was set. A charity may discount the rate for sale risk; get the rate, the payment frequency and the first payment date, because monthly and annual payments change the deduction (our arithmetic: $285,261 against $293,863).
• Ask who owns the sale decision. If the charity has signed or promised to sign a sale contract before the deed, raise the prearranged-sale risk with your attorney before closing.
• Check the month of the deed. The rate is 6.2% for November 2026 and 5.6% for October (Rev. Rul. 2026-21 and 2026-19), and the prior-month election is made on the return.
• Run both tax columns. Get a calculation that shows the contribution, the allocated basis, the gain, the exclusion ratio and the year-by-year split of each payment, and compare it with the table above.
• Look at the deduction limit. At a 30% limit and a 0.5% floor (see our 2026 charitable deduction guide), a $285,261 deduction needs a high income or six years of carryover (our arithmetic: AGI of $950,869 in one year or about $158,478 a year).
• List the debts and the depreciation. Bring the mortgage statement, the date it was placed, the date you acquired the property and the depreciation schedule.

FAQ

Sources, read and saved on October 24, 2026: 26 CFR 1.170A-1, 1.1011-2, 1.72-9 and 1.7520-1 and 1.7520-2 (eCFR, version of October 22, 2026); 26 U.S.C. 1, 170, 408, 501, 514, 664, 1011, 1411 and 7520 (Cornell Legal Information Institute); IRS Publications 526 (2025), 544 (2025) and 939 (Rev. 12-2025) and the Instructions for Form 8283 (Rev. 12-2025); IRS Table S (2010CM) and Table K (irs.gov actuarial tables); Rev. Rul. 2026-13, 2026-17, 2026-19 and 2026-21 (irs.gov); New York Department of Financial Services OGC Opinion 04-02-07 (February 13, 2004, read through the Internet Archive); University of Central Florida Foundation policy 6.05; PG Calc, “Funding a Charitable Gift Annuity with Real Estate” (2012), a practitioner article and not primary law. We did not read Rev. Rul. 69-74 or 78-197, current state insurance statutes or any payout-rate schedule. Every dollar figure labelled “our arithmetic” is recomputed by sources/cga_arithmetic.py. This is analysis of public documents, not investment, legal or tax advice.