Charitable Gift Annuities: Income for You, a Gift to Charity

What a gift annuity is

A charitable gift annuity (CGA) is a contract directly with a charity: you transfer cash or property, and the charity agrees to pay you (or you and a second person) a fixed dollar amount for life, backed by the charity’s general assets. Because the transfer is worth more than the payments you will receive, it is a “bargain sale” — part charitable gift, part purchase of an annuity — and the tax treatment splits along that line.

The partial deduction

You get an immediate charitable income-tax deduction for the gift portion: the value of what you transferred minus the present value of the annuity payments the charity will make to you, computed under IRS actuarial tables (IRC § 170; the present-value math uses the § 7520 rate). The deduction is therefore only part of the amount transferred — the rest is the value of the income stream you kept — and it is subject to the ordinary AGI ceilings and, for 2026, the new 0.5%-of-AGI floor discussed in the cluster overview.

How the payment rate is set: the ACGA schedule

Most charities do not invent their own annuity rates; they use the suggested maximum rates published by the American Council on Gift Annuities (ACGA). The ACGA sets a schedule of rates by the annuitant’s age (older annuitants receive higher rates, because the payments are expected to run for fewer years), designed so that on average roughly half of the original gift remains for the charity after the payments end. The current ACGA suggested maximum rates took effect January 1, 2024. A charity may pay less than the ACGA maximum but, as a matter of the ACGA’s guidance, should not pay more — so the ACGA schedule is the reference point for any CGA quote.

How the payments are taxed

Each payment you receive is generally split for tax purposes under the annuity rules (IRC § 72): part is a tax-free return of your investment in the contract, and part is ordinary income. If you funded the annuity with appreciated property, a portion of each payment is also taxed as capital gain, spread over your life expectancy rather than recognized all at once — one of the CGA’s advantages for a low-basis asset. Once you outlive your life expectancy, the payments typically become fully ordinary income.

Funding one with a QCD

Since SECURE 2.0, you can fund a CGA with a one-time qualified charitable distribution from an IRA — up to $55,000 for 2026. The trade-off: a QCD-funded gift annuity produces no up-front charitable deduction (the QCD is already tax-free), and the payments are taxed entirely as ordinary income rather than partly tax-free. It converts IRA dollars into a lifetime income stream through a charity, which is the point — but the tax profile differs from a cash-funded CGA.

Sources & methodology