IRS Discount Rate
The IRS Discount Rate is published monthly by the federal government. Also known as the Applicable Federal Rate (AFR), the Charitable Midterm Federal Rate (CMFR), or the "IRS Section 7520 rate," the IRS discount rate is used to determine the amount of the donor’s charitable deduction for gifts such as charitable gift annuities, charitable remainder trusts, retained life estates and charitable lead trusts. The rate is the annual rate of return that the federal government assumes the gift assets will earn during the gift term.
The rate is announced around the 20th of the month preceding the month to which the rate will apply. For example, a June rate is published around May 20th. The rate equals 120% of the annual mid-term rate. The annual mid-term rate is the annualized average yield of treasury instruments over the past 30 days that have remaining maturities of 3-9 years. The rate is then rounded to the nearest even tenth of a percent, e.g., a rate of 4.32 is rounded up to 4.4 percent. The rate for the month in which the gift is made, or either of the previous two months may be used to determine the charitable deduction, whichever provides the largest deduction for the donor.
The higher the IRS discount rate, the higher the deduction for gift annuities and charitable remainder trusts. The lower the IRS discount rate, the higher the deduction for retained life estates and charitable lead trusts. Fluctuations in the IRS discount rate affect unitrust deductions far less than annuity trust and gift annuity deductions. IRS discount rate fluctuations don’t affect pooled income fund deductions.
This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson before making or planning your gift.
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