Charitable Gift Annuities: Income, Deductions, and How They Differ

A charitable gift annuity (CGA) is a deal you strike directly with a charity: you make an irrevocable gift of cash or securities, and the charity promises to pay you a fixed amount for life. It looks like an annuity, and part of it is — but it is equally a gift, and that dual nature drives how it's priced, taxed, and protected. Because the name causes real confusion, this page also shows how a CGA differs from the commercial income annuities on the live SPIA estimates page.

How a Charitable Gift Annuity Works

You transfer assets — usually cash or appreciated stock — to a charity you want to support. In exchange, the charity contractually promises fixed payments for one life or two, starting immediately or deferred. When the last annuitant dies, payments stop and the charity keeps what remains. That remainder, the residuum, is the point of the arrangement.

The charity sets the payout rate, and most follow the maximums suggested by the American Council on Gift Annuities (ACGA) — designed so that, on average, roughly half of the original gift ultimately remains for the charity. Rates rise with age (an 85-year-old gets a higher rate than a 65-year-old), and two-life annuities pay less than single-life because payments run longer.

Two structural points come first. The issuer is a charity, not an insurer: payments are a general obligation backed by the charity's assets, with no state guaranty association behind them. And the gift is irrevocable — no cash value to surrender, no free-withdrawal provision. For how commercial contracts handle those features, see annuity payout options and how surrender charges work.

The Charitable Deduction

Because part of your transfer is a gift, you get a charitable income-tax deduction the year you fund the CGA — for the gift portion only. It equals the amount transferred minus the present value of the expected annuity payments, calculated with IRS actuarial tables and the Section 7520 rate for the month of the gift (or one of the two prior months, at your election). The donut above sketches the split live.

• You must itemize. With the standard deduction it provides no current benefit — though the payment-taxation advantages below still apply.
• The gift must be real. To qualify, the gift value generally must exceed 10% of the transfer — a test the charity's software checks before issuing.
• Older annuitants and deferred starts produce larger deductions. The shorter or later the expected payment stream, the more counts as gift.

How the Payments Are Taxed

CGA payments follow the logic of an annuitized commercial contract: each payment during your actuarial life expectancy is split into pieces, fixed at issue. The mechanics mirror the exclusion ratio that governs annuitized payments, with one addition for appreciated assets:

• Funded with cash: part of each payment is a tax-free return of your investment, the rest ordinary income. Outlive your life expectancy and fully recover your investment, and payments become 100% ordinary income.
• Funded with appreciated securities: gain attributable to the gift portion escapes capital gains tax entirely. Gain on the annuity portion is still taxed — but as the annuitant you report it ratably over your life expectancy, not all at once. Flip the funding toggle above to see the third slice appear.
• Reporting: the charity sends a Form 1099-R each year — see our guide to Form 1099-R for annuities for what each box means.

A newer option: SECURE 2.0 allows a one-time election, at 70½ or older, to fund a CGA with a qualified charitable distribution from an IRA, capped at an inflation-indexed limit ($50,000 when enacted; check the current IRS figure). The QCD is excluded from income and counts toward your RMD — but there's no charitable deduction, and every payment from an IRA-funded CGA is fully taxable as ordinary income.

CGA vs Commercial Annuity, Side by Side

Which One Fits Which Job

The honest framing: a CGA is philanthropy with an income feature, not an income product with a tax perk. To support a charity you care about while receiving dependable payments plus a deduction, a CGA does the job elegantly — especially funded with highly appreciated stock you'd otherwise pay capital gains tax to sell.

For maximum guaranteed lifetime income from a given sum, a commercial income annuity will nearly always pay more, because nothing is given away. Compare insurers on the live SPIA income estimates page before assuming the CGA rate is the best available — many donors are surprised by the gap. For the commercial side's tax picture, see how annuities are taxed and how non-qualified annuities work.

Either way, check the issuer's financial strength: the charity's financial statements and gift-annuity reserve fund, or the insurer's ratings — our ranking of A-rated annuity companies is a starting point. A CGA promise is only as good as the charity behind it.

Next Step

Get both numbers on the table: the charity's offered rate and deduction illustration, and current commercial payout estimates for your age. A tax professional can model both against your actual bracket — the itemizing question alone changes the math considerably.