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What is the IRS Discount Rate?
The IRS Discount Rate is published by the federal government monthly. Also known as the Applicable Federal Midterm Rate, the IRS discount rate is used to determine the charitable deduction for charitable gift annuities and charitable remainder trusts. The rate is the annual rate of return that the IRS 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. It equals 120% of the annual mid-term rate, rounded to the nearest 0.2%. 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.
A higher IRS discount rate generates a higher tax deduction for gift annuities and charitable remainder trusts. A lower discount rate generates a higher tax deduction for retained life estates. 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. 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.
This web page does not provide legal or financial advice, nor is it intended as a comprehensive review of the topic. You should consult your attorney, tax advisor and St. Lawrence before making or planning your gift.
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