In a charitable remainder unitrust that pays 6% annually, the donor’s income tax charitable deduction is which of the following?

In a charitable remainder unitrust that pays 6% annually, the donor’s income tax charitable deduction is which of the following?

• A. Donor's cost basis up to 100% of the donor's adjusted gross income.
• B. Fair market value contributed up to 30% of the donor's adjusted gross income.
• C. Fair market value contributed less the actuarial value of his retained life interest, up to 30% of the donor's adjusted gross income.
• D. Fair market value contributed less the actuarial value of his retained life interest, up to 50% of the donor's adjusted gross income.

Answer: (C)

The donor’s charitable deduction for a charitable remainder unitrust comes from the value that will eventually go to charity—the remainder. It is calculated as the fair market value of the contributed property minus the actuarial value of the donor’s retained life income interest. The result represents the charitable remainder interest and is then subject to the AGI deduction limit for gifts to public charities, which is 30% of the donor’s adjusted gross income. In a unitrust that pays 6% regularly, the payout rate affects the actuarial value of the retained life interest, influencing the size of the remainder and thus the deduction, but the limit remains 30% of AGI. So the deduction is FMV contributed less the actuarial value of the retained life interest, up to 30% of AGI. (Reasoning about the other options: it is not based on cost basis, and the deduction isn’t simply FMV up to a 30% limit without subtracting the retained interest; the limit is 30% of AGI rather than 50%.)

The donor’s charitable deduction for a charitable remainder unitrust comes from the value that will eventually go to charity—the remainder. It is calculated as the fair market value of the contributed property minus the actuarial value of the donor’s retained life income interest. The result represents the charitable remainder interest and is then subject to the AGI deduction limit for gifts to public charities, which is 30% of the donor’s adjusted gross income. In a unitrust that pays 6% regularly, the payout rate affects the actuarial value of the retained life interest, influencing the size of the remainder and thus the deduction, but the limit remains 30% of AGI. So the deduction is FMV contributed less the actuarial value of the retained life interest, up to 30% of AGI.

(Reasoning about the other options: it is not based on cost basis, and the deduction isn’t simply FMV up to a 30% limit without subtracting the retained interest; the limit is 30% of AGI rather than 50%.)