Urgent 2012 Year-End Tax Planning Opportunity: Charitable Remainder Trusts And 3.8% Surtax

Proposed. Regulation Section 1411-3(c)(2) addresses the application of the surtax to charitable remainder trusts. Under Internal Revenue Code Section 664, charitable reminder trusts are taxed under the four-tier accounting rules. 


While CRTs are exempt from the new 3.8% surtax, distributions of post-December 31th, 2012 net investment income will be subject to the 3.8% surtax.


In other words,, distributions of income and capital gains realized and recognized before  December 31th, 2012 will not be subject to the surtax.


Accordingly, harvesting gains and income in calendar year 2012 will likely reduce the surtax burden on future CRT distributions. Likewise, deferring losses and expenses until 2013 will also reduce the tax burden on distributions.



  1. Harvest long-term capital gains in 2012
  2. Accelerate interest, dividends and other income into 2012
  3. Defer harvesting losses into 2013
  4. Defer expenses into 2013



The Smith CRT has a total value of $2,800,000; including accrued interest of $75,000 and unrecognized gains of $325,000 and unrecognized losses of $100,000.  The total of the income, gain and losses totals $500,000 (on a gross basis).   By harvesting the gains and income and by deferring losses the trustee shifts gain and income into 2012 and defers substantial losses into 2013.   The net savings will be 3.8% of $500,000 for a total saving of $19,000.



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