Using a Charitable Remainder Trust to Sell an El Segundo Rental Without an Immediate Gain

Published August 10, 2026

A charitable remainder trust lets you give an appreciated El Segundo rental to a trust that sells it tax exempt under section 664(c), pay you an income stream, and send the remainder to charity. It is irrevocable and it is not a way to sell and keep the money.

The short answer

A charitable remainder trust under section 664 is an irrevocable trust that sells your appreciated rental tax exempt at the trust level, pays you or another beneficiary an income stream for life or a term of years, and sends whatever is left to charity. You get a partial income tax deduction up front. You do not get the sale proceeds in a lump sum, and you cannot undo the gift.

Last verified: August 10, 2026

What actually defers the gain

If you sell an appreciated El Segundo rental yourself, you owe capital gains tax on the sale in the year you sell, plus any unrecaptured section 1250 gain on depreciation taken. A charitable remainder trust changes who owns the property before the sale happens.

You transfer the rental into the trust before it sells. The trust takes a carryover basis in the property under the same principle as a gift, so the built in gain moves with the property into the trust. But under 26 U.S.C. section 664(c), a charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT) are "not subject to any tax imposed by this subtitle" for the year of the sale, with a narrow exception for unrelated business taxable income that rarely applies to a straightforward rental sale. The trust sells the property, pays no capital gains tax on the sale itself, and reinvests the full proceeds.

You never had capital gains tax deferred on your own return in the sense of a 1031 exchange. You avoided it entirely at the point of sale by not being the seller. The property was owned by an independent, irrevocable trust when it sold.

The two flavors, and what you actually receive

Section 664(a) defines two structures. A CRAT pays a fixed dollar amount, set once at funding, of not less than 5 percent nor more than 50 percent of the trust's initial value, for the trust term. A CRUT pays a fixed percentage, also between 5 and 50 percent, of the trust's assets as revalued each year, so the payment moves up and down with the trust's performance.

Either way, the payments to you (or whoever you name as the income beneficiary) are not simply a return of your own gain tax free. Section 664(b) sets a four tier ordering rule: distributions carry out the trust's ordinary income first, then its capital gains, then other income, then corpus last. In practice this means a meaningful share of what you receive each year, especially in the early years right after a sale of appreciated property, is taxed to you as capital gain, not as a tax free return of principal. The trust defers and spreads the tax; it does not erase it.

The charitable deduction, and the 10 percent floor

When you fund the trust, you get a partial income tax deduction in the year of the gift, sized to the present value of the charity's remainder interest, computed under section 7520 using IRS discount rates, your age or trust term, and the payout rate you chose. Section 664(d) requires that this remainder interest be worth at least 10 percent of the property's initial value when contributed. That 10 percent floor caps how high a payout rate you can choose relative to how long the trust runs; push the income stream too high or the term too long, and the trust fails to qualify at all.

| What happens | Where it lands |

|---|---|

| Gain on the property's sale | Not taxed to the trust under section 664(c); taxed to you over time as distributions carry it out under the section 664(b) tiers |

| Income stream to you | 5 to 50 percent of trust value, fixed (CRAT) or revalued annually (CRUT), for life or up to a term of years |

| Charitable income tax deduction | Present value of the remainder interest, at least 10 percent of the property's value at funding |

| What charity receives | Whatever remains in the trust at the end of the term |

The part landlords underweight: it is irrevocable

A charitable remainder trust is irrevocable. Once the El Segundo rental is inside the trust, you cannot change your mind, take the property back, or unwind the structure to access a lump sum. You have converted an asset you controlled outright into an income stream from a trust that will eventually belong to charity. That tradeoff can make excellent sense for someone who wants lifetime income, a current deduction, and a charitable legacy, and who does not need the underlying capital back. It is the wrong tool for someone who might need the full sale proceeds for a future purchase, a family emergency, or simply flexibility.

This is also a trust, not a form. Drafting a CRAT or CRUT, valuing the remainder interest correctly, and choosing a trustee are jobs for an estate planning attorney working with a CPA, not a do it yourself project.

FAQ

Does the property have to be in El Segundo, or does the state matter?

No, section 664 is federal and applies to real property anywhere in the country. Nothing about the trust mechanics changes because the rental sits in El Segundo. California income tax on the distributions you receive is a separate, additional calculation your CPA needs to run alongside the federal numbers.

Can I be the trustee of my own charitable remainder trust?

The statute does not forbid it outright, but self trusteeship raises valuation and control issues that most estate planning attorneys steer clients away from, especially where the trust holds real estate that needs to be sold and reinvested. Talk to your attorney about who should serve as trustee.

Do I have to name myself as the income beneficiary?

No. You can name yourself, a spouse, a child, or another individual, and you can use a joint or successive structure. Who you name changes the section 7520 valuation of the remainder interest and therefore your deduction.

What happens if the trust's investments underperform after the sale?

A CRUT's payments to you fall if the trust's assets fall, since the payout is a percentage of revalued assets each year. A CRAT pays the same fixed amount regardless of performance, which raises the risk of depleting principal in bad years, potentially cutting the term short before the term selected.

Is the charitable deduction dollar for dollar against the property's value?

No. The deduction is based on the present value of the remainder interest that charity will eventually receive, not the full value of the property you contribute, and it is calculated using IRS section 7520 rates in effect for the month you fund the trust.

Can I choose which charity receives the remainder later?

Many CRTs name the charity at drafting, but some allow the donor to retain the right to change the named charitable beneficiary during the trust term, as long as the ultimate recipient remains a qualified charitable organization. This is a drafting choice for your attorney, not something the statute mandates either way.

This is general information, not tax or legal advice. A charitable remainder trust is an irrevocable structure with real tradeoffs. Confirm the numbers, the payout structure, and the drafting with a CPA and an estate planning attorney before you fund one.

Topics: taxes, charitable remainder trust, section 664, estate planning, capital gains

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