Charitable Remainder Trust For Real Estate

A Charitable Remainder Trust And Your Real Estate

A charitable remainder trust solves a different problem than a 1031 exchange does. Where an exchange keeps an El Paso owner invested in real estate while deferring the tax, a CRT is built for an owner who's ready to step away from ownership altogether, wants an income stream from the proceeds, and is willing to direct what's left to a charity at the end.

How A CRT Is Structured

An owner transfers appreciated property, a rental building, a commercial parcel, into an irrevocable trust before it sells. Because the trust itself is tax-exempt, it can sell the property without paying capital gains tax on the transaction, freeing up the full proceeds to be reinvested inside the trust. The donor then receives an income stream from the trust, either a fixed dollar amount or a percentage of trust assets, for a set term of years or for life, with whatever remains in the trust at the end passing to the charity the donor named when the trust was created.

The Tax Benefits Beyond Avoiding The Sale-Year Gain

Because the property transfer to the trust is itself a charitable gift, the donor typically receives an immediate partial income tax deduction based on the present value of the charity's eventual remainder interest, calculated using IRS actuarial tables. The income payments the donor receives later are taxed as they're distributed, generally under a tiered system that can include ordinary income, capital gains, and tax-free return of principal depending on how the trust's income is characterized, so the tax isn't eliminated entirely, but it's restructured into income payments over time rather than one gain recognized at the sale.

What An Owner Gives Up To Get There

The trade is permanent: once property moves into a CRT, the donor no longer owns it and can't reclaim the principal, only the income stream the trust agreement specifies. There's no getting the underlying asset back for the donor's own heirs, since the remainder is legally committed to the named charity. For an El Paso owner who wants to keep building a real estate portfolio, pass property to children, or retain control over the underlying asset, a CRT generally isn't the right tool, since that flexibility is exactly what the structure trades away.

Where A 1031 Exchange Serves A Different Goal

A 1031 exchange keeps the owner in direct or DST-based control of the replacement property and defers rather than restructures the tax, with no charitable component and no requirement to give up the asset's principal. Some El Paso owners with a charitable intent and a large-enough estate use both strategies across different properties, exchanging the assets they want to keep building on while placing a specific parcel into a CRT for the income and giving component. Deciding between them, or combining them, generally calls for an estate attorney and CPA working through the numbers together rather than a decision made on the exchange timeline alone.

CRT: property leaves the donor's estate permanently, in exchange for an income stream and an upfront charitable deduction
1031 exchange: property stays in the investor's control, with the gain deferred rather than converted into trust income
Both remove the sale-year capital gains hit, through very different structures with different long-term outcomes

Frequently Asked Questions

Does a charitable remainder trust eliminate capital gains tax on El Paso real estate entirely?

Not entirely. The trust itself doesn't pay capital gains tax on the sale, but income distributed to the donor later is taxed under a tiered system that can include a capital gains component, so the tax is restructured into payments over time rather than fully eliminated.

Can a donor get the property back out of a CRT after transferring it?

No. A charitable remainder trust is irrevocable, and the donor's interest is limited to the income stream specified in the trust agreement, not the underlying principal, which is committed to the named charity.

Is the income tax deduction from a CRT available in the year the property is transferred?

Generally yes, an immediate partial deduction based on the present value of the charity's remainder interest is available in the year the trust is funded, calculated using IRS actuarial factors tied to the donor's age and the payout terms.

Can heirs inherit anything from property placed in a CRT?

Only if the trust's income term is structured to pass to a surviving beneficiary for a period, but the underlying principal always passes to the named charity, not to the donor's heirs, once the trust term ends.

How does an owner decide between a 1031 exchange and a CRT for a single El Paso property?

It usually comes down to whether the owner wants to keep controlling real estate and defer the tax, which favors an exchange, or wants to convert the asset into income and charitable impact, which favors a CRT, a decision best made with an estate attorney and CPA.