How to File Federal Form 706 for Tax Year 2021

According to official figures, the Internal Revenue Service collected over $18 billion in federal estate taxes in 2021. That number may sound distant until you are responsible for handling a deceased person’s estate. Executors and administrators often face the brutal reality that filing mistakes, missed deadlines, or undervalued assets can trigger costly penalties. For those managing an estate after a loved one’s death, correctly filing federal Form 706 for tax year 2021 is not just a requirement; it is the first step toward protecting the estate’s assets and beneficiaries.

Filing this return goes far beyond simple paperwork. Form 706 is the federal estate tax return for reporting the decedent’s gross estate, adjusted taxable gifts, and sometimes, generation skipping transfer tax. Even estates that fall below the federal estate tax exemption may need to file if the executor wants to elect portability for the surviving spouse. Executors who treat this process lightly risk more than clerical headaches. They could expose the estate to unnecessary estate tax liability or lose the right to claim valuable deductions.

This guide was created to clarify for first-time filers and seasoned professionals. We will walk through each process step, from gathering crucial financial documents and appraisals to calculating the taxable estate and mailing the completed form to the appropriate IRS address. Along the way, we will highlight common mistakes, deadlines, and practical tips that can save time, money, and stress. By the end, you will understand how to complete Form 706 under current tax laws and why careful preparation and accurate reporting are essential for every estate.

Understanding Federal Form 706

Federal Form 706, officially titled United States Estate (and Generation-Skipping Transfer) Tax Return, is the key document executors must file after a decedent’s death if the estate meets specific criteria. Its primary purpose is to calculate federal estate tax liability and, where applicable, the generation-skipping transfer tax. 

The form requires detailed reporting of the decedent’s gross estate, adjusted taxable gifts, and allowable deductions. Even estates below the exemption limit may need to file if portability to a surviving spouse is desired.

Why Estates Must File

Estate taxes are imposed on the transfer of a deceased person’s estate, not individual inheritances. The Internal Revenue Service uses this return to determine whether estate tax is owed, how much is due, and whether any deductions or credits apply. 

The form also ensures that charitable deductions, marital deductions, and prior taxable gifts are correctly reported. Executors serve as the estate's personal representative; they must ensure compliance with current tax laws and avoid underreporting that could lead to penalties or delays.

Key Numbers for Tax Year 2021

For deaths in 2021, the federal estate tax exemption rose to $11.7 million. This exclusion means estates valued below this threshold generally owe no federal estate tax. However, estates that exceed it must calculate tax liability using the applicable exclusion amount and tentative tax formula. Executors must also consider the estate’s assets, such as real estate, bank accounts, and business interests.

Estate Tax Thresholds by Year

Tax Year 2020

• Federal Estate Tax Exemption: $11,580,000
• Basic Credit Amount: $4,577,800
• Special Use Valuation Cap: $1,180,000

Tax Year 2021

• Federal Estate Tax Exemption: $11,700,000
• Basic Credit Amount: $4,625,800
• Special Use Valuation Cap: $1,190,000

This increase may seem modest, but even a small adjustment can change the return outcome for large estates. Executors must use the figures for the decedent’s year of death, not the year of filing, to ensure accurate reporting.

Filing Requirements and Thresholds

The obligation to file Form 706 falls on the executor, administrator, or personal representative of the decedent’s estate. Even nonresident aliens may be subject to federal estate tax if the estate includes property in the United States. Executors should understand that filing is not only about meeting legal requirements. It also ensures that beneficiaries receive distributions without unnecessary IRS scrutiny or costly delays.

Filing Thresholds

Form 706 must be filed if the estate's total value exceeds the exemption limit. For tax year 2021, the filing threshold is calculated as:

1. Gross estate: This includes the fair market value of all assets owned at death, such as real estate, bank accounts, investments, life insurance, and personal property.
   
   
2. Adjusted taxable gifts: Executors must report gifts made after 1976 that exceed the annual exclusion limits. These amounts are added to the calculation of the estate’s total value.
   
   
3. Specific exemptions: For these exemptions, certain older exemptions for gifts between September and December 1976 may also apply.

A federal estate tax return is mandatory if the combined total of these three categories is greater than $11.7 million. Executors who fail to meet this requirement expose the estate to penalties and interest that can quickly grow.

Portability Election for Surviving Spouse

Even estates not exceeding the federal estate tax exemption must sometimes file. This occurs when the executor wants to transfer the deceased spouse’s unused exclusion (DSUE) to the surviving spouse. Filing for portability preserves the ability of the surviving spouse to offset the estate tax in the future. Without filing Form 706, the DSUE amount is permanently lost.

By carefully reviewing the value of the decedent’s assets, gifts, and applicable exemptions, executors can determine if they meet the filing threshold or if portability requires action. The decision to file should be made early to allow enough time for gathering all the required information.

Step-by-Step Filing Instructions

Since filing Form 706 requires detailed information, it helps to approach the process in clear phases. Executors should follow each step carefully, collecting accurate records, applying the correct valuation rules, and attaching all supporting schedules.

Step 1: Gather Required Documents

Executors must begin with a complete file of essential records.

1. Death-related documents: A certified copy of the death certificate, the will, and the appointment papers establishing the executor’s authority are mandatory. These documents provide proof of death and confirm who has legal responsibility for the estate.
   
   
2. Asset documentation: This includes deeds for real estate, bank accounts, brokerage statements, insurance policies, and any appraisals for valuable property. Business interests and retirement accounts should also be included, as all assets owned must be valued at fair market value.
   
   
3. Tax and financial records: Prior gift tax returns (Form 709), income tax returns, and debt statements are critical. They ensure the estate’s gross value and liabilities are reported under IRS guidelines without omissions.

Step 2: Complete Initial Sections (Pages 1–4)

The first four pages of Form 706 establish the foundation of the return.

1. Decedent and executor details: Provide the deceased person’s full legal name, Social Security number, and date of death. Executors should also include their contact information and describe estate administration.
   
   
2. Tax computation: Executors must calculate tentative tax on the taxable estate. This involves applying the unified rate schedule and deducting allowable credits. Errors here can significantly affect tax liability.
   
   
3. Elections by the executor: The form requires alternate valuation, installment payments, or portability selections. Each election must be made in writing and supported by the correct documentation.

Step 3: Complete Required Schedules

Schedules provide the IRS with detailed breakdowns of estate assets and deductions.

1. Schedules A–C (Real estate, stocks/bonds, mortgages/cash): Executors must list each property, account, or security along with valuation details. Securities must include CUSIP numbers, while real estate must consist of appraisals.
   
   
2. Schedule D (Life insurance): All policies on the decedent’s life must be reported, even if not includible in the taxable estate. Attach Form 712 for each policy.
   
   
3. Schedules J–K (Expenses and debts): Funeral costs, executor fees, attorney fees, and outstanding debts are deductible. Invoices or contracts must support each item.
   
   
4. Schedules M–O (Marital and charitable deductions): Transfers to a surviving spouse or qualifying charities reduce the estate tax owed. Executors must provide legal documents or trust agreements proving eligibility.
   
   
5. Schedule F (Miscellaneous property): Always required. Even if there are no reportable assets, this schedule must be completed with “none” or “zero” entries.

Step 4: Review and Attach Supporting Documents

Accuracy in asset valuations and deductions is vital. Executors must:

• Attach professional appraisals for real estate, jewelry, artwork, and closely held businesses.
  
  
• Provide financial statements for bank accounts and investment holdings.
  
  
• Add supporting legal records such as trust agreements, buy-sell agreements, or court orders.
  
  
• Make copies of prior gift tax returns.

The IRS requires complete documentation to prevent underreporting. Inadequate support often results in audit delays or penalties.

Step 5: Signatures and Verification

The executor must sign Form 706 under penalty of perjury. If a tax professional is paid to prepare the return, their signature is also required. Multiple executors can be listed, but at least one must sign the completed form. Failure to sign makes the filing invalid and can trigger late penalties even if the return was submitted on time.

How to File Federal Form 706

Since Form 706 is not eligible for electronic submission, executors must file it on paper. This makes following instructions and mailing to the correct IRS address critical. An incorrectly addressed or incomplete filing can delay processing and expose the estate to late penalties.

Paper Filing Only

The Internal Revenue Service requires that all federal estate tax returns for tax year 2021 be mailed. There is no option to e-file. Executors must use the appropriate IRS address depending on whether they are sending through the United States Postal Service or a private delivery service. Using the wrong address risks misrouting and delays in processing.

Filing Checklist

Before sealing the envelope, executors should confirm each requirement has been met:

1. The executor signs the completed form and, if applicable, the tax professional sign the completed form. Every signature must be original, not a copy.
   
   
2. All schedules are completed, even those with zero entries. This ensures the IRS views the return as accurate and complete.
   
   
3. Required documents, such as the death certificate, will, and appraisal, are securely attached. Each attachment should be clearly labeled.
   
   
4. If payment is due, it is included in the correct form, either by check or through the Electronic Federal Tax Payment System (EFTPS).

Mailing Tips

Executors should send the return using certified mail with a return receipt to prove timely filing. It is strongly recommended that copies of the entire submission and mailing receipts be kept. Private delivery services may also be used for faster tracking. Since estate administration often involves multiple parties, maintaining a record of what was sent and when helps avoid disputes later.

Payment of Estate Taxes

Paying estate tax is just as important as filing the return itself. Executors must understand when payments are due, what methods are accepted, and what options exist for estates with limited liquidity. Missing payment deadlines results in interest charges and penalties that can quickly drain the estate’s assets.

Payment Deadline

Estate taxes for tax year 2021 are due within nine months of the decedent’s death. While executors may request an extension of time to file using Form 4768, this does not automatically extend the payment deadline. To avoid penalties, payments must still be made by the original due date unless a specific extension for payment has been granted.

Methods of Payment

1. Electronic Federal Tax Payment System (EFTPS): Recommended by the Internal Revenue Service, EFTPS allows direct payment scheduling. Executors can set payments in advance and track them online. Transactions must be scheduled by 8 PM Eastern the day before the deadline.
   
   
2. Checks and Money Orders: Checks should be payable to “United States Treasury.” The decedent’s name, Social Security number, and “Form 706” should appear on the memo line. Large estates must note that the IRS cannot accept a check over $100 million, so payments must be divided.

Installments and Extensions

Executors of estates with closely held businesses may qualify for installment payments under Section 6166. This allows taxes to be paid in annual installments over several years. Section 6163 also provides limited tax postponement due on specific remainder or reversionary interests. Each option requires proper elections on the completed form and compliance with IRS guidelines.

Asset Valuation and Appraisals

Valuation is one of the most sensitive parts of filing federal Form 706 for the 2021 tax year. The Internal Revenue Service requires executors to report the fair market value of all assets as of the date of the decedent’s death. Proper valuations determine the estate’s gross value and directly affect the estate tax liability. Incorrect or unsupported figures often lead to penalties, delays, or disputes with beneficiaries.

Fair Market Value Requirement

Fair market value is the price at which a willing buyer and a willing seller agree, with both parties knowing all relevant facts. This standard applies to every asset in the estate, from real estate to personal property. Executors may elect an alternate valuation date six months after death, but only if it lowers the total estate value and the tax imposed.

Real Estate and Securities

Real estate must be appraised by qualified professionals, especially if its value exceeds $250,000 or is a fractional interest. Location, condition, zoning, and marketability all influence valuations. Publicly traded securities are valued at the mean between the highest and lowest quoted selling prices on the date of death. If no trades occurred that day, the closest trading day before or after is used.

Business Interests and Personal Property

Closely held businesses are valued using income, market, or asset-based approaches. Discounts may apply for lack of control, marketability, or reliance on a key person. Personal property such as jewelry, artwork, or antiques often requires a professional appraisal. Executors may group ordinary household items, but high-value pieces must be itemized.

Valuation Options for Estate Tax Purposes

Date of Death Value

• When Used: Standard valuation method
• Effect on Estate Value: Reflects the fair market value at the time of death
• Notes: Required unless an alternate valuation method is elected

Alternate Valuation (6 Months Later)

• When Used: Only if it results in a lower estate value and reduced tax
• Effect on Estate Value: Can reduce the taxable estate
• Notes: The election applies to the entire estate, not individual assets

Common Mistakes to Avoid

Even experienced executors can make mistakes when completing Form 706 for tax year 2021. Errors create delays, increase estate tax liability, and may result in penalties from the Internal Revenue Service. By watching for the following issues, executors can avoid painful setbacks.

Documentation Errors

1. Missing certified documents: The death certificate and will must be attached. Substituting uncertified copies without explanation may cause the IRS to reject the return.
   
   
2. Incomplete schedules: Schedule F is always required, even if the estate has no miscellaneous property. Executors must also complete every line in the recapitulation section, even if the entry is zero.

Valuation and Asset Reporting Issues

1. Incorrect valuation date: Executors must use the date of death value unless the alternate six-month valuation has been properly elected. Using mixed methods across schedules is not permitted.
   
   
2. Inadequate appraisals: Estates often undervalue property by relying on informal estimates. Qualified appraisals are required for real estate, jewelry, and business interests to prove fair market value.
   
   
3. Omitting assets: Jointly owned property, life insurance, and retirement accounts are frequently overlooked but must be reported as part of the decedent’s gross estate.

Procedural and Signature Problems

1. Unsigned return: An unsigned Form 706 is treated as unfiled. At least one executor must sign under penalty of perjury, and a tax professional must sign if paid to prepare the return.
   
   
2. Incorrect IRS address: Mailing to the wrong service center delays processing. Executors must confirm the correct location for submission.

Avoiding these common errors saves time and prevents unnecessary correspondence with the IRS. Careful review before mailing is the best safeguard against rejection.

First-Time Filer Guidance

For many executors, filing federal Form 706 for tax year 2021 is their first encounter with estate taxes. The process can feel overwhelming, but careful planning reduces stress and prevents costly mistakes. Executors who prepare early and follow a structured system will be better positioned to complete the tax return accurately.

Start Early

The nine-month filing deadline after the decedent’s death may seem generous, but delays often arise when gathering appraisals or locating missing financial records. Executors should begin within the first 60 days by compiling a list of the estate’s assets and debts. Early action allows time to hire a tax advisor, attorney, or appraiser if needed.

Organize Records

1. Physical folders: Divide documents into categories such as estate planning papers, bank accounts, investment statements, debts, and prior tax returns. Keeping paper copies ensures there is a master reference available.
   
   
2. Digital backups: Scan each document and store files securely. Creating spreadsheets to track valuations, deductions, and taxable gifts helps maintain accurate reporting.

Use a Phased Approach

Executors should break the filing process into four phases: assessment, documentation, preparation, and submission. Each stage builds upon the last, reducing the chance of missed steps. 

For example, appraisals must be completed before schedules can be filled out. A final review should be conducted before mailing the return to the Internal Revenue Service at the appropriate IRS address.

Seek Professional Support

Executors unfamiliar with tax laws may benefit from consulting a tax professional. Even simple estates can hide complexities like generation-skipping transfer tax or portability elections. A professional ensures compliance and may identify deductions or credits the executor would otherwise miss.

Special Situations and Elections

Form 706 includes elections that can significantly affect estate tax liability. Executors must understand when these elections apply, how to claim them, and what documentation is required. Filing federal Form 706 for tax year 2021 without reviewing these options could result in higher taxes or missed benefits.

Portability of DSUE

The deceased spousal unused exclusion (DSUE) allows a surviving spouse to use the portion of the estate tax exemption not claimed by the first spouse to die.

• Filing requirement: Even if the estate falls below the federal estate tax exemption, executors must file Form 706 to preserve portability.
  
  
• Deadline: The election must be made within nine months of the decedent’s death, unless a filing extension or relief under IRS procedures applies.
  
  
• Benefit: Preserving the DSUE can shield millions of dollars from future estate taxes when the surviving spouse dies.

Alternate Valuation Election

Executors may use asset values six months after the decedent’s death instead of the date of death.

• When useful: If estate values have dropped significantly, this election reduces both the taxable estate and the estate tax owed.
  
  
• Limitation: The election applies to the entire estate; executors cannot pick and choose individual assets.

Special Use Valuation (Section 2032A)

Family-owned farms or closely held businesses may qualify for special valuation.

• The maximum reduction allowed under Section 2032A is up to $1,190,000 for tax year 2021.
  
  
• The property must account for at least 25 percent of the estate’s value and pass to qualifying family members who will continue using it.
  
  
• Executors must attach a detailed election statement, professional appraisals, and family agreements to support the election.

Installment Payments (Section 6166)

If a closely held business represents at least 35 percent of the adjusted gross estate, executors may request to pay estate taxes in installments. This election allows the estate to generate income from its assets instead of liquidating them immediately.

FAQs

When is an estate tax return required?

An estate tax return is required when the decedent’s estate exceeds the federal estate tax exemption for the year of death or when the executor wishes to elect portability for a surviving spouse. To calculate estate taxes, the executor must total the estate’s assets, adjusted taxable gifts, and deductions. The Internal Revenue Service requires this filing to ensure proper assessment and compliance with federal government tax laws.

How do I request an estate tax closing letter?

Executors may request an estate tax closing letter after the Internal Revenue Service has processed the return and any estate tax payment. The IRS provides these letters as confirmation that the estate tax matters are closed. Executives must submit a request using the appropriate IRS form to obtain one. This document offers assurance that the federal government recognizes the estate as compliant with all reporting and payment obligations.

What is the difference between an estate income tax return and Form 706?

An estate income tax return (Form 1041) reports the estate’s income after death, such as interest, dividends, or rental payments. In contrast, Form 706 calculates estate taxes on the estate’s total value at death. While Form 706 is a one-time filing, the estate income tax return may be required annually until administration ends. Both returns are filed with the Internal Revenue Service under federal government rules.

How do estate tax payments work?

Estate tax payment is due within nine months of the decedent’s death, even if an extension to file Form 706 is granted. Executors must calculate estate taxes accurately and submit payments by check or through the Electronic Federal Tax Payment System. The IRS form requires executors to report how much was paid. The Treasury Internal Revenue Service ensures the federal government receives proper funding through timely payments of estate liabilities.