What Form 706 Is For

Form 706 is the federal tax return used to report estate taxes when someone passes away. Think of it as the final "tax return" for a deceased person's estate—but instead of reporting income, it reports the total value of everything they owned at death. The executor (the person legally responsible for handling the deceased person's affairs) uses this form to calculate whether the estate owes federal estate tax.

The form serves two main purposes: First, it determines if the estate must pay federal estate tax on assets exceeding certain threshold amounts. Second, it allows married couples to transfer any unused estate tax exemption to the surviving spouse—a benefit called "portability" that can potentially save hundreds of thousands or even millions in taxes down the road. IRS.gov

For 2025, you must file Form 706 if the deceased person's gross estate (everything they owned) plus adjusted taxable gifts made during their lifetime exceeds $13,990,000. Even if the estate is smaller, you should file if you want to elect portability to transfer the unused exemption to a surviving spouse. IRS.gov

When You’d Use Form 706 (Late/Amended Filings)

Extension Filings

Form 706 is normally due nine months after the date of death. For example, if someone died on March 15, 2025, the return would be due by December 15, 2025. However, life doesn't always cooperate with deadlines, especially when you're dealing with the complicated aftermath of losing someone.

You can request an automatic six-month extension by filing Form 4768, giving you up to 15 months total from the date of death. This extension only applies to filing the paperwork—not paying the tax. Any tax owed is still due at the nine-month mark, and interest accrues on unpaid amounts. IRS.gov

Late Portability Elections

If you missed the deadline but only needed to file for portability (transferring unused exemption to a spouse), there's good news. Revenue Procedure 2022-32 allows estates that weren't otherwise required to file to submit Form 706 up to five years after death specifically to elect portability. You must write "Filed Pursuant to Rev. Proc. 2022-32 to Elect Portability under Section 2010(c)(5)(A)" at the top of the form. IRS.gov

Amended/Supplemental Returns

Discovered an error or forgot to include an asset? You'll need to file a supplemental Form 706. Check the box on line 13 indicating it's supplemental, include a statement explaining what changed, and attach copies of pages 1-4 from your original return. Mail supplemental returns to the Florence, Kentucky processing center rather than the standard Kansas City address. IRS.gov

Key Rules or Details for 2025

Filing Threshold

The $13,990,000 threshold for 2025 includes not just what the deceased owned at death, but also adds back certain lifetime gifts made after 1976. This prevents people from avoiding estate tax by simply giving everything away before death. IRS.gov

What's Included in the Gross Estate

The IRS casts a wide net. Your gross estate includes real estate, bank accounts, investments, retirement accounts, life insurance proceeds (even if paid to beneficiaries), business interests, digital assets, and your share of jointly-owned property. It even includes certain transfers made during life without adequate consideration, annuities, and property over which the decedent possessed a general power of appointment. IRS.gov

Deductions That Reduce Tax

Several major deductions can substantially reduce or eliminate estate tax. The unlimited marital deduction allows you to leave everything to a U.S. citizen spouse tax-free. Charitable donations to qualifying organizations are fully deductible. You can also deduct mortgages, debts, funeral expenses, and costs of administering the estate. State death taxes paid are deductible as well. IRS.gov

Portability Rules

This is crucial for married couples. When the first spouse dies, any unused portion of their $13,990,000 exemption (called the Deceased Spousal Unused Exclusion or DSUE) can be transferred to the surviving spouse—but only if you file Form 706 on time and make the election. This can effectively double a couple's exemption to nearly $28 million. IRS.gov

Consistent Basis Reporting

Estates must report asset values to beneficiaries using Form 8971 within 30 days of filing Form 706 (or the due date if filed late). This ensures beneficiaries use the same "tax basis" the estate reported when they later sell inherited assets. Failing to file Form 8971 can trigger penalties under sections 6721 and 6722. IRS.gov

Step-by-Step (High Level)

Step 1: Gather Documentation (Months 1–3)

Collect the death certificate, will, trust documents, appraisals, deeds, account statements, life insurance policies, and prior gift tax returns (Form 709). You'll need fair market values for all assets as of the date of death—this often requires professional appraisals for real estate, businesses, and collectibles. The death certificate must be attached to the return.

Step 2: Complete the Schedules (Months 3–6)

Form 706 uses separate schedules for different asset types: Schedule A for real estate, Schedule B for stocks and bonds, Schedule C for mortgages and notes, Schedule D for life insurance, Schedule E for jointly-owned property, Schedule F for other assets, and more. Each schedule requires detailed listings with descriptions and values. IRS.gov

Step 3: Calculate Deductions (Months 6–7)

Complete schedules for debts (Schedule K), funeral and administrative expenses (Schedule J), marital deduction property (Schedule M), and charitable gifts (Schedule O). These deductions can dramatically reduce the taxable estate.

Step 4: Compute the Tax (Month 7–8)

Part II of Form 706 walks through the calculation. You'll start with the gross estate, subtract deductions to get the taxable estate, add back lifetime taxable gifts, apply the tax rate schedule, then subtract the applicable credit. The unified credit of $5,541,800 corresponds to the $13,990,000 exemption for 2025. IRS.gov

Step 5: Review and File (Month 8–9)

Double-check all calculations, ensure you've attached required documentation (death certificate, will, appraisals, Forms 712 for life insurance), and make elections if applicable (portability, installment payments, alternate valuation). File at the Kansas City IRS Service Center address.

Step 6: Pay Any Tax Due

Estate tax is due within nine months. You can pay electronically through EFTPS (Electronic Federal Tax Payment System) or by same-day wire transfer. If the estate has insufficient liquid assets, you may be eligible to pay in installments over 14 years under Section 6166 if at least 35% of the estate consists of an active business. IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Missing Assets

Executors often overlook foreign bank accounts, digital assets (cryptocurrency, online accounts), remainder interests in trusts created by others, or property over which the decedent had a general power of appointment. Solution: Work with experienced professionals who can conduct a thorough asset search and review the decedent's financial history.

Mistake #2: Incorrect Valuations

Using values that are too high wastes exemption; too low triggers penalties. Section 6662 provides a 20% penalty for substantial understatement (reporting values at 65% or less of actual value) or for gross valuation understatement (40% or less of actual value). No penalty will be assessed if the underpayment of estate tax due to substantial or gross valuation understatement does not exceed $5,000. Solution: Obtain qualified appraisals from certified professionals for complex assets.

Mistake #3: Not Filing for Portability

Many executors assume they don't need to file because the estate is under the threshold, thereby losing the opportunity to transfer millions in unused exemption to the surviving spouse. Solution: When in doubt, file within the nine-month deadline to preserve portability rights—the $56 closing letter fee is trivial compared to the potential tax savings.

Mistake #4: Missing Deductions

Executors forget to deduct debts, state death taxes, or administrative expenses, resulting in unnecessary federal tax. The state death tax deduction is not subject to dollar limits. Solution: Keep meticulous records of all estate-related expenses and consult with a tax professional about what's deductible. IRS.gov

Mistake #5: Failing to Attach Required Documents

Returns without death certificates, wills, appraisals, and insurance forms (Form 712) won't be processed, causing delays and potential late-filing penalties. Section 6651 provides for penalties for both late filing and late payment unless there is reasonable cause for the delay. Solution: Use the IRS checklist in the Form 706 instructions and review it twice before mailing.

What Happens After You File

The IRS typically takes several months to process estate tax returns, though complex returns can take longer. You won't automatically receive confirmation—the IRS operates on a "no news is good news" basis for estate returns.

Estate Tax Closing Letter

The IRS no longer automatically issues estate tax closing letters. If you need formal confirmation that the IRS has accepted the return (often required by banks, title companies, or courts), you must request it through Pay.gov and pay a $56 fee (reduced from $67 as of May 21, 2025). Allow at least nine months after filing before requesting the letter. IRS.gov

Alternative: Account Transcript

Instead of paying for a closing letter, authorized representatives can obtain a free account transcript online through the IRS Transcript Delivery System or by filing Form 4506-T. The transcript shows all transactions and indicates whether the return was accepted or is under examination. IRS.gov

Examination/Audit

If selected for examination, you'll receive a notice requesting additional documentation. You can represent yourself or authorize professionals to handle the examination by filing Form 2848 (Power of Attorney and Declaration of Representative) or Form 8821 (Tax Information Authorization). You have many rights and avenues of appeal if you disagree with any proposals made by the IRS. IRS.gov

Refunds

If you overpaid, refund checks that are issued to an estate account are issued only in the name of the estate and will not be made payable to any other person or entity. IRS.gov

FAQs

Q1: Do I need to hire professionals to prepare Form 706?

For estates approaching or exceeding the filing threshold, professional assistance is strongly recommended. The form is highly technical, mistakes are costly, and professional fees are deductible from the estate. CPAs, enrolled agents, and estate attorneys regularly prepare these returns. Consider how complex the estate is, how large it is, the condition of the decedent's records, and how many beneficiaries are involved. Interview multiple professionals about their experience with estates similar in size and complexity. IRS.gov

Q2: What if I can't pay the tax by the due date?

File Form 4768 to request an extension for paying (separate from the filing extension). The IRS may grant extensions for reasonable cause, though interest continues accruing. For estates where at least 35% of the adjusted gross estate consists of an interest in a closely-held business, Section 6166 allows paying estate tax in installments. These elections are made by checking "Yes" on Part III of Form 706 and attaching the required statements. IRS.gov

Q3: Can I use alternate valuation (values six months after death)?

Yes, if it reduces both the gross estate value and the estate tax liability. This election can be beneficial when asset values decline significantly after death. However, once made, alternate valuation applies to all assets and cannot be revoked. The election is made on Part III, line 1 of Form 706.

Q4: What happens if the decedent owned property in multiple states?

All property must be reported on Form 706 regardless of location. You'll also need to file state estate or inheritance tax returns where required—each state has its own thresholds and rules. The gross estate includes all property in which the decedent had an interest, including property outside the United States. IRS.gov

Q5: How do I value a family business or farm?

This requires professional business valuation. For qualifying family farms and businesses, Section 2032A allows special-use valuation that can reduce the value by up to $1,420,000 for 2025. However, strict requirements apply. Fair market value is defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. IRS.gov

Q6: What if the decedent made large gifts during their lifetime?

You must report all post-1976 taxable gifts on Form 706 even though gift tax may have already been paid. The estate tax calculation adds these gifts back to determine the total lifetime transfers subject to the unified rate schedule. Attach copies of all filed Forms 709 (gift tax returns) to Form 706. If copies of tax returns are attached, they must be identified as exhibits to Form 706. IRS.gov

Q7: Are life insurance proceeds taxable?

Generally yes. Life insurance proceeds are included in the gross estate if they are payable to or for the benefit of the estate, or if the decedent possessed any incidents of ownership in the policy at death. This is true even though life insurance proceeds may be paid directly to named beneficiaries other than the estate. IRS.gov

Need More Help?

Visit IRS.gov/Form706 for the latest forms, instructions, and updates. IRS Publication 559 (Survivors, Executors, and Administrators) provides additional guidance. Given the complexity and high stakes involved with estate tax returns, consultation with qualified estate tax professionals is strongly recommended for most estates approaching the filing threshold.