The IRS requires an estate tax return only when the estate's total value exceeds a specific threshold

You file an estate tax return — Form 706 — only if the deceased person's estate is large enough. The IRS sets a dollar limit each year, and estates below that limit do not require a federal return. For 2024, that limit is $13.61 million. For 2023, it was $12.92 million. These numbers change annually, so the year of death determines which threshold applies.

The estate's value includes everything the person owned at death: real estate, bank accounts, investments, vehicles, life insurance proceeds, retirement accounts, and business interests. It does not matter whether the assets were in a will, held in a trust, or passed automatically to a beneficiary. The IRS counts the full value regardless of how title was held.

Most estates never reach the threshold. The federal estate tax affects only the largest estates. However, some states impose their own estate or inheritance taxes at much lower thresholds, so you may need to file a state return even if no federal return is due.

Key Takeaways

  • Form 706 is required only when the estate exceeds $13.61 million in 2024, a threshold that changes each year based on inflation.
  • The estate's value includes all assets owned at death — real estate, bank accounts, investments, life insurance, and retirement accounts — regardless of how title was held.
  • Even if no federal return is required, your state may impose an estate or inheritance tax at a lower threshold, requiring a separate state filing.
  • The executor or personal representative is responsible for determining whether a return is due and filing it by the important date, normally nine months after death.

How the IRS Counts the Estate's Total Value

The IRS uses a specific method to value an estate. Every asset the deceased owned or controlled at the moment of death counts toward the total. This includes property held solely in the deceased's name, property held as a tenant in common with others, and the deceased's share of joint property.

Life insurance proceeds are included in the estate's value if the deceased owned the policy or had any incidents of ownership — meaning the power to change beneficiaries, borrow against the policy, or cancel it. If someone else owned the policy on the deceased's life, those proceeds usually do not count.

Retirement accounts like IRAs and 401(k)s are included at their full balance as of the date of death. The same applies to payable-on-death bank accounts and transfer-on-death investment accounts. Trusts the deceased created and funded during life are included if the deceased retained any control or benefit from them.

Debts owed by the estate — mortgages, credit card balances, medical bills — reduce the total value. The executor subtracts liabilities from assets to arrive at the net estate value.

State Estate and Inheritance Taxes May explore at Lower Thresholds

Twelve states and the District of Columbia impose their own estate taxes. These state thresholds are much lower than the federal limit. Massachusetts, for example, taxes estates over $1 million. Oregon taxes estates over $1 million. Connecticut taxes estates over $12.92 million. The exact threshold varies by state and year.

A separate group of states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — impose inheritance taxes instead. An inheritance tax is paid by the person who receives the asset, not by the estate itself. The tax rate and threshold depend on the beneficiary's relationship to the deceased.

If the deceased lived in or owned real estate in a state with an estate or inheritance tax, you must research that state's rules. Many states require a return even if the federal threshold is not met. The state return is filed separately from Form 706 and has its own important date, usually nine months from death but sometimes longer.

Who Files the Return and When It Is Due

The executor or personal representative named in the will is responsible for filing Form 706 if one is required. If there is no will or the will names no executor, the person appointed by the probate court handles this duty. If the estate has a trustee, the trustee may have this responsibility depending on how the trust was structured.

Form 706 is due nine months after the date of death. If the ninth month falls on a weekend or holiday, the important date moves to the next business day. You can request an automatic six-month extension by filing Form 4768 before the original important date. The extension gives you until fifteen months after death to file, but taxes owed are still due at the original nine-month important date.

Missing the important date without an extension results in penalties and interest. The IRS charges a failure-to-file penalty of 5 percent per month, up to 25 percent of the tax owed. Interest accrues daily on any unpaid tax.

What Happens If the Estate Is Close to the Threshold

If the estate's value is within a few hundred thousand dollars of the threshold, the executor should calculate it carefully. Mistakes in valuation can trigger an audit. The IRS may challenge the values assigned to real estate, business interests, artwork, or other hard-to-value assets.

The executor must support all valuations with documentation. For real estate, this typically means a professional appraisal. For business interests, a business valuation may be required. For publicly traded securities, the value is the closing price on the date of death. For bank accounts and cash, the value is straightforward.

If the estate is close to the threshold and includes assets that are difficult to value, consulting a tax professional or estate attorney before filing is common practice. They can help may support the valuations are reasonable and defensible.

Portability Elections and Married Couples

When a married person dies, the surviving spouse can make a portability election on Form 706. This election allows the surviving spouse to use any unused portion of the deceased spouse's federal estate tax exemption. Without this election, the unused exemption is lost forever.

To make the portability election, Form 706 must be filed even if the estate is below the threshold. This is one situation where a return is required despite the estate not exceeding the filing threshold. The return must be filed within nine months of death, or an extension must be requested.

The portability election can significantly reduce or eliminate estate taxes for the surviving spouse's estate. If the surviving spouse remarries, the portability election applies only to the most recent deceased spouse. For this reason, married couples with substantial assets should understand portability and may support Form 706 is filed if the first spouse dies.

What Happens If You Do Not File When Required

If Form 706 is required and not filed, the IRS will eventually discover this through its own records or through the beneficiaries' income tax returns. The IRS can assess the estate tax owed plus penalties and interest, sometimes years after the important date.

The failure-to-file penalty is steep: 5 percent of the unpaid tax for each month the return is late, up to 25 percent total. Interest compounds daily. If the estate cannot pay the tax, the IRS can place a lien on estate assets, preventing distribution to beneficiaries until the debt is resolved.

In some cases, the IRS will work with the executor to arrange a payment plan. However, this process is time-consuming and expensive. Filing on time or requesting an extension before the important date is far simpler.

Frequently Asked Questions

Do I have to file Form 706 if the estate is worth exactly the threshold amount?

No. The threshold is the amount at which filing becomes required. If the estate equals the threshold but does not exceed it, no return is due. However, if the estate exceeds the threshold by even $1, a return must be filed.

What if the estate includes property in multiple states?

The federal estate tax applies to the total value of all property, regardless of where it is located. However, you must also check the estate tax rules in each state where the deceased owned real estate or had other significant assets. Some states tax only property located within their borders; others tax the entire estate if the deceased was a resident.

Does a life insurance payout count toward the estate threshold?

Yes, if the deceased owned the policy or had any control over it. If someone else owned the policy on the deceased's life and the deceased had no incidents of ownership, the proceeds usually do not count toward the estate's value.

Can I file Form 706 early, before the nine-month important date?

Yes. There is no penalty for filing early. Some executors file as soon as the estate's value is known and all assets are identified, which may be well before the nine-month important date.

What if the estate value drops between the date of death and the filing date?

The IRS allows the executor to value the estate as of the date of death or, in some cases, six months after death. If values have declined, using the later date may reduce the estate tax owed. This is called the alternate valuation date and must be elected on Form 706.