Form 706 Instructions: Filing, Portability, and Payment

Form 706 is the federal estate tax return, and the instructions for completing it require the executor to inventory the decedent’s assets, value them under specific rules, subtract allowable deductions, apply the unified credit against a graduated rate schedule topping out at 40%, and file within nine months of death. For decedents dying in 2026, the return is required when the gross estate plus adjusted taxable lifetime gifts exceeds $15 million, or whenever the executor wants to preserve the deceased spouse’s unused exclusion for the surviving spouse.¹

Who Has to File and When

The filing trigger is the gross estate plus any adjusted taxable gifts made during the decedent’s lifetime. If that combined figure exceeds the basic exclusion amount for the year of death, Form 706 is required. For 2026 deaths, the threshold is $15 million, indexed for inflation going forward under the One, Big, Beautiful Bill.¹

A separate reason to file: portability. When the executor wants to transfer the decedent’s unused exclusion to a surviving spouse, Form 706 must be filed even if the estate is far below the threshold and owes no tax.

The deadline is nine months after the date of death.² Filing Form 4768 before that date buys an automatic six-month extension to file.³ The extension covers filing only, not payment. Estimated tax still needs to be paid by the original nine-month date, or interest and the failure-to-pay penalty start accruing. Part III of Form 4768 lets the executor request a separate payment extension for reasonable cause, but that request isn’t automatic and interest runs regardless.⁴

Building the Gross Estate

The gross estate captures everything the decedent had an interest in at death: real property, bank and investment accounts, business interests, vehicles, personal property, and life insurance proceeds payable to the estate or over which the decedent held incidents of ownership. Jointly owned assets are included based on each owner’s contribution. Certain lifetime transfers where the decedent retained control or benefit get pulled back into the estate as well.

Closely held business interests, partnership shares, and unusual real estate need a professional appraisal to support the reported value. Undervaluing exposes the estate to accuracy-related penalties; overvaluing means overpaying tax.

Date of Death or Alternate Valuation

The default is fair market value on the date of death: the price a willing buyer and seller would agree to, both informed, neither pressured.

The executor can instead elect to value the entire estate six months after the date of death. This alternate valuation date helps when asset values have declined during that window, but it comes with two conditions: the election must reduce both the gross estate and the estate tax, and it applies to every asset in the estate, not a cherry-picked subset. Any asset sold, distributed, or otherwise disposed of before the six-month anniversary is valued as of the date it left the estate.⁵

Deductions Against the Gross Estate

Once the gross estate is totaled, the executor subtracts deductions to reach the taxable estate. The main categories are funeral expenses, administration costs (executor commissions, attorney and appraisal fees), debts the decedent owed at death, and unpaid mortgages on estate property, all subject to what local probate law allows.⁶

Two deductions do most of the heavy lifting. The marital deduction covers, without dollar limit, property passing to a surviving spouse who is a U.S. citizen; this effectively defers the tax until the surviving spouse dies.⁷ The charitable deduction covers, again without cap, property passing to qualifying charitable organizations.⁸

Calculating the Tax

The estate tax uses a graduated schedule that begins at 18% on the first $10,000 of taxable transfers and reaches 40% on amounts over $1 million.⁹ In practice, the effective rate on most taxable estates is 40%, because the unified credit absorbs everything below the basic exclusion.

The order of operations: compute a tentative tax on the taxable estate plus adjusted taxable gifts using the graduated schedule, then subtract the unified credit, which equals the tax on an amount equal to the basic exclusion. For 2026, with the exclusion at $15 million, the unified credit wipes out tax on the first $15 million of combined transfers.¹ Amounts above that get taxed at the 40% top rate.

If the decedent used part of the exclusion against lifetime taxable gifts, the credit remaining at death is reduced by the amount already consumed.

Electing Portability

When a married decedent doesn’t use the full exclusion, the executor can transfer the unused amount, known as the Deceased Spousal Unused Exclusion (DSUE), to the surviving spouse by making the portability election on Form 706.¹⁰ The surviving spouse then adds the DSUE to their own exclusion for later gift or estate tax purposes.

Filing Form 706 solely for portability is worth doing even when no tax is owed. Without the election, the unused exclusion is lost permanently. The election must be made on a timely filed return, meaning within nine months of death or within the extended fifteen months if Form 4768 was filed.¹⁰

Late Portability Election

If the deadline was missed and the estate had no filing requirement (because it was under the threshold), Revenue Procedure 2022-32 allows a late Form 706 to be filed to elect portability, provided it is filed within five years of the date of death.¹¹ Write across the top of the return: “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).” After five years, relief is only available through a separate regulatory path requiring a showing of reasonable cause.¹²

Special Elections

Special Use Valuation for Farms and Businesses

Under Section 2032A, farmland and real property used in a closely held business can be valued based on current use rather than highest-and-best-use (development) value. Qualifying is demanding: at least 50% of the adjusted gross estate must be real or personal property used in the farm or business at death and passing to a qualified heir, and the decedent or a family member must have materially participated in operating the farm or business for at least five of the eight years before death.¹³ If the heirs discontinue the qualifying use within ten years of death, the tax savings are recaptured.

Conservation Easement Exclusion

Land subject to a qualified conservation easement can qualify for an exclusion of up to $500,000 from the gross estate. The applicable percentage starts at 40% and drops by 2 percentage points for every percentage point the easement’s value falls below 30% of the land’s value. The decedent or a family member must have owned the land for at least three years before death, and the easement must meet the qualified conservation contribution requirements.¹⁴ The election is made on a timely filed Form 706 and is irrevocable.

Generation-Skipping Transfer Tax Allocation

Form 706 also handles the generation-skipping transfer (GST) tax, which applies when property passes to someone two or more generations below the decedent, such as a grandchild. The GST tax rate is a flat 40% on top of any regular estate tax. Each decedent has a GST exemption equal to the basic exclusion ($15 million for 2026), allocated on Schedule R.¹⁵

Allocation matters. Allocating enough exemption to bring a trust’s inclusion ratio to zero shields all future distributions from GST tax no matter how much the trust grows. Failing to allocate triggers default deemed-allocation rules, which may not produce the best result. Affirmative allocation on Schedule R is worth doing even when no GST tax is currently due.¹⁵

How to File and Pay

Form 706 is a paper return; there is no e-file option. Mail the completed return and schedules to:

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999¹⁶

For private delivery services (FedEx, UPS), send to the Internal Revenue Submission Processing Center, 333 W. Pershing Road, Kansas City, MO 64108.¹⁶

The tax is due by the nine-month deadline regardless of any filing extension. Pay by check or money order made out to “United States Treasury,” or electronically through EFTPS. Any check should show the decedent’s name, Social Security number, and “Form 706” so the payment is credited correctly.

Attach a certified copy of the death certificate, a copy of the will if one exists, and any Form 2848 (power of attorney) or Form 8821 (tax information authorization).¹⁶

Installment Payments for Closely Held Business Estates

When a closely held business interest exceeds 35% of the adjusted gross estate, the executor can elect under Section 6166 to pay the portion of the tax attributable to that business in installments. The first principal payment can be deferred up to five years, with only interest due during that period, followed by up to ten equal annual installments.¹⁷ A reduced 2% interest rate applies to a portion of the deferred tax; the remainder accrues at 45% of the normal underpayment rate. The election must be made on a timely filed return. Selling the business interest or missing a payment can accelerate the entire remaining balance.

Getting the Estate Tax Closing Letter

After the IRS processes the return, the executor usually needs an estate tax closing letter to finish probate, retitle property, and distribute assets. The IRS charges a $56 user fee, paid through Pay.gov.¹⁸ Wait at least nine months after filing the return to request it, or, if the return is being examined, at least 30 days after the exam concludes. The IRS sends the letter to the executor named on the return or to a representative authorized on Form 2848 or Form 8821.¹⁹

Penalties and Interest

Two penalties can run at the same time when a return or payment is late. The failure-to-file penalty is 5% of the unpaid tax per month, capped at 25%; if the return is more than 60 days late, a minimum penalty applies of $525 or 100% of the tax due, whichever is less, for returns required to be filed in 2026.²⁰ The failure-to-pay penalty is 0.5% of unpaid tax per month.²¹ When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty, so the combined monthly charge is 5% rather than 5.5%. Interest also runs on unpaid tax from the original due date, compounding daily at the federal short-term rate plus three percentage points, and it accrues even with an approved filing extension.

This is why paying estimated tax by the nine-month deadline matters even when the return itself isn’t ready. Filing Form 4768 stops the failure-to-file penalty; only paying on time stops the failure-to-pay penalty and interest.

State Estate Taxes Are Separate

The federal return doesn’t cover state estate or inheritance taxes. Roughly a dozen states and the District of Columbia impose their own estate taxes, sometimes with exclusion amounts as low as $1 million. An estate that owes nothing to the IRS may still owe a substantial state estate tax with its own return. Check the rules in the decedent’s state of residence and in any state where the decedent owned real property.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Office of the Law Revision Counsel. 26 USC 6075 – Time for Filing Estate and Gift Tax Returns
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eCFR. 26 CFR 20.6081-1 – Extension of Time for Filing the Return
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Internal Revenue Service. Instructions for Form 4768
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Office of the Law Revision Counsel. 26 USC 2032 – Alternate Valuation
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Office of the Law Revision Counsel. 26 USC 2053 – Expenses, Indebtedness, and Taxes
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Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse
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Office of the Law Revision Counsel. 26 USC 2055 – Transfers for Public, Charitable, and Religious Uses
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Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
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Internal Revenue Service. What’s New – Estate and Gift Tax
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Internal Revenue Service. Instructions for Form 706 (09/2025)
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Office of the Law Revision Counsel. 26 USC 2031 – Definition of Gross Estate
15
Internal Revenue Service. Schedule R (Form 706) Generation-Skipping Transfer Tax
16
Internal Revenue Service. Instructions for Form 706
17
Office of the Law Revision Counsel. 26 USC 6166 – Extension of Time for Payment of Estate Tax Where Estate Consists Largely of Interest in Closely Held Business
18
Internal Revenue Service. Estate Tax Closing Letter Fee Reduced to $56 Effective May 21, 2025
19
Pay.gov. Estate Tax Closing Letter User Fee
20
Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
21
Internal Revenue Service. Failure to Pay Penalty