You need to file an estate tax return only if the estate's total value exceeds a specific threshold set by the IRS

The IRS requires an estate tax return — Form 706 — only when the deceased person's estate is large enough. For 2024, that threshold is $13.61 million. If the estate is smaller, no federal estate tax return is required, even if the person owned a house, investments, and other property.

This threshold changes every year based on inflation. It was $12.92 million in 2023 and will shift again in 2025. The threshold also depends on whether the person was married and how assets were titled. Some states have their own estate tax with much lower thresholds, which can require a return even when the federal threshold is not met.

The person responsible for handling the estate — usually called the executor or personal representative — needs to determine the total value of everything the deceased owned at the moment of death. This includes real estate, bank accounts, investments, retirement accounts, life insurance proceeds, and business interests. Only then can you know whether a return is required.

Key Takeaways

  • Federal Form 706 is required only if the estate exceeds $13.61 million in 2024, a threshold that changes yearly.
  • The total value includes all property owned at death — real estate, bank accounts, investments, retirement accounts, and life insurance — regardless of how it was titled.
  • Some states impose estate tax on much smaller amounts and may require a state return even when no federal return is due.
  • The executor or personal representative must calculate the estate's value as of the date of death to determine whether filing is required.
  • Even when no return is required, you may still need to file income tax returns for the estate itself during the probate period.

How the IRS calculates whether an estate is large enough

The IRS looks at the gross estate, which is the total value of everything the person owned at death, before any debts or taxes are paid. This includes property held in the person's name alone, property held jointly with others, life insurance death benefits, retirement account balances, and the value of any business interests.

The value is determined as of the date of death, not the date the person bought it or the date the return is filed. For real estate and other assets without a clear market price, you typically use what the property would sell for on that specific date. Bank accounts and investment accounts are valued at their balance on the date of death.

Certain assets reduce the gross estate before comparing it to the threshold. These include debts the deceased owed (mortgages, credit cards, medical bills), funeral expenses, and amounts left to a surviving spouse or to charity. After these deductions, you have the taxable estate. If the taxable estate is below the threshold, no federal return is required.

State estate tax thresholds are often much lower

Seventeen states and Washington, D.C. currently impose their own estate tax. Unlike the federal threshold of $13.61 million, state thresholds range from $1 million to $6.94 million depending on the state. If the deceased lived in or owned property in one of these states, you may need to file a state estate tax return even if the federal threshold is not met.

States that impose estate tax include Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Washington, and Washington, D.C. The threshold and rules vary by state, so you need to check the specific state's requirements.

Some states also impose an inheritance tax, which is different from an estate tax. An inheritance tax is paid by the person who receives the property, not by the estate itself. A few states have both. If you are unsure whether a state return is required, contact the state's department of revenue or tax authority.

What counts as part of the estate for tax purposes

The gross estate includes more than just property titled in the deceased person's name. Life insurance proceeds paid to the estate are included, as is the full value of any retirement account (IRA, 401(k), pension) even if a beneficiary is named. Property held as "tenants in common" with another person is included at the deceased's percentage of ownership.

Property held as "joint tenants with rights of survivorship" or "tenants by the entirety" (a form used by married couples in some states) is included at 50 percent of the value if the co-owner is the surviving spouse, or 100 percent if the co-owner is someone else. Transfers made within three years of death may be included under certain circumstances, particularly life insurance policies.

Property left to a surviving spouse or to charity is deducted from the gross estate, which can bring the total below the threshold. Debts, funeral expenses, and estate administration costs are also deducted. These deductions are why two estates of similar size might have different filing requirements.

When to file Form 706 even if the estate is below the threshold

In rare cases, you should file Form 706 even if the estate does not exceed the threshold. One reason is to preserve the unused portion of the deceased person's lifetime gift and estate tax exemption for a surviving spouse. This is called portability, and it allows a surviving spouse to use the deceased spouse's unused exemption in addition to their own.

To claim portability, Form 706 must be filed within nine months of death (or within fifteen months if an extension is granted), even if no tax is owed. Without the return, the unused exemption is lost. For married couples with substantial assets, this can mean a significant tax cost to the surviving spouse's estate later.

Another reason to file even if not required is if the deceased made large gifts during life. The lifetime gift tax exemption is the same as the estate tax exemption. If the person used part of their exemption for gifts, Form 706 documents this and prevents the IRS from counting those gifts twice.

The difference between an estate tax return and an estate income tax return

An estate tax return (Form 706) is about whether the estate itself owes federal tax based on its size. An estate income tax return (Form 1041) is different — it reports income the estate earned during the probate period, such as interest on bank accounts, dividends, or rental income from property.

Form 1041 may be required even if Form 706 is not. An estate must file Form 1041 if it has gross income of $600 or more during the tax year, though the threshold can be higher depending on the type of income. The executor files this return on behalf of the estate, and income is taxed either at the estate level or passed through to beneficiaries who receive distributions.

These are two separate filings with different purposes. You can owe income tax on an estate without owing estate tax, and vice versa. Both may be required, or only one, or neither, depending on the estate's size and income.

How to determine the estate's value and file if required

The executor or personal representative should begin by listing all assets and obtaining valuations. For real estate, this often means a professional appraisal. For stocks and bonds, use the closing price on the date of death. For bank accounts and CDs, use the balance statement from that date. For business interests and other hard-to-value assets, a professional valuation may be necessary.

Once you have the total value and have subtracted debts, funeral expenses, and any amounts passing to a spouse or charity, compare the result to the current year's threshold. If it exceeds the threshold, Form 706 must be filed with the IRS within nine months of death. An extension can be requested, which gives you an additional six months.

Form 706 is complex and often requires the help of a tax professional or estate attorney, particularly if the estate includes business interests, real estate in multiple states, or significant investments. The IRS provides instructions with the form, and the executor can work with a CPA or enrolled agent to prepare and file it.

Frequently Asked Questions

What happens if I don't file Form 706 when it's required?

The IRS can assess penalties and interest on any unpaid estate tax. The penalty for late filing is typically 5 percent per month of the unpaid tax, up to 25 percent. Interest accrues from the original due date. In some cases, the IRS may also examine the estate and adjust valuations, which can increase the tax owed.

Can I file Form 706 even if the estate is below the threshold?

Yes. You may want to file to preserve portability for a surviving spouse, to document lifetime gifts, or to establish valuations for income tax purposes. Filing does not create a tax liability if the estate is below the threshold, but it does create a record with the IRS.

Does property that passes directly to a beneficiary count toward the threshold?

Yes. Property with a named beneficiary — such as life insurance, retirement accounts, or payable-on-death bank accounts — is included in the gross estate for purposes of determining whether Form 706 is required, even though it passes outside of probate.

Do I need to file a state estate tax return if the federal threshold is not met?

It depends on the state. If the deceased lived in or owned property in a state with an estate tax, check that state's threshold. Many states have thresholds between $1 million and $6.94 million, so a state return may be required even when no federal return is due.

How do I value a business or real estate for Form 706?

Real estate is typically valued using a professional appraisal as of the date of death. A business interest may be valued using a business valuation informed, who considers earnings, assets, comparable sales, and other factors. The IRS may challenge valuations, so documentation and professional support are important.