Do I Have to File an Estate Tax Return if No Income?

An estate tax is a tax on the transfer of a deceased person’s assets to their beneficiaries. The requirement to file a federal estate tax return, and any potential tax liability, is determined by the total gross value of the decedent’s estate. This obligation exists regardless of whether the estate generated any income after the individual’s passing. This article clarifies when such a return is necessary at both federal and state levels, focusing on asset value rather than post-death income.

Federal Estate Tax Filing Requirements

A federal estate tax return, Form 706, must be filed if a decedent’s gross estate exceeds a specific threshold. For individuals dying in 2025, this threshold is $13.99 million. This amount, known as the unified credit or basic exclusion amount, is indexed for inflation. Most estates do not meet the criteria for federal estate tax liability or the need to file this return.

The “gross estate” encompasses the fair market value of all assets the decedent owned or had an interest in at the time of death, regardless of whether those assets pass through probate. Even if no estate tax is ultimately due after accounting for deductions and credits, filing Form 706 is still required if the gross estate’s value surpasses the established threshold.

A provision impacting married couples is the “portability” of the deceased spousal unused exclusion (DSUE) amount. This allows a surviving spouse’s estate to claim any unused exemption from their deceased spouse, potentially increasing their own filing threshold. To elect portability, the executor of the first-to-die spouse’s estate must file a timely Form 706, even if the estate’s value does not otherwise require a filing. This election can provide tax planning benefits for the surviving spouse.

Determining the Gross Estate

The “gross estate” for federal estate tax purposes includes the fair market value of all property interests owned by the decedent at the time of death. The valuation date is typically the date of death, though an alternate valuation date six months after death can be elected.

Assets solely owned by the decedent are included, such as real estate, bank accounts, investment portfolios, and personal property like vehicles or collectibles. Property held jointly with rights of survivorship is also part of the gross estate, with the decedent’s proportional ownership share included.

Life insurance proceeds are included if the decedent owned the policy or possessed certain “incidents of ownership,” such as the right to change beneficiaries or borrow against the policy. Retirement accounts like IRAs and 401(k)s, along with annuities, are also part of the gross estate, regardless of their designated beneficiaries.

Assets held in certain types of trusts, particularly revocable living trusts, are included in the gross estate because the decedent retained control over the assets during their lifetime. Additionally, certain gifts made within three years of death may be pulled back into the gross estate for calculation purposes. Business interests, such as sole proprietorships, partnership interests, or shares in closely held corporations, are valued and included.

State-Specific Estate and Inheritance Tax Considerations

Beyond the federal estate tax, some states impose their own estate taxes. These state-level taxes operate independently from the federal system and often have lower filing thresholds. Therefore, an estate that does not owe federal estate tax might still be subject to a state estate tax.

In addition to state estate taxes, a few states levy an inheritance tax. Unlike an estate tax, which is imposed on the deceased person’s estate, an inheritance tax is paid by the heirs or beneficiaries who receive assets from the estate. The amount of inheritance tax depends on the value of the inherited property and the relationship of the heir to the decedent, with closer relatives often receiving better treatment.

State laws vary regarding both estate and inheritance taxes. These variations include different thresholds for filing, distinct tax rates, and specific exemptions or exclusions. Executors and beneficiaries should research the specific laws of the state where the decedent resided at the time of death, as well as any states where significant assets are located.

Distinguishing Estate Tax from Estate Income Tax

The estate tax, reported on Form 706, is a tax on the value of assets transferred at a person’s death. This tax applies to the total value of the gross estate before distribution to beneficiaries. The requirement to file this return and pay any resulting tax is based solely on the estate’s value exceeding federal or state thresholds.

Separately, an estate can become a distinct taxable entity that generates its own income after the decedent’s death. This income might include interest earned on bank accounts, dividends from stocks, or rental income from properties held by the estate. If an estate generates income, generally over $600 annually for federal purposes, it may be required to file an income tax return for estates and trusts, Form 1041.

The obligation to file Form 1041 for estate income tax is entirely separate from the requirement to file Form 706 for estate tax. An estate with no income may still need to file an estate tax return if its gross value is substantial. Conversely, an estate might generate taxable income requiring a Form 1041, even if its overall value is below the estate tax filing threshold and no Form 706 is necessary. The absence of income generated by the estate does not eliminate the obligation to file an estate tax return, as that obligation is tied to the value of the assets at death.