How to File Estate Taxes: Federal and State Returns

Managing an estate after a loved one’s passing often involves addressing tax obligations. Estate tax is a tax on a person’s right to transfer property at death. This article explains when a federal estate tax return is necessary, outlines its preparation and submission, and discusses state-level estate and inheritance taxes.

Who Must File an Estate Tax Return

A federal estate tax return, Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return,” is generally required if a decedent’s gross estate, combined with adjusted taxable gifts, exceeds a specific exemption amount. For individuals dying in 2025, this federal estate tax exemption is $13.99 million, adjusted annually for inflation. Filing may be necessary even if no estate tax is due, should the gross estate’s value surpass this limit.

The gross estate includes all property the decedent had an interest in at death. This includes real estate, cash, securities, life insurance proceeds, certain trusts, annuities, business interests, and other assets. The value of lifetime taxable gifts made after 1976 also adds to the gross estate for filing determination.

For married couples, “portability” allows the unused portion of a deceased spouse’s federal estate tax exemption to transfer to the surviving spouse. To elect portability, the executor must file Form 706, even if the estate’s value is below the filing threshold. This election can significantly increase the amount a surviving spouse can transfer tax-free.

Information Needed for Filing

Gathering comprehensive information and documentation is essential before completing Form 706. Obtain critical documents like the official death certificate, the decedent’s will, trust agreements, and prior gift tax returns (Form 709).

Thoroughly identify and value all gross estate assets. This includes:
Real estate: deeds, recent appraisals, property tax assessments.
Bank accounts: statements reflecting balances as of the date of death, account numbers.
Investments (stocks, bonds, mutual funds): brokerage statements and valuation at death or alternate valuation date.
Life insurance policies: policy details, beneficiary information, exact proceeds.
Business interests: professional valuation reports.
Personal property (valuables, collections, household goods): valuations, often requiring appraisals for items like art or collectibles over $3,000.
Retirement accounts (IRAs, 401(k)s): statements and beneficiary designations.

Document all deductible debts and expenses of the decedent and estate. These include mortgages, loans, funeral expenses, and administration expenses like attorney fees, executor commissions, and appraisal fees. Medical expenses incurred before death and taxes owed by the decedent are also potential deductions. Finally, gather complete information for all beneficiaries, including names, addresses, and relationship to the decedent.

An Employer Identification Number (EIN) is required for the estate, serving as its tax identification number for financial transactions like opening an estate bank account. An EIN can be obtained free of charge online, via fax, or by mail using Form SS-4, “Application for Employer Identification Number,” through the IRS website. The application requires the decedent’s name and Social Security number, the executor’s Social Security number, and the date of death.

Completing the Federal Estate Tax Return

Form 706 is the primary document for calculating and reporting federal estate tax. It is structured into parts and schedules for assets, deductions, and credits. The executor is responsible for its accurate completion.

Part 1 of Form 706 requires information about the decedent and the executor, including the estate’s EIN. Part 2 focuses on the tax computation, drawing from the gross estate value and applicable deductions. Detailed information is reported on various schedules:
Schedule A: Real estate (descriptions, addresses, fair market values, mortgages/liens).
Schedule B: Stocks and bonds.
Schedule C: Mortgages, notes, and cash.
Schedule D: Life insurance policies on the decedent’s life.
Schedule E: Jointly owned property (how titled, decedent’s interest).
Schedule F: Other miscellaneous property (personal belongings, business interests, intellectual property).
Schedule G: Transfers made by the decedent during their life.
Schedule H: Powers of appointment.
Schedule I: Annuities.

Deductions are reported on specific schedules:
Schedule J: Funeral expenses and administration expenses (executor commissions, attorney fees, appraisal costs).
Schedule K: Debts of the decedent (unpaid mortgages, other liabilities).
Schedule L: Net losses during administration and expenses for property not subject to claims.
Schedule M: Marital deduction (property passing to a surviving spouse).
Schedule O: Charitable, public, and similar gifts and bequests.
Schedule R: Generation-skipping transfer tax.

After completing all relevant schedules, the information flows to Part 2 for the final tax computation. This involves calculating the taxable estate by subtracting allowable deductions from the gross estate. The tentative tax is then determined, followed by applying the unified credit and other applicable credits to arrive at the final tax due. Supporting documents, such as appraisals and the death certificate, must be attached to the completed form.

Submitting the Estate Tax Return

After completing Form 706, submit it with any associated tax payment. The filing deadline is generally nine months after the decedent’s death. For example, if a decedent passed away on February 4th, the return would be due by November 4th of the same year. If the due date falls on a weekend or holiday, the deadline shifts to the next business day.

If additional time is needed, the executor can request an extension to file by submitting Form 4768, “Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.” This form grants an automatic six-month extension for filing. However, an extension to file does not extend the time to pay any tax due; payment is still expected by the original nine-month deadline to avoid interest and penalties.

The completed Form 706, with all supporting documentation, should be mailed to the appropriate IRS address. The specific mailing address depends on the decedent’s state of residence, with detailed instructions provided within the form’s instructions. Private delivery services can also be used, with specific IRS addresses for these services.

Any tax due can be paid through various methods. The Electronic Federal Tax Payment System (EFTPS) is a free and secure online option. Payments can also be made by check or money order payable to the “United States Treasury,” or via credit or debit card through approved third-party processors. After filing, the estate may receive confirmation of receipt. The IRS may review the return, which could lead to inquiries or an audit.

State Estate and Inheritance Taxes

Some states impose their own estate or inheritance taxes, distinct from federal estate tax. An estate tax is levied on the decedent’s estate based on the total value of assets transferred at death. This tax is paid by the estate before assets are distributed to beneficiaries.

An inheritance tax is imposed on the beneficiary’s right to receive property from a deceased person’s estate. This tax is paid by the beneficiary, and the amount can vary depending on the value received and the beneficiary’s relationship to the decedent.

As of 2025, several states have an estate tax, while others have an inheritance tax; Maryland has both. States with estate taxes include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia. States with an inheritance tax include Iowa (phasing out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

State laws vary significantly, with each state setting its own exemption thresholds, tax rates, and filing requirements. State estate tax exemptions can range from $1 million to matching the federal exemption amount. The state where the decedent resided or owned property typically dictates tax applicability. Executors and beneficiaries should research relevant state tax laws to determine obligations and liabilities.