When Do You Need to File an Estate Tax Return?

The estate tax is a federal tax on the transfer of property from a deceased person to their heirs. This tax is levied on the deceased person’s estate, not on the inheritance received by beneficiaries. The purpose of an estate tax return is to calculate and report the value of the decedent’s assets and determine if any estate tax is owed to the government. This return provides a comprehensive accounting of the decedent’s financial standing at the time of death.

When a Federal Estate Tax Return is Required

A federal estate tax return, Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, must be filed under specific circumstances. The primary trigger for this filing requirement is the value of the decedent’s gross estate at the time of death. If this value, combined with any adjusted taxable gifts made during their lifetime, exceeds a certain threshold, a return is necessary.

For individuals who pass away in 2025, the federal estate tax exemption amount is $13.99 million. If a decedent’s gross estate, plus their adjusted taxable gifts, is valued at more than $13.99 million, their estate is generally required to file Form 706. The tax applies only to the portion of the estate that surpasses this exemption limit.

An estate tax return may also be required even if no estate tax is ultimately due. This commonly arises when an estate elects to transfer any Deceased Spousal Unused Exclusion (DSUE) amount to a surviving spouse. This election, known as portability, allows a surviving spouse to utilize the unused portion of their deceased spouse’s estate tax exemption. The DSUE amount can significantly lower or even eliminate the surviving spouse’s future estate or gift tax liability.

To elect portability, the executor of the deceased spouse’s estate must file a timely and complete Form 706. This requirement applies regardless of whether the gross estate’s value exceeds the basic exclusion amount for the year of death. While the standard due date is nine months after death, the IRS has provided an extended period for certain estates to elect portability. For estates not otherwise required to file Form 706, the portability election can be made within five years from the date of the decedent’s death. This provision is particularly beneficial for married couples, as it allows them to effectively combine their individual exemption amounts. For instance, if one spouse dies having used only a portion of their exemption, the remaining unused amount can be transferred to the surviving spouse. This can result in substantial tax savings and wealth preservation for the family, potentially shielding a much larger estate from federal estate tax.

Understanding the Gross Estate

The “gross estate” for federal estate tax purposes encompasses all property in which the decedent had an ownership interest at the time of their death. This includes both probate assets, which pass through a will and the probate court process, and non-probate assets, which transfer directly to beneficiaries outside of probate. The fair market value of these items on the date of death is used for valuation.

The gross estate includes:
Real estate, such as a primary residence, vacation homes, or investment properties.
Personal property, covering tangible items like vehicles, jewelry, household furnishings, and art collections.
Financial assets such as cash, bank accounts, stocks, and bonds.
Certain life insurance proceeds, generally if the decedent owned the policy or had “incidents of ownership” over it at the time of death.
Retirement accounts, including IRAs and 401(k)s, and annuities, regardless of who is named as the beneficiary.
Assets held in joint tenancy with right of survivorship or as tenants by the entirety. For example, if a decedent owned a one-half interest in a property with another individual, generally only that one-half interest’s value would be included.
Certain transfers made by the decedent within three years of death.

The valuation of assets for the gross estate is generally based on their fair market value on the date of the decedent’s death. In some cases, the executor may elect an alternate valuation date, typically six months after the date of death, if it results in a lower overall estate value and a lower estate tax liability. This election can be beneficial for estates with assets that have significantly decreased in value shortly after the decedent’s passing.

Key Deductions and Credits

Once the gross estate has been determined, certain deductions and credits can reduce the amount of the taxable estate. These do not affect the initial requirement to file the return, but they directly impact the amount of estate tax that may be owed.

Marital Deduction

An unlimited deduction is generally allowed for property passing to a surviving U.S. citizen spouse. Assets transferred to a spouse, either outright or through certain qualifying trusts, are typically exempt from estate tax in the decedent’s estate. This deduction is a fundamental aspect of estate planning for married individuals, allowing for the deferral of estate taxes until the death of the second spouse.

Charitable Deduction

If the decedent leaves property to a qualifying charity, the value of that property is generally fully deductible from the gross estate. The charity must meet specific Internal Revenue Service (IRS) requirements to qualify for this deduction.

Debts and Administration Expenses

Debts of the decedent are deductible from the gross estate. This includes mortgages, loans, and other legitimate financial obligations that the decedent owed at the time of death. Additionally, certain administration expenses incurred in settling the estate can be deducted. These expenses typically include reasonable costs associated with funeral expenses and the administration of the estate, such as executor fees, attorney fees, appraisal fees, and court costs. These expenses are deductible if they are allowable under state law and are paid within a specific timeframe.

Unified Credit

The unified credit is the primary credit that offsets federal estate tax. This credit is directly tied to the federal estate tax exemption amount and effectively allows a certain value of an estate to pass free of estate tax. For example, the $13.99 million exemption for 2025 translates into a corresponding unified credit that eliminates the tax on an estate of that size. Other, less common credits may also be available, such as a credit for estate tax paid on prior transfers or for foreign death taxes.

Filing the Estate Tax Return

The federal estate tax return is filed using Form 706. The responsibility for filing this return falls to the executor or personal representative of the decedent’s estate. This individual is legally appointed to manage the decedent’s affairs and distribute their assets according to their will or state law.

The standard deadline for filing Form 706 is nine months after the date of the decedent’s death. For example, if a person died on January 15, the return would generally be due by October 15 of the same year. This nine-month period allows the executor sufficient time to gather all necessary financial information, value assets, and calculate potential tax liabilities.

If the executor needs additional time, an extension can be requested by filing Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes. An automatic six-month extension to file Form 706 can be obtained by submitting Form 4768 by the original due date. This form grants an extension of time to file the return, but it does not extend the time to pay any estate tax due. Any tax owed must still be paid by the original nine-month deadline to avoid potential penalties and interest.

Failure to file the estate tax return on time, or failure to pay any tax due by the deadline, can result in penalties and interest charges. Penalties for late filing can be significant, often accruing monthly on the unpaid tax. Interest is also charged on underpayments from the original due date until the tax is paid in full.