HOW-TO GUIDE
How to Prepare an Estate Tax Return — Form 706 Guide 2026
Step-by-step guide to Form 706 preparation — estate tax threshold, portability election, valuation discounts, and TCJA sunset planning for 2026.
Estate Tax in 2026: The TCJA Sunset Impact
The federal estate tax exemption is $13,990,000 per person for 2026 (indexed for inflation under the TCJA). The estate tax rate is 40% on the taxable estate above the exemption. For a married couple using portability, the combined exemption is $27,980,000 — meaning most estates will not owe federal estate tax in 2026.
However, the TCJA estate tax provisions are scheduled to sunset after December 31, 2025. Under current law, the exemption is permanent at ~$13,990,000 (2026) under OBBBA,000,000 per person (inflation-adjusted) in 2026. Congress is expected to extend the TCJA provisions, but as of April 2026, the extension has been confirmed under the Tax Relief and Jobs Act of 2025 through 2029. Practitioners must stay current on the legislative status.
| Year | Exemption (per person) | Married Couple (with portability) | Top Rate |
|---|---|---|---|
| 2024 | $13,990,000 | $27,220,000 | 40% |
| 2025 | $13,990,000 | $27,980,000 | 40% |
| 2026 (TCJA extended) | $14,380,000 (est.) | $28,760,000 (est.) | 40% |
| 2026 (under current permanent law (TCJA made permanent by OBBBA)d) | ~$7,000,000 | ~$14,000,000 | 40% |
| State estate tax (varies) | $1M–$7M (varies by state) | Varies | 0–20% |
Step-by-Step Form 706 Preparation
Step 1 — Determine If Form 706 Is Required: Form 706 (United States Estate and Generation-Skipping Transfer Tax Return) is required if the gross estate exceeds the filing threshold ($13,990,000 for 2025 decedents). Form 706 is also required to make the portability election — even if no estate tax is owed. The portability election allows the surviving spouse to use the deceased spouse's unused exemption (DSUE).
Step 2 — Identify and Value All Assets: The gross estate includes: (1) probate assets (assets passing through the will); (2) non-probate assets (jointly held property, beneficiary designations, revocable trusts); (3) life insurance proceeds (if the decedent owned the policy); and (4) retirement accounts (IRAs, 401(k)s). Value all assets at fair market value on the date of death (or the alternate valuation date, 6 months after death, if elected).
Step 3 — Apply Deductions: The taxable estate is the gross estate minus deductions: (1) marital deduction (unlimited — all assets passing to a U.S. citizen spouse are deductible); (2) charitable deduction (unlimited — all assets passing to qualified charities are deductible); (3) debts and mortgages; (4) funeral expenses; (5) administration expenses (executor fees, attorney fees, appraisal fees).
Step 4 — Consider Valuation Discounts: Closely held business interests and minority interests in LLCs or partnerships may qualify for valuation discounts: (1) minority interest discount (10–35% for lack of control); (2) marketability discount (15–35% for lack of a ready market). These discounts can significantly reduce the taxable estate. Valuation discounts require a qualified appraisal.
Step 5 — File by the Deadline: Form 706 is due 9 months after the date of death, with a 6-month extension available (Form 4768). For a decedent who died on June 15, 2025, the Form 706 deadline is March 15, 2026 (or September 15, 2026 with extension). The portability election must be made on a timely filed Form 706 — even if no estate tax is owed.
Case Study: $1.8M Estate Tax Saved Through Portability Election
John died in 2024 with a gross estate of $8,500,000. His estate was below the $13,990,000 exemption, so no estate tax was owed. His executor did not file Form 706 — believing it was not required. John's wife Mary died in 2026 with a gross estate of $22,000,000. Without John's DSUE ($13,990,000), Mary's taxable estate was $22,000,000 - $14,380,000 (her own exemption) = $7,620,000. Estate tax: $3,048,000. If John's executor had filed Form 706 to preserve the portability election, Mary's taxable estate would have been $22,000,000 - $13,990,000 (John's DSUE) - $14,380,000 (Mary's exemption) = $0. Estate tax saved: $3,048,000.
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Join Uncle Kam →Frequently Asked Questions
The federal estate tax exemption is approximately $14,380,000 per person for 2026 (estimated, indexed for inflation). For a married couple using portability, the combined exemption is approximately $28,760,000. The exemption was extended through 2029 under the Tax Relief and Jobs Act of 2025.
The portability election allows the surviving spouse to use the deceased spouse's unused exemption (DSUE). The election must be made on a timely filed Form 706 — even if no estate tax is owed. The portability election is one of the most important estate planning tools for married couples.
Form 706 is due 9 months after the date of death. A 6-month extension is available by filing Form 4768. For a decedent who died on June 15, 2025, the deadline is March 15, 2026 (or September 15, 2026 with extension).
The alternate valuation date is 6 months after the date of death. The executor can elect to value estate assets at the alternate valuation date if: (1) the gross estate is lower at the alternate valuation date; and (2) the estate tax liability is lower at the alternate valuation date. The alternate valuation date election reduces both the estate tax and the beneficiaries' basis in inherited assets.
Closely held business interests and minority interests in LLCs or partnerships may qualify for valuation discounts: minority interest discount (10–35% for lack of control) and marketability discount (15–35% for lack of a ready market). These discounts require a qualified appraisal and can significantly reduce the taxable estate.
The marital deduction allows an unlimited deduction for assets passing to a U.S. citizen spouse. All assets passing to a U.S. citizen spouse are deductible from the gross estate, reducing the taxable estate to zero. The marital deduction defers (but does not eliminate) the estate tax — the surviving spouse's estate will be taxed when they die.
12 states and the District of Columbia have state estate taxes: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. State exemptions range from $1,000,000 (Massachusetts) to $7,000,000 (Connecticut). State estate tax rates range from 0.8% to 20%.
The information on this page is intended for licensed tax professionals (CPAs, EAs, and tax attorneys) and is provided for educational and research purposes only. Tax law is complex and fact-specific — all strategies discussed are subject to limitations, phase-outs, and conditions that may not apply to every client situation. Practitioners should independently verify all information against current IRS guidance, Treasury Regulations, and applicable state law before advising clients. This content does not constitute legal or tax advice.
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