The IRS requires an estate tax return when the estate's total value exceeds a threshold set by federal law

Whether an estate tax return must be filed depends almost entirely on how much money and property the person left behind. The IRS sets an annual threshold — called the federal estate tax exemption — and estates below that amount do not need to file a federal return. For 2024, that threshold is $13.61 million. If the estate is smaller, no federal estate tax return is due, even if the person had significant assets.

The exemption amount changes each year and is set by Congress. It was lower in past years and will be lower again after 2025 unless Congress acts. This means an estate that did not need to file in 2024 might need to file in 2026, depending on what Congress does. State estate taxes operate separately and have their own, usually much lower, thresholds — some states tax estates over $1 million or less.

Even when no tax is owed, some estates still file a return for other reasons: to start the clock on certain tax deadlines, to document the value of assets for heirs, or because the will or trust requires it. A tax professional or the executor should review the specific situation rather than assume no filing is needed.

Key Takeaways

  • Federal estate tax returns are required only when the estate exceeds $13.61 million in 2024, a threshold that changes yearly and will drop after 2025.
  • State estate taxes have separate, usually much lower thresholds, and some states tax estates over $1 million or even less.
  • An estate below the federal threshold may still file a return to document asset values, meet trust instructions, or start tax deadlines for heirs.
  • The executor or a tax professional should review the estate's total value — including life insurance, retirement accounts, and property — to determine whether filing is required.

How the Federal Exemption Works

The federal estate tax exemption is the amount of wealth a person can pass to heirs without triggering federal estate tax. It applies to the total value of everything the person owned at death: real estate, bank accounts, investments, vehicles, life insurance proceeds, and retirement accounts. The executor or administrator adds up all of these and compares the total to the exemption amount for the year of death.

If the estate is $13.61 million or less in 2024, no federal estate tax is owed and no federal return is due. If it exceeds that amount, the estate owes tax on the excess, and Form 706 (the federal estate tax return) must be filed with the IRS within nine months of death. The exemption was much lower in the past — in 2010 it was $5 million — and Congress has scheduled it to drop to roughly $7 million per person in 2026 unless new legislation extends the current amount.

A surviving spouse can use any unused portion of the deceased spouse's exemption, a process called portability. This requires filing Form 706 even if no tax is owed, to preserve that unused amount for the surviving spouse's later use. This is one situation where filing is necessary even though the estate itself owes no tax.

State Estate and Inheritance Taxes

Seventeen states and the District of Columbia impose their own estate taxes, separate from the federal tax. These state thresholds are much lower than the federal amount. Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Tennessee, Vermont, and Washington all have estate taxes. The thresholds range from $1 million in some states to $5.94 million in Massachusetts in 2024.

Six states — Indiana, Iowa, Kentucky, Maryland, Nebraska, and Pennsylvania — impose inheritance taxes instead of estate taxes. An inheritance tax is paid by the person who receives the money or property, not by the estate itself. The rates and thresholds vary by state and by the relationship between the deceased and the heir — spouses and children often pay nothing or a lower rate.

An estate may owe no federal tax but still owe state tax, or vice versa. The executor must check the rules for both the state where the person lived and any state where they owned real estate. A state tax return may be due even if a federal return is not.

When to File Even Without a Tax Bill

Some estates file Form 706 even though they owe no federal tax. The most common reason is portability: when a surviving spouse wants to preserve the deceased spouse's unused exemption. Filing within nine months of death locks in that amount and allows the surviving spouse to use it when they die. Without the return, the unused exemption is lost.

An estate may also file to start the statute of limitations on certain tax matters. The IRS generally has three years from the filing date to audit an estate's tax return. If no return is filed, the IRS can audit indefinitely. For estates with complex assets or uncertain valuations, filing can provide certainty and protection.

A trust or will may require the executor to file a return or to report the estate's value to the court. Some states require a probate estate to file a return with the court even if no federal return is due. The executor should review the will, trust document, and state law before deciding not to file.

What the Executor Must Value

The executor must include the full value of everything the person owned at the moment of death. This includes obvious assets like bank accounts, real estate, and vehicles. It also includes life insurance proceeds if the person owned the policy or had any control over it, retirement account balances, the value of a business or partnership interest, and any property held in trust.

Property that passes outside the will — such as assets with a named beneficiary, joint property, or assets in a revocable living trust — still counts toward the estate tax threshold. The fact that something does not go through probate does not mean it is excluded from the estate tax calculation.

The executor must determine the value as of the date of death. For real estate, this usually means a professional appraisal. For stocks and bonds, it is the closing price on the date of death. For business interests, retirement accounts, and other hard-to-value assets, the executor may need to hire a professional appraiser. Undervaluing assets to avoid filing can result in penalties and interest.

Deadlines and Penalties for Late Filing

Form 706 is due nine months after the date of death. The executor can request a six-month extension by filing Form 4768 before the original deadline. The extension gives more time to file the return, but it does not extend the time to pay any tax owed — tax is still due nine months after death, even if the return is filed late.

If the return is late and tax is owed, the IRS charges interest and penalties. The penalty for filing late is usually 5 percent per month of the unpaid tax, up to 25 percent. Interest accrues daily at a rate set quarterly by the IRS. These charges can be substantial on large estates.

If the estate is below the filing threshold, there is no penalty for not filing. However, if the executor is unsure whether the estate exceeds the threshold, it is usually safer to file or to consult a tax professional. The cost of a professional review is often less than the cost of penalties and interest if the IRS later determines a return was required.

Working With a Tax Professional

Estate tax returns are complex documents that require accurate valuation of assets, calculation of deductions, and knowledge of current law. Most executors work with a tax professional — either a CPA or an estate tax attorney — to determine whether a return is required and to prepare it if one is due.

A tax professional can review the estate's assets, calculate the total value, check state law, and advise on portability and other tax-saving strategies. They can also handle the appraisals, valuations, and documentation the IRS may request. The cost of this help is usually paid from the estate and is deductible on the estate's income tax return.

If the executor is uncertain whether a return is required, a tax professional can provide a written opinion. This protects the executor from liability if the IRS later questions whether a return should have been filed. Many professionals offer a free initial consultation to discuss the estate's situation.

Frequently Asked Questions

Do I have to file if the estate is below the exemption but the will says to file a return?

Yes. If the will or trust document requires the executor to file a return, the executor should follow those instructions even if no tax is owed. The document may require filing for accounting purposes, to document asset values for heirs, or to preserve portability for a surviving spouse. A tax professional can review the document and advise.

What if the estate includes property in another state?

The federal threshold applies to all property owned at death, regardless of where it is located. However, you must also check whether that other state has an estate or inheritance tax and whether a return is due there. Some states tax property located within their borders even if the person did not live there.

Does life insurance count toward the estate tax threshold?

Yes, if the person owned the policy or had any control over it. Life insurance proceeds are included in the estate's value for tax purposes. If someone else owned the policy and named the deceased as beneficiary, those proceeds do not count. A tax professional can review the policy ownership to determine how it is treated.

Can I file the return myself, or do I need a professional?

Form 706 is one of the most complex tax forms the IRS publishes. Most executors hire a CPA or tax attorney to prepare it. The cost is usually paid from the estate. If the estate is small and simple, you may be able to file it yourself, but a professional review is recommended to avoid errors and penalties.

What happens if I file late and the estate owes tax?

The IRS will charge interest and penalties on the unpaid tax. Interest accrues from the original due date. The late-filing penalty is usually 5 percent per month of the unpaid tax. You can request relief if there was reasonable cause for the delay, but this requires written explanation to the IRS.