Learn when and how to file both Form 706 and Form 4768.
When Is Form 706 Due?
Form 706 must generally be filed along with any tax due within nine months of the decedent’s date of death. However, not every estate needs to file Form 706. It depends on the value of the estate.
Who Must File Form 706?
For decedents who died in 2022, Form 706 must be filed when their gross estate, plus any taxable gifts given during their lifetime, is valued at more than $12.06 million. This threshold has been indexed for inflation, so it may increase incrementally year over year. The Tax Cuts and Jobs Act (TCJA) increased the exemption from just $5.49 million in 2017 to $11.18 million in 2018 when the new tax law went into effect. Inflation adjustments bumped it up to $11.4 million in 2019, which rose to $11.58 million for 2020 and $11.7 million for 2021. For decedents who die in 2022, the exemption threshold has been increased to $12.06 million.
How To Calculate the Value of the Estate
To determine whether an estate tax return must be filed, add the following values together: A gross estate valued at more than the exemption limit must file Form 706 even if no federal estate tax will be owed after applicable deductions and tax credits have been applied.
The Portability Election
The concept of portability of the estate tax exemption between married couples was first introduced in 2011. A surviving spouse can elect to pick up their deceased spouse’s unused estate tax exemption under this rule and add it to their own federal estate tax exemption. This is known as the deceased spousal unused exclusion (DSUE). For example, the Smiths, a married couple have equal ownership of an estate worth $24.12 million. If Mr. Smith died in January 2022, his half of the estate $12.06 million ($24.12 million/2) can be passed on to his wife without any tax liability under unlimited marital deduction. Now if Mrs. Smith dies later, there can be two scenarios:
When Should a Nontaxable Estate File Form 706?
Some estates that are not required to file federal estate tax returns could consider doing so anyway. It’s typically much easier to settle the estate of a surviving spouse or a non-spouse beneficiary later on if an estate tax return has previously been filed. The starting fair market values and step-up in basis of estate assets will be clearly documented and memorialized on the initial decedent’s IRS Form 706.
Which States Require Preparation of Form 706?
Sometimes an estate can be taxable at the state level even if it’s not taxable at the federal level, and this may require filing Form 706 even if no tax is due to the federal government. Twelve states and Washington D.C. impose state-level estate taxes of their own as of 2022, and some of their exemptions are far less than what’s currently offered by the federal government. As of 2022, the following jurisdictions require that estates prepare and file IRS Form 706 at the state level, along with all necessary state estate tax forms, even if Form 706 isn’t filed with the federal government. The 2022 state-by-state tax exemption limits are as follows (Vermont and Washington D.C. have not yet provided 2022 figures):
Connecticut: $9.1 millionHawaii: $5.49 millionIllinois: $4 millionMaine: $6.01 millionMaryland: $5 millionMassachusetts: $1 millionMinnesota: $3 millionNew York: $6.11 millionOregon: $1 millionRhode Island: $1.5 millionVermont: $5 million (2021)Washington: $2.193 millionWashington D.C.: $4 million (2021)
Filing for an Extension With Form 4768
An automatic six-month extension of time to file is granted to estates that file IRS Form 4768, the Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes. Filing Form 4768 automatically gives the executor of an estate or the trustee of a living trust an additional six months to file a tax return. Form 4768 must be filed on or before the due date for Form 706, or for the equivalent form for a given estate. The estimated tax should be paid by that date as well.
Where To File Form 706 and Form 4768
If filing by mail, you can send Form 706 to the following address: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999. If filing by mail, you can send Form 4768 for the extension to the following address: Internal Revenue Service Center, Attn: Estate & Gift, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915.
