Real Estate Appraisals for IRS Form 706: Filing, Portability, and Basis

Form 706 is the federal estate tax return. When an estate must file one, or chooses to file so a surviving spouse can keep the unused exclusion, the real estate has to be valued as the tax law defines value, as of the right date, with support the IRS can follow.

This post covers the federal return. For the Georgia side of an estate, the probate inventory and what the heirs need, see date of death appraisals for Georgia probate estates. This is not tax advice; the estate's CPA or attorney decides what is filed.

Key Takeaways

• The 2026 threshold is $15,000,000. For decedents dying in 2026, Form 706 is required when the gross estate, plus adjusted taxable gifts and specific exemption, exceeds $15,000,000.
• Portability is a reason to file anyway. A surviving spouse can keep the deceased spouse's unused exclusion only if the executor elects it on a Form 706, whatever the size of the estate.
• The return is due 9 months after death. An automatic 6 month extension is available on Form 4768.
• Value means fair market value on the date of death, unless the executor elects the alternate valuation date six months later.
• The IRS asks for the support. The Schedule A instructions say to explain how real estate values were determined and to attach copies of any appraisals.
• The step-up in basis does not depend on filing. Section 1014 applies either way. But for property whose inclusion increased the estate tax, the heirs' basis cannot exceed the value finally determined for the return.

Who has to file in 2026

Section 2010(c)(3) of the Internal Revenue Code sets the basic exclusion amount at $15,000,000, adjusted for inflation for decedents dying after 2026. The IRS notes that Public Law 119-21, signed July 4, 2025, set that figure for 2026. For comparison, the 2025 amount was $13,990,000.

The Form 706 instructions require a return for a 2026 death when:

1. the gross estate, plus adjusted taxable gifts and specific exemption, is more than $15,000,000, or
2. the executor elects to transfer the deceased spousal unused exclusion (DSUE) amount to the surviving spouse, regardless of the size of the estate.

Under Section 6075(a), the return is due within 9 months after the date of death. Form 4768 requests an automatic 6 month extension of time to file.

Portability: a reason to file below the threshold

When the first spouse dies, the unused part of that spouse's exclusion can pass to the survivor. The catch is procedural. The instructions state that the executor can elect portability only on a timely filed Form 706.

There is relief for estates that had no filing requirement. Under Rev. Proc. 2022-32, those executors may file to elect portability on or before the fifth anniversary of the death, with a required statement at the top of the return. Estates past that window may be able to seek relief under the regulations.

For the appraisal, one special rule matters. On a return filed only to elect portability, Regulations section 20.2010-2(a)(7)(ii) excuses the executor from reporting the value of certain property that qualifies for the marital or charitable deduction. Those assets still have to be estimated and included in the total gross estate. Whether a full appraisal is still worth having for property passing to the spouse is a question about basis and future sale, and one to settle with the estate's CPA.

How the IRS defines the value of real estate

Section 2031 measures the gross estate by the value, at the time of death, of the property included in it, real or personal. The regulations define that value: the price at which the property would change hands between a willing buyer and a willing seller, neither under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts. It is not a forced sale price.

That is the standard a Form 706 appraisal should apply, and say that it applies.

What Schedule A asks for

Real estate goes on Schedule A. The instructions include several points that affect the appraisal directly:

• Describe the property so the IRS can find it. The instructions ask for enough detail that the IRS can easily locate each parcel for inspection and valuation, including its area and a description of any improvements.
• Explain the value and attach the appraisal. The instructions say to explain how the reported values were determined and to attach copies of any appraisals. The examples in the instructions describe each parcel with the note that the value is based on an appraisal, copy attached.
• Do not reduce for a homestead exemption. Real estate is reported without reducing it for a homestead or other exemption.
• Debt is handled separately. Where the estate is liable for a debt secured by the property, the full value is reported on Schedule A and the debt is deducted on Schedule K. Where it is not liable, only the value of the equity is reported. The appraisal values the real estate; the preparer handles the debt.

Alternate valuation: a second date to consider

Under Section 2032, the executor may elect to value the whole gross estate as of six months after death instead of the date of death. Property sold, distributed, or otherwise disposed of within those six months is valued as of the date of that disposition.

The election has limits. It is available only if it lowers both the value of the gross estate and the estate and generation-skipping transfer taxes. It applies to all of the property, not part of it. Once made it cannot be revoked, and it cannot be made on a return filed more than one year after the due date, including extensions.

If the estate's advisers think alternate valuation may apply, tell me at the start. A value as of the alternate date is a second effective date, and it is simpler to plan for both than to add one later.

How the return ties to the heirs' basis

Under Section 1014(a), property acquired from a decedent generally takes a basis equal to its fair market value at the date of death, or its alternate valuation date value if that election is made. The statute does not condition the step-up on filing Form 706. The stepped-up basis calculator shows the effect with your own numbers.

When a return is filed, Section 1014(f) links basis to it. The heir's basis may not exceed the value finally determined for estate tax purposes, or the value reported to the heir on a required statement. That rule applies only to property whose inclusion in the estate increased the estate tax.

To carry that value to the heirs, Section 6035 requires the executor of an estate that must file under Section 6018(a) to give the IRS and each recipient a statement of the value reported. The instructions direct estates to do this on Form 8971, filed separately from the Form 706, within 30 days after the return's due date, or after the date it is filed if it is filed late.

The number on Schedule A, in other words, can follow the property for as long as the heirs own it.

What a Form 706 appraisal should show

• The date of death as the effective date, and a second effective date if alternate valuation is in play.
• The fair market value standard from the regulations, stated.
• The property as it existed on that date, including its condition then, not after it was cleaned out or repaired.
• Support the IRS can follow: the comparable sales, the adjustments, and the reasoning, written so the explanation Schedule A asks for is already in the report.

My estate and date of death appraisal service page explains how I scope these assignments.

Questions for whoever the estate hires

Schedule A tells the executor to explain how the value was determined and to attach the appraisal. That instruction describes the kind of report that belongs with a return. A form with a number at the bottom explains nothing; an examiner reading it has to take the conclusion on faith, and faith is not what an examination runs on. A narrative report carries the explanation the instruction asks for, with the properties compared, the adjustments, and the market evidence behind each one written so that someone who has never seen the house can follow it long after the fact. Ask an appraiser which of the two the estate would be getting.

The rest of it is about the appraiser. These fit anyone the estate is considering:

• How many estate assignments have they done, and were any of them examined afterward?
• Have they been deposed or testified?
• Will they carry out the inspection personally?
• What effective date will they use, and can the report address the alternate date if it is elected?
• Does the fee depend on the value reached? The answer should be an immediate no.

Ask me the same. In the field since 1997. Chief Review Appraiser at two national appraisal management companies, where a contested value was mine to settle. A wholesale appraisal desk I built and ran at 1,700 orders a year, appraisal management operations, FHA field audits, litigation. Most of those seats existed to test somebody else's report, and that is the standard I write to. At the property I go through the house with the family instead of photographing it and leaving, so the executor understands what was in front of me and why it moves the number the return will report.

FAQs: Appraisals for Form 706

Does an estate under $15,000,000 ever file Form 706?

Yes. One reason is to elect portability of the unused exclusion for a surviving spouse, which can only be done on a Form 706.

Is the step-up in basis lost if no Form 706 is filed?

No. Section 1014 sets basis at fair market value at the date of death without requiring a return. What a filed return adds is the consistency rule in Section 1014(f) for property that increased the estate tax.

Must I attach the appraisal to Form 706?

The Schedule A instructions say to explain how real estate values were determined and to attach copies of any appraisals.

Can the appraisal be done after the return is due?

The appraisal can be retrospective, but the return has a deadline: 9 months after death, or later with an extension. Order the appraisal early so the preparer has it in time.