Part — Instruction 706 — Instructions for Form 706

Note: The election to allow the decedent’s surviving spouse to use the decedent’s unused exclusion amount is made by filing a timely and complete Form 706. See the instructions for Part VI, later, and sections 2010(c)(4) and (c)(5).

Line 1. Alternate Valuation

Tip: See the example showing the use of Schedule B (Form 706) where the alternate valuation is adopted, later.

Unless you elect at the time the return is filed to adopt alternate valuation, as authorized by section 2032, value all property included in the gross estate as of the date of the decedent’s death. Alternate valuation cannot be applied to only a part of the property.

You may elect special-use valuation (line 2) in addition to alternate valuation.

You may not elect alternate valuation unless the election will decrease both the value of the gross estate and the sum (reduced by allowable credits) of the estate and GST taxes payable by reason of the decedent’s death for the property includible in the decedent’s gross estate.

Elect alternate valuation by checking “Yes” on line 1 and filing Form 706. You may make a protective alternate valuation election by checking “Yes” on line 1, writing the word “protective,” and filing Form 706 using regular values.

Once made, the election may not be revoked. The election may be made on a late-filed Form 706, provided it is not filed later than 1 year after the due date (including extensions actually granted). Relief under Regulations sections 301.9100-1 and 301.9100-3 may be available to make an alternate valuation election or a protective alternate valuation election, provided a Form 706 is filed no later than 1 year after the due date of the return (including extensions actually granted).

If alternate valuation is elected, value the property included in the gross estate as of the following dates, as applicable.

Any property distributed, sold, exchanged, or otherwise disposed of or separated or passed from the gross estate by any method within 6 months after the decedent’s death is valued on the date of distribution, sale, exchange, or other disposition. Value this property on the date it ceases to be a part of the gross estate; for example, on the date the title passes as the result of its sale, exchange, or other disposition.
Any property not distributed, sold, exchanged, or otherwise disposed of within the 6-month period is valued as of 6 months after the date of the decedent’s death.
Any property, interest, or estate that is affected by mere lapse of time is valued as of the date of the decedent’s death or on the date of its distribution, sale, exchange, or other disposition, whichever occurs first. However, you may change the date of death value to account for any change in value that is not due to a “mere lapse of time” on the date of its distribution, sale, exchange, or other disposition.

The property included in the alternate valuation and valued as of 6 months after the date of the decedent’s death, or as of some intermediate date (as described above), is the property included in the gross estate on the date of the decedent’s death. Therefore, you must first determine what property was part of the gross estate at the decedent’s death.

Interest. Interest accrued to the date of the decedent’s death on bonds, notes, and other interest-bearing obligations is property of the gross estate on the date of death and is included in the alternate valuation.

Rent. Rent accrued to the date of the decedent’s death on leased real or personal property is property of the gross estate on the date of death and is included in the alternate valuation.

Dividends. Outstanding dividends that were declared to stockholders of record on or before the date of the decedent’s death are considered property of the gross estate on the date of death and are included in the alternate valuation. Ordinary dividends declared to stockholders of record after the date of the decedent’s death are not included in the gross estate on the date of death and are not eligible for alternate valuation. However, if dividends are declared to stockholders of record after the date of the decedent’s death so that the shares of stock at the later valuation date do not reasonably represent the same property at the date of the decedent’s death, include those dividends (except dividends paid

Instructions for Form 706 (Rev. 7-2026) 13

from earnings of the corporation after the date of the decedent’s death) in the alternate valuation.

On Schedules A through I of Form 706, you must show the following.

What property is included in the gross estate on the date of the decedent’s death.
What property was distributed, sold, exchanged, or otherwise disposed of within the 6-month period after the decedent’s death, and the dates of these distributions, etc. (These two items should be entered in the “Description” column of each schedule. Briefly explain the status or disposition governing the alternate valuation date, such as “Not disposed of within 6 months following death,” “Distributed,” “Sold,” “Bond paid on maturity,” etc. In this same column, describe each item of principal and includible income.)
The date of death value, entered in the appropriate value column with items of principal and includible income shown separately.
The alternate value, entered in the appropriate value column with items of principal and includible income shown separately. (In the case of any interest or estate, the value of which is affected by lapse of time, such as patents, leaseholds, estates for the life of another, or remainder interests, the value shown under the heading “Alternate value” must be the adjusted value, for example, the value as of the date of death with an adjustment reflecting any difference in its value as of the later date not due to lapse of time.)

Note: If any property on Schedules A through I of Form 706 is being valued pursuant to the special rule of Regulations section 20.2010-2(a)(7)(ii), values for those assets are not required to be reported on the schedule. See Part V, Item 10, later.

Distributions, sales, exchanges, and other dispositions of the property within the 6-month period after the decedent’s death must be supported by evidence. If the court issued an order of distribution during that period, you must submit a certified copy of the order as part of the evidence. The IRS may require you to submit additional evidence, if necessary.

If the alternate valuation method is used, the values of life estates, remainders, and similar interests are figured using the age of the recipient on the date of the decedent’s death and the value of the property on the alternate valuation date.

Line 2. Special-Use Valuation of Section 2032A

In general. Under section 2032A, you may elect to value certain farm and closely held business real property at its farm or business use value rather than its FMV. Both special-use valuation and alternate valuation may be elected.

To elect special-use valuation, check “Yes” on line 2 and complete and attach Schedule T (Form 706) and its required additional statements. You must file Schedule T (Form 706) and its required attachments with Form 706 for

this election to be valid. You may make the election on a late-filed return so long as it’s the first return filed.

The decedent was a U.S. citizen or resident at the time of death;
The real property is located in the United States;
At the decedent’s death, the real property was used by the decedent or a family member for farming or in a trade or business, or was rented for such use by either the surviving spouse or a lineal descendant of the decedent to a family member on a net cash basis;
The real property was acquired from or passed from the decedent to a qualified heir of the decedent;
The real property was owned and used in a qualified manner by the decedent or a member of the decedent’s family during 5 of the 8 years before the decedent’s death;
There was material participation by the decedent or a member of the decedent’s family during 5 of the 8 years before the decedent’s death; and
The property meets the following percentage requirements.

a. At least 50% of the adjusted value of the gross

estate must consist of the adjusted value of real or personal property that was being used as a farm or in a closely held business and that was acquired from, or passed from, the decedent to a qualified heir of the decedent.

b. At least 25% of the adjusted value of the

gross estate must consist of the adjusted value of qualified farm or closely held business real property.

For this purpose, adjusted value is the value of property determined without regard to its special-use value. The value is reduced for unpaid mortgages on the property or any indebtedness against the property, if the full value of the decedent’s interest in the property (not reduced by such mortgage or indebtedness) is included in the value of the gross estate. The adjusted value of the qualified real and personal property used in different businesses may be combined to meet the 50% and 25% requirements.

Qualified Real Property

Qualified use. Qualified use means use of the property as a farm for farming purposes or in a trade or business other than farming. Trade or business applies only to the active conduct of a business. It does not apply to passive investment activities or the mere passive rental of property to a person other than a member of the decedent’s family. Also, no trade or business is present in the case of activities not engaged in for profit.

Ownership. To qualify as special-use property, the decedent or a member of the decedent’s family must have

The total value of the property valued under section 2032A may not be decreased from FMV by more than $1,460,000 for decedents dying in 2026.

Real property may qualify for the section 2032A election if:

14 Instructions for Form 706 (Rev. 7-2026)

owned and used the property in a qualified use for 5 of the last 8 years before the decedent’s death. Ownership may be direct or indirect through a corporation, a partnership, or a trust.

If the ownership is indirect, the business must qualify as a closely held business under section 6166. The indirect ownership, when combined with periods of direct ownership, must meet the requirements of section 6166 on the date of the decedent’s death and for a period of time that equals at least 5 of the 8 years preceding death.

Directly owned property leased by the decedent to a separate closely held business is considered qualified real property if the business entity to which it was rented was a closely held business (as defined by section 6166) for the decedent on the date of the decedent’s death and for sufficient time to meet the “5 in 8 years” test explained above.

Structures and other real property improvements. Qualified real property includes residential buildings and other structures and real property improvements regularly occupied or used by the owner or lessee of real property (or by the employees of the owner or lessee) to operate a farm or other closely held business. A farm residence that the decedent occupied is considered to have been occupied for the purpose of operating the farm even when a family member and not the decedent was the person materially participating in the operation of the farm.

Qualified real property also includes roads, buildings, and other structures and improvements functionally related to the qualified use.

Elements of value such as mineral rights that are not related to the farm or business use are not eligible for special-use valuation.

Property acquired from the decedent. Property is considered to have been acquired from or to have passed from the decedent if one of the following applies.

The property is considered to have been acquired from or to have passed from the decedent under section 1014(b) (relating to basis of property acquired from a decedent).
The property is acquired by any person from the estate.
The property is acquired by any person from a trust, to the extent the property is includible in the gross estate.

Note: A legally adopted child of an individual is treated as a child of that individual by blood.

Material Participation

To elect special-use valuation, either the decedent or a member of the decedent’s family must have materially participated in the operation of the farm or other business for at least 5 of the 8 years ending on the date of the decedent’s death. The existence of material participation is a factual determination. Passively collecting rents, salaries, draws, dividends, or other income from the farm or other business is not sufficient for material participation, nor is merely advancing capital and reviewing a crop plan and financial reports each season or business year.

In determining whether the required participation has occurred, disregard brief periods (that is, 30 days or less) during which there was no material participation, as long as such periods were both preceded and followed by substantial periods (more than 120 days) during which there was uninterrupted material participation.

Retirement or disability. If, on the date of death, the time period for material participation could not be met because the decedent was retired or disabled, a substitute period may apply. The decedent must have retired on social security or been disabled for a continuous period ending with death. A person is disabled for this purpose if the person was mentally or physically unable to materially participate in the operation of the farm or other business.

The substitute time period for material participation for these decedents is a period totaling at least 5 years out of the 8-year period that ended on the earlier of:

The date the decedent began receiving social security benefits, or
The date the decedent became disabled.

Surviving spouse. A surviving spouse who received qualified real property from the predeceased spouse is considered to have materially participated if the surviving spouse was engaged in the active management of the farm or other business. If the surviving spouse died within 8 years of the first spouse’s death, you may add the period of material participation of the predeceased spouse to the period of active management by the surviving spouse to determine if the surviving spouse’s estate qualifies for special-use valuation. To qualify for this, the property must have been eligible for special-use valuation in the predeceased spouse’s estate, though it does not have to have been elected by that estate.

For additional details regarding material participation, see Regulations section 20.2032A-3(e).

Valuation Methods

The primary method of valuing special-use property that is used for farming purposes is the annual gross cash rental method. If comparable gross cash rentals are not available, you can substitute comparable average annual net share rentals. If neither of these is available, or if you so elect, you can use the method for valuing real property in a closely held business.

Qualified heir. A person is a qualified heir of property if the person is a member of the decedent’s family and acquired or received the property from the decedent. If a qualified heir disposes of any interest in qualified real property to any member of the qualified heir’s family, that person will then be treated as the qualified heir for that interest.

A member of the family includes only:

An ancestor (parent, grandparent, etc.) of the individual;
The spouse of the individual;
The lineal descendant (child, stepchild, grandchild, etc.) of the individual, the individual’s spouse, or a parent of the individual; or
The spouse or surviving spouse of any lineal descendant described above.

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Average annual gross cash rental. Generally, the special-use value of property that is used for farming purposes is determined as follows.

Subtract the average annual state and local real estate taxes on actual tracts of comparable real property from the average annual gross cash rental for that same comparable property.
Divide the result in (1) by the average annual effective interest rate charged for all new federal land bank loans. See Effective interest rate , later.

descriptions used to list real property on Schedule A (Form 706).

Effective interest rate. See Tables 1 and 2 of Rev. Rul. 2026-14, 2026-35 I.R.B. 181, available at IRS.gov/irb/ 2026-35_IRB , for the average annual effective interest rates in effect for 2026.

The computation of each average annual amount is based on the 5 most recent calendar years ending before the date of the decedent’s death.

Gross cash rental. Generally, gross cash rental is the total amount of cash received in a calendar year for the use of actual tracts of comparable farm real property in the same locality as the property being specially valued. You may not use:

Net share rental. You may use average annual net share rental from comparable land only if there is no comparable land from which average annual gross cash rental can be determined. Net share rental is the difference between the gross value of produce received by the lessor from the comparable land and the cash operating expenses (other than real estate taxes) of growing the produce that, under the lease, are paid by the lessor. The production of the produce must be the business purpose of the farming operation. For this purpose, produce includes livestock.

The gross value of the produce is generally the gross amount received if the produce was disposed of in an arm’s-length transaction within the period established by the Department of Agriculture for its price support program. Otherwise, the value is the weighted average price for which the produce sold on the closest national or regional commodities market. The value is figured for the date or dates on which the lessor received (or constructively received) the produce.

Appraisals or other statements regarding rental value or areawide averages of rentals,
Rents paid wholly or partly in-kind, or
Property for which the amount of rent is based on production.

The rental must have resulted from an arm’s-length transaction and the amount of rent may not be reduced by the amount of any expenses or liabilities associated with the farm operation or the lease.

Comparable property. Comparable property must be situated in the same locality as the qualified real property as determined by generally accepted real property valuation rules. The determination of comparability is based on a number of factors, none of which carries more weight than the others. It is often necessary to value land in segments where there are different uses or land characteristics included in the specially valued land.

The following list contains some of the factors considered in determining comparability.

Similarity of soil.
Whether the crops grown would deplete the soil in a similar manner.
Types of soil conservation techniques that have been practiced on the two properties.
Whether the two properties are subject to flooding.
Slope of the land.
For livestock operations, the carrying capacity of the land.
For timbered land, whether the timber is comparable.
Whether the property as a whole is unified or segmented. If segmented, the availability of the means necessary for movement among the different sections.
Number, types, and conditions of all buildings and other fixed improvements located on the properties and their location as it affects efficient management, use, and value of the property.
Availability and type of transportation facilities in terms of costs and of proximity of the properties to local markets.

Valuing a real property interest in a closely held business. Use this method to determine the special-use valuation for qualifying real property used in a trade or business other than farming. You may also use this method for qualifying farm property if there is no comparable land or if you elect to use it. Under this method, the following factors are considered.

The capitalization of income that the property can be expected to yield for farming or for closely held business purposes over a reasonable period of time with prudent management and traditional cropping patterns for the area, taking into account soil capacity, terrain configuration, and similar factors.
The capitalization of the fair rental value of the land for farming or for closely held business purposes.
The assessed land values in a state that provides a differential or use value assessment law for farmland or closely held business.
Comparable sales of other farm or closely held business land in the same geographical area far enough removed from a metropolitan or resort area so that nonagricultural use is not a significant factor in the sales price.
Any other factor that fairly values the farm or closely held business value of the property.

Making the Election

Include the words “Section 2032A valuation” in the “Description” column of any Form 706 schedule if section 2032A property is included in the decedent’s gross estate.

An election under section 2032A need not include all the property in an estate that is eligible for special-use valuation, but sufficient property to satisfy the threshold requirements of section 2032A(b)(1)(B) must be specially valued under the election.

You must specifically identify on the return the property being used as comparable property. Use the type of

16 Instructions for Form 706 (Rev. 7-2026)

If joint or undivided interests (that is, interests as joint tenants or tenants in common) in the same property are received from a decedent by qualified heirs, an election for one heir’s joint or undivided interest need not include any other heir’s interest in the same property if the electing heir’s interest plus other property to be specially valued satisfies the requirements of section 2032A(b)(1)(B).

If successive interests (that is, life estates and remainder interests) are created by a decedent in otherwise qualified property, an election under section 2032A is available only for that property (or part) in which qualified heirs of the decedent receive all of the successive interests, and such an election must include the interests of all of those heirs.

For example, if a surviving spouse receives a life estate in otherwise qualified property and the spouse’s sibling receives a remainder interest in fee, no part of the property may be valued under a section 2032A election.

Where successive interests in specially valued property are created, remainder interests are treated as being received by qualified heirs only if the remainder interests are not contingent on surviving a nonfamily member or are not subject to divestment in favor of a nonfamily member.

Protective Election

You may make a protective election to specially value qualified real property. Under this election, whether or not you may ultimately use special-use valuation depends upon final values (as shown on the return determined following examination of the return) meeting the requirements of section 2032A.

To make a protective election, check “Yes” on line 2 and complete Schedule T (Form 706) according to the instructions for Protective election, later.

If you make a protective election, complete the initial Form 706 by valuing all property at its FMV. Do not use special-use valuation. Usually, this will result in higher estate and GST tax liabilities than will be ultimately determined if special-use valuation is allowed. The protective election does not extend the time to pay the taxes shown on the return. If you wish to extend the time to pay the taxes, file Form 4768 in adequate time before the due date of the return. See the Instructions for Form 4768.

If the estate qualifies for special-use valuation based on the values as finally determined, you must file a supplemental Form 706 (with a complete section 2032A election) within 60 days after the date of this determination. Prepare the supplemental return using special-use values under the rules of section 2032A, complete Schedule T (Form 706), and attach all of the required statements.

Additional Information

For definitions and additional information, see section 2032A and the related regulations.

Line 3. Section 6166 Installment Payments If the gross estate includes an interest in a closely held business, you may be able to elect to pay part of the estate tax in installments under section 6166.

The maximum amount that can be paid in installments is that part of the estate tax that is attributable to the closely held business; see Determine how much of the estate tax may be paid in installments under section 6166, later. In general, that amount is the amount of tax that bears the same ratio to the total estate tax that the value of the closely held business included in the gross estate bears to the adjusted gross estate.

Bond or lien. The IRS may require that an estate furnish a surety bond when granting the installment payment election. In the alternative, the executor may consent to elect the special lien provisions of section 6324A in lieu of the bond. The IRS will contact you regarding the specifics of furnishing the bond or electing the special lien. The IRS will make this determination on a case-by-case basis, and you may be asked to provide additional information.

If you elect the lien provisions, section 6324A requires that the lien be placed on property having a value equal to the total deferred tax plus 4 years of interest. The property must be expected to survive the deferral period, and does not necessarily have to be property of the estate. In addition, all people with an interest in the designated property must consent to the creation of this lien.

Percentage requirements. To qualify for installment payments, the value of the interest in the closely held business that is included in the gross estate must be more than 35% of the adjusted gross estate (the gross estate less expenses, indebtedness, taxes, and losses—Schedules J, K, and L of Form 706 (do not include any portion of the state death tax deduction)).

Interests in two or more closely held businesses are treated as an interest in a single business if at least 20% of the total value of each business is included in the gross estate. For this purpose, include any interest held by the surviving spouse that represents the surviving spouse’s interest in a business held jointly with the decedent as community property or as joint tenants, tenants by the entirety, or tenants in common.

Value. The value used for meeting the percentage requirements is the same value used for determining the gross estate. Therefore, if the estate is valued under alternate valuation or special-use valuation, you must use those values to meet the percentage requirements.

Transfers before death. Generally, gifts made before death are not included in the gross estate. However, the estate must meet the 35% requirement by both including in and excluding from the gross estate any gifts made by the decedent in the 3-year period ending on the date of death.

Passive assets. In determining the value of a closely held business and whether the 35% requirement is met, do not include the value of any passive assets held by the business. A passive asset is any asset not used in carrying on a trade or business. Any asset used in a qualifying lending and financing business is treated as an asset used in carrying on a trade or business; see section 6166(b)(10) for details. Stock in another corporation is

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Line 3 Worksheet—Adjusted Gross Estate

1. Enter the value of the decedent’s interest in closely held business(es) included in the gross estate (less value of passive assets, as mentioned in section 6166(b)(9)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Enter the value of the gross estate (Form 706, Part V, item 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Add items 18, 19, and 20 from Form 706, Part V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Subtract line 3 from line 2 to figure the adjusted gross estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Divide line 1 by line 4 to figure the value the business interest bears to the value of the adjusted gross estate. For purposes of this calculation, carry the decimal to the sixth place; the IRS will make this adjustment for purposes of determining the correct amount. If this amount is less than 0.350000, the estate does not qualify to make the election under section 6166 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Multiply line 5 by the amount on line 18 of Form 706, Part II. This is the maximum amount of estate tax that may be paid in installments under section 6166. (Certain GST taxes may be deferred as well; see section 6166(i) for more information.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

a passive asset unless the stock is treated as held by the decedent because of the election to treat holding company stock as business company stock; see Holding company stock, later.

If a corporation owns at least 20% in value of the voting stock of another corporation, or the other corporation had no more than 45 shareholders and at least 80% of the value of the assets of each corporation is attributable to assets used in carrying on a trade or business, then these corporations will be treated as a single corporation and the stock will not be treated as a passive asset. Stock held in the other corporation is not taken into account in determining the 80% requirement.

improvements occupied regularly by the owners, lessees, and employees operating the farm.

Interest in a closely held business. For purposes of the installment payment election, an interest in a closely held business means:

Ownership of a trade or business carried on as a proprietorship;
An interest as a partner in a partnership carrying on a trade or business, if 20% or more of the total capital interest was included in the gross estate of the decedent or the partnership had no more than 45 partners; or
Stock in a corporation carrying on a trade or business, if 20% or more in value of the voting stock of the corporation is included in the gross estate of the decedent or the corporation had no more than 45 shareholders.

Holding company stock. The executor may elect to treat as business company stock the portion of any holding company stock that represents direct ownership (or indirect ownership through one or more other holding companies) in a business company. A holding company is a corporation holding stock in another corporation. A business company is a corporation carrying on a trade or business.

In general, this election applies only to stock that is not readily tradable. However, the election can be made if the business company stock is readily tradable, as long as all of the stock of each holding company is not readily tradable.

For purposes of the 20%-voting-stock requirement, stock is treated as voting stock to the extent the holding company owns voting stock in the business company.

The partnership or corporation must be carrying on a trade or business at the time of the decedent’s death. For further information on whether certain partnerships or corporations owning real property interests constitute a closely held business, see Rev. Rul. 2006-34, 2006-26 I.R.B. 1171, available at Rev. Rul. 2006-34 .

In determining the number of partners or shareholders, a partnership or stock interest is treated as owned by one partner or shareholder if it is community property or held by spouses as joint tenants, tenants in common, or tenants by the entirety.

Property owned directly or indirectly by or for a corporation, partnership, estate, or trust is treated as owned proportionately by or for its shareholders, partners, or beneficiaries. For trusts, only beneficiaries with present interests are considered.

If the executor makes this election, the first installment payment is due when the estate tax return is filed. The 5-year deferral for payment of the tax, as discussed later under Time for payment , does not apply. In addition, the 2% interest rate, discussed later under Interest computation , will not apply. Also, if the business company stock is readily tradable, as explained above, the tax must be paid in five installments.

Determine how much of the estate tax may be paid in installments under section 6166. To determine whether the election may be made, you must figure the adjusted gross estate. (See the Line 3 Worksheet—Adjusted Gross Estate.) To determine the value of the adjusted gross estate, subtract the deductions (Schedules J, K, and L of Form 706) from the value of the gross estate.

To determine over how many installments the estate tax may be paid, refer to sections 6166(a), (b)(7), (b)(8), and (b)(10).

Time for payment. Under the installment method, the executor may elect to defer payment of the qualified estate tax, but not interest, for up to 5 years from the original payment due date. After the first installment of tax is paid, you must pay the remaining installments annually by the date 1 year after the due date of the preceding installment. There can be no more than 10 installment payments.

Interest on the unpaid portion of the tax is not deferred and must be paid annually. Interest must be paid at the

The interest in a closely held farm business includes the interest in the residential buildings and related

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same time as and as a part of each installment payment of the tax.

Acceleration of payments. If the estate fails to make payments of tax or interest within 6 months of the due date, the IRS may terminate the right to make installment payments and force an acceleration of payment of the tax upon notice and demand. Upon notice and demand, a penalty will be imposed for an amount that is 5% of the payment multiplied by the number of months (or fractions thereof) after the due date and before the payment is made.

Generally, if any portion of the interest in the closely held business that qualifies for installment payments is distributed, sold, exchanged, or otherwise disposed of, or money and other property attributable to such an interest is withdrawn, and the aggregate of those events equals or exceeds 50% of the value of the interest, then the right to make installment payments will be terminated, and the unpaid portion of the tax will be due upon notice and demand. See section 6166(g)(1)(A).

Interest computation. A special interest rate applies to installment payments. For decedents dying in 2025, the interest rate is 2% on the lesser of:

$776,000, or
The amount of the estate tax that is attributable to the closely held business and that is payable in installments.

2% portion. The 2% portion is an amount equal to the amount of the tentative estate tax (on $1 million plus the applicable exclusion amount in effect) minus the applicable credit amount in effect. However, if the amount of estate tax extended under section 6166 is less than the amount figured above, the 2% portion is the lesser amount.

Inflation adjustment. The $1 million amount used to figure the 2% portion is indexed for inflation for the estates of decedents who died in a calendar year after 1998. For an estate of a decedent who died in 2026, the dollar amount used to determine the “2% portion” of the estate tax payable in installments under section 6166 is $1,940,000.

Computation. Interest on the portion of the tax in excess of the 2% portion is figured at 45% of the annual rate of interest on underpayments. This rate is based on the federal short-term rate and is announced quarterly by the IRS in the Internal Revenue Bulletin.

If you elect installment payments and the estate tax due is more than the maximum amount to which the 2% interest rate applies, each installment payment is deemed to comprise both tax subject to the 2% interest rate and tax subject to 45% of the regular underpayment rate. The amount of each installment that is subject to the 2% rate is the same as the percentage of total tax payable in installments that is subject to the 2% rate.

Caution: The interest paid on installment payments is not deductible as an administrative expense of the estate.

Making the election. If you check this line to make a final election, you must attach the notice of election described in Regulations section 20.6166-1(b). If you check this line to make a protective election, you must

attach a notice of protective election as described in Regulations section 20.6166-1(d). Regulations section 20.6166-1(b) requires that the notice of election is made by attaching to a timely filed estate tax return the following information.

The decedent’s name and taxpayer identification number (TIN) as they appear on the estate tax return.
The amount of tax that is to be paid in installments.
The date selected for payment of the first installment.
The number of annual installments, including first installment, in which the tax is to be paid.
The properties shown on the estate tax return that are the closely held business interest (identified by schedule, line number, and item number).
The facts that formed the basis for the executor’s conclusion that the estate qualifies for payment of the estate tax in installments.

You may also elect to pay certain GST taxes in installments. See section 6166(i).

Line 4. Reversionary or Remainder Interests For details of this election, see section 6163 and the related regulations.