Form 706 Schedule A Real Estate: Valuation, Filing, and Penalties

Schedule A of Form 706 is where the executor lists every parcel of real estate the decedent owned at death, valued at fair market value, with enough description for the IRS to identify each property. It is filed as part of the complete Form 706 package, not on its own, and only when the gross estate is large enough to require a return: for 2026, that threshold is $15,000,000.¹ If the estate crosses that line and includes any real property, Schedule A is required.

What Belongs on Schedule A

Schedule A covers real property the decedent held an interest in at death.² Houses, vacant land, rental buildings, commercial parcels, condos, and cooperative apartments all go here. So do interests people sometimes miss: mineral rights, timber rights, ground rents, and perpetual interests tied to the land.

Property the decedent was buying under an installment contract belongs on Schedule A even when the deed had not yet transferred. Fractional interests go here as well. If the decedent owned a 25 percent share of a family farm, report that 25 percent interest and describe the fractional ownership clearly.

One boundary catches executors off guard. Real estate that was part of a sole proprietorship goes on Schedule F (Other Miscellaneous Property), not Schedule A.³ A landscaping business lot the decedent owned individually as a sole proprietor is a Schedule F item.

Documents to Gather Before You Start

Pulling records together up front prevents incomplete entries. For each parcel you plan to list:

The most recent deed, for the legal description (metes-and-bounds or lot-and-block). County recorder offices and registrars of deeds maintain these, and many are searchable online.
The property tax bill, which gives you the assessor’s parcel number (APN). The bill also offers a rough benchmark, though the IRS wants a separate fair market value analysis.
A professional appraisal from an appraiser licensed or certified for real property in the state where the land sits. Costs typically run from about $425 to $1,900 per property depending on complexity and location.⁴⁵
Mortgage and lien statements with current payoff balances. You won’t subtract these on Schedule A, but you need them for Schedule K.
A title report or title insurance policy, useful for confirming the exact nature of the decedent’s ownership, especially for fractional interests or co-owned property.

Attach copies of the appraisals directly to the return. The Form 706 instructions direct filers to include any appraisals used to value property reported on the return.³

Valuing Each Property

Every parcel on Schedule A is reported at fair market value: the price a willing buyer would pay a willing seller when neither is under pressure and both have reasonable knowledge of the facts.⁴ The default valuation date is the date of death.

The Alternate Valuation Date

The executor can elect to value the estate as of exactly six months after death. This election is available only when it reduces both the total gross estate and the total estate tax owed.⁶ If a property is sold or otherwise disposed of within the six-month window, the sale price on the date of disposition becomes the reported value.⁷ You can’t mix and match by property. The election applies to the entire estate.

Mortgaged Property

Report the full gross value on Schedule A. Do not subtract the outstanding loan balance. The mortgage is deducted on Schedule K (Debts, Mortgages, and Liens). The Form 706 instructions direct you to enter the mortgage amount in Schedule A’s description column so the IRS sees the encumbrance, then take the deduction on Schedule K.³ Netting the debt against the property on Schedule A is a common error and will understate the gross estate.

Fractional Interests

A fractional interest is not just a proportional slice of the whole-property value. A 50 percent undivided interest in a $1,000,000 property is not automatically worth $500,000, because an open-market buyer would discount for the lack of full control and the difficulty of reselling a partial share. Courts have recognized these discounts, and the IRS accepts them when the appraisal explains the methodology and the specific discount applied. Discounts in the 15 to 35 percent range are common in reported transactions, but the appraiser must justify the number with market data. An unsupported round figure invites audit.

Special-Use Valuation for Farms and Business Real Property

Farmland and certain business real property can qualify for a reduced valuation under Section 2032A, based on actual use rather than highest-and-best-use fair market value. A working farm on the edge of a growing city might be worth $3,000,000 as a development site but only $800,000 as agricultural land, and the election can capture that difference.

The qualifying conditions are strict.⁸ The property must have been used for farming or another trade or business by the decedent or a family member for at least five of the eight years before death, with material participation (passive cash rent does not count). At least 50 percent of the adjusted gross estate must consist of real and personal property used in the qualifying farm or business, and at least 25 percent must be qualifying real property. Every person with an interest in the property must sign an agreement consenting to recapture tax if the property is sold or taken out of qualifying use within 10 years after death.

The total reduction is capped. The 2025 ceiling was $1,420,000; the 2026 figure is inflation-adjusted and appears in the Form 706 instructions for the year of death.³ The election is made on Schedule T (formerly Schedule A-1), is filed with the return, and is irrevocable.

Filling In the Fields

Each property gets its own numbered line, starting with item 1. Schedule A has columns for item number, description, alternate valuation date, alternate value, and value at date of death.

The description column carries the weight. For every parcel, include:

The full street address.
The legal description from the deed (lot and block, metes and bounds, or subdivision reference).
The assessor’s parcel number.
Any rental income the property generates, with the payment amount and frequency.
A note that the value is based on an attached appraisal.
If the property is mortgaged, the outstanding balance.

The Form 706 instructions include a sample entry that follows exactly this pattern, using a house and lot with the street address, legal description, monthly rent, and a note that the value is based on an attached appraisal.³

If you elected alternate valuation on Part III, line 1 of Form 706, complete both the alternate valuation date column and the alternate value column. If not, leave those columns blank and enter the amount only in the date-of-death value column.³ Total the items on Schedule A and carry that figure to Part V of Form 706. If you run out of room, use Schedule W or a continuation sheet in the same format, then combine the totals on the Schedule A total line.

Filing the Return

Schedule A is not filed separately. It goes inside the complete Form 706 package with all other required schedules, appraisals, and supporting documents.

Mail the package to:

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999⁹

Form 706 is paper only. The IRS does not accept it electronically. Send it by certified mail with return receipt so you have proof of the filing date.

The return is due nine months after the decedent’s date of death.¹⁰ If the decedent died on March 15, the return is due December 15. When no corresponding day exists in the ninth month, the last day of that month is the deadline.

Need more time? File Form 4768 before the original deadline for an automatic six-month extension to file.¹¹ The extension covers filing, not payment. Estimated tax is still due by the original nine-month date, and interest accrues on any balance paid late.

Penalties for Undervaluation

Undervaluing real estate on Schedule A carries real cost. The IRS imposes a 20 percent accuracy-related penalty on any underpayment of estate tax caused by a substantial valuation understatement, which exists when the value you reported is 65 percent or less of the correct value and the resulting underpayment exceeds $5,000.¹²

If the reported value drops to 40 percent or less of the correct amount, the penalty doubles to 40 percent of the underpayment as a gross valuation misstatement.¹² On a large estate with valuable real property, these penalties can reach hundreds of thousands of dollars. The best defense is a well-documented appraisal from a qualified appraiser who uses recognized methods and explains the numbers. A one-page opinion letter with a bare conclusion of value will not hold up.

1
Internal Revenue Service. Estate Tax
2
Internal Revenue Service. About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
3
Internal Revenue Service. Instructions for Form 706
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eCFR. 26 CFR 20.2031-1 – Definition of Gross Estate; Valuation of Property
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Internal Revenue Service. Notice 2006-96 – Guidance Regarding Appraisal Requirements
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Office of the Law Revision Counsel. 26 USC 2032 – Alternate Valuation
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eCFR. 26 CFR 20.2032-1 – Alternate Valuation
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Office of the Law Revision Counsel. 26 USC 2032A – Valuation of Certain Farm, Etc., Real Property
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Internal Revenue Service. Filing Estate and Gift Tax Returns
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Office of the Law Revision Counsel. 26 USC 6075 – Time for Filing Estate and Gift Tax Returns
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Internal Revenue Service. About Form 4768, Application for Extension of Time To File a Return and/or Pay US Estate Taxes
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Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments