How to Fill Out Schedule E (Form 706): Parts 1 and 2, Valuation

Schedule E of Form 706 is where an executor reports property the decedent held with a right of survivorship, and filling it out means sorting each asset into one of two parts, describing it in enough detail for the IRS to identify it, applying the correct inclusion percentage, and carrying the total into Part V of the return. Here is how to fill out Schedule E of Form 706 step by step, along with the rules that decide how much of each joint asset actually lands in the gross estate.¹

What Goes on Schedule E

The schedule captures property that passes automatically to a surviving co-owner by operation of law. Under 26 U.S.C. § 2040, that means joint tenancies with right of survivorship, tenancies by the entirety, and joint bank accounts payable to either party or the survivor.² Think of a house titled in two names with survivorship language, a brokerage account registered as joint tenants, or a savings account with a “payable to survivor” designation.

The exact wording on the deed, title, or account agreement controls. Language like “joint tenants with right of survivorship” or “tenants by the entirety” points to Schedule E. Two names alone, with no survivorship language, may default under state law to a tenancy in common, which does not belong here at all: real estate held that way goes on Schedule A, and personal property goes on the schedule matching the asset type.³ When the title language is ambiguous, confirm the ownership form with a real estate attorney before deciding where to report the asset.

One boundary worth flagging: community property is not reported on Schedule E even for married couples. It goes on the schedule that matches the asset. Before completing Schedule E in a community property state, verify how the couple’s assets are actually titled.

Also worth knowing: even if you believe the survivor paid for the property in full and nothing should ultimately be included, you still list the asset on Schedule E. The IRS wants to see every joint interest on the return and make the inclusion decision from there.⁴

Part 1: Decedent and Spouse as the Only Joint Owners

When the only two joint tenants were the decedent and the surviving spouse, the interest is a “qualified joint interest.” Exactly 50% of the fair market value is included in the gross estate, regardless of which spouse paid for the property.² A couple’s $600,000 home produces a $300,000 inclusion on Schedule E, and no tracing of contributions is required.

For each Part 1 asset, complete these columns:

Item number, assigned sequentially starting with 1. These numbers tie each entry to any attached appraisals or supporting documents.
Description, with enough detail for the IRS to identify the asset. For real estate, give the street address, county, parcel number, and the tenancy language on the deed. For financial accounts, give the institution, account type, and the last four digits of the account number.
Surviving co-tenant’s full name and address (the spouse).
Full fair market value as of the valuation date, not half.

Total the entries on line 4. The form multiplies that total by 50% on line 5, and that figure flows into the final Schedule E total.¹

If a third person is on the title alongside the decedent and spouse, the interest does not qualify for Part 1. It goes in Part 2 under the consideration-furnished rules.

Part 2: Every Other Joint Interest

Part 2 covers everything Part 1 does not: siblings, parent-and-child arrangements, business partners, unmarried partners, and any spousal interest that also includes a third co-owner. The starting rule under § 2040 is unforgiving. The full value of the property is included in the decedent’s gross estate unless the executor can prove the surviving co-owner contributed their own money toward acquiring or improving it.²

Whatever share of the purchase or improvement cost the survivor paid for with their own funds is excluded. If a parent and adult child bought a $400,000 rental together and the child can document $100,000 from their own earnings, 25% of the date-of-death value is excluded and 75% is included. Money the survivor originally received as a gift from the decedent does not count as the survivor’s contribution.

Documentation carries the weight here. Canceled checks, wire records, mortgage payment histories, and bank statements showing the source of the survivor’s funds are what the IRS expects to see. Attach a detailed explanation to every Part 2 entry where you claim less than 100% inclusion: total purchase price, each co-owner’s contribution, source of funds, and any subsequent capital improvements with payment records. Professional appraisals should accompany any real estate or business interest.

Report each asset with the same descriptive detail as Part 1, then show the full fair market value and the includable amount based on your contribution analysis. Combine the Part 2 total with the Part 1 amount on line 10, and transfer that Schedule E total to Form 706, Part V, item 5.¹

Valuing the Property

Every Schedule E asset is valued as of one of two dates. The default is the date of death. Under 26 U.S.C. § 2032, the executor may instead elect the alternate valuation date, which is six months after death, or the date of disposition if the asset is sold or distributed within that window.

The alternate valuation election is all-or-nothing across the estate; you cannot mix and match. It is available only when it reduces both the gross estate and the estate tax owed. For jointly held real estate in a declining market, the alternate date can meaningfully lower the Schedule E inclusion. Attach appraisals dated as of whichever valuation date you use.

Mortgages on Jointly Held Property

List the property on Schedule E at its full fair market value, not the equity. The outstanding mortgage is then deducted on Schedule K, but only in proportion to the value included in the gross estate under § 2053.⁵ A spousal qualified joint interest, included at 50%, supports a deduction of 50% of the mortgage. A non-spousal interest included at 75% supports a mortgage deduction limited to 75% of the balance. Mismatching the inclusion percentage and the mortgage deduction is a common trigger for IRS follow-up.

Filing, Deadlines, and Penalties

Schedule E is a standalone attachment to Form 706. Complete it, attach appraisals and contribution documentation, and include it with the rest of the return. The IRS does not require a specific order for the schedules, though alphabetical ordering makes the return easier for an examiner to work through.⁶

Form 706 is due nine months after the date of death. Form 4768 grants an automatic six-month extension of the filing deadline if submitted before the original due date, but interest on any unpaid tax continues to accrue from the original date.⁷ The completed return is mailed to the Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999.⁸

Undervaluing joint property is expensive. Section 6662 imposes a 20% penalty on any underpayment caused by a substantial valuation understatement, meaning a reported value that is 65% or less of the actual value. A gross valuation understatement, at 40% or less of actual value, carries the same 20% penalty with fewer available defenses. The penalty does not apply if the resulting tax underpayment is $5,000 or less.³ Separate penalties apply for late filing and late payment unless the executor can demonstrate reasonable cause.

Support every value on Schedule E with a professional appraisal dated as of the valuation date, and document Part 2 contribution claims thoroughly. Examiners routinely scrutinize Part 2 entries claiming less than 100% inclusion, and unsupported percentages invite a closer look at the entire return.

1
Internal Revenue Service. Schedule E (Form 706) – Jointly Owned Property
2
Office of the Law Revision Counsel. 26 US Code 2040 – Joint Interests
3
Internal Revenue Service. Instructions for Form 706 (09/2025)
4
Internal Revenue Service. About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
5
Office of the Law Revision Counsel. 26 US Code 2053 – Expenses, Indebtedness, and Taxes
6
Internal Revenue Service. Instructions for Form 706 – United States Estate (and Generation-Skipping Transfer) Tax Return
7
Internal Revenue Service. Instructions for Form 4768
8
Internal Revenue Service. Filing Estate and Gift Tax Returns