IRS Form 706 (Schedule C) – Filing IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, can feel overwhelming for executors handling a decedent’s estate. One key section is Schedule C (Form 706) — Mortgages, Notes, and Cash, which reports specific liquid or receivable assets included in the gross estate.
This guide provides a clear, up-to-date explanation based on official IRS sources, including the latest Form 706 (Rev. August 2025) and Instructions (Rev. September 2025) for decedents dying after December 31, 2024. It covers what to report, how to value assets, step-by-step completion instructions, examples, and tips to avoid common mistakes.
Who Must File Form 706 and When Is Schedule C Required?
Executors must file Form 706 if the decedent was a U.S. citizen or resident and the gross estate (plus adjusted taxable gifts) exceeds the basic exclusion amount. For deaths in 2025, this threshold is $13,990,000. Filing is also required to elect portability of the deceased spousal unused exclusion (DSUE) amount, even if the estate is smaller.
Schedule C is required if the gross estate includes any:
- Mortgages receivable (owed to the decedent)
- Promissory notes or similar debts owed to the decedent
- Cash (on hand or in banks/financial institutions)
If none exist, you can still note zero on the recapitulation (Part V, item 3) but typically attach the schedule when assets are present. The total from Schedule C flows into the gross estate calculation on Form 706, Part V.
Deadline: Generally 9 months after the date of death, with possible 6-month extensions.
Download the latest Schedule C PDF here: https://www.irs.gov/pub/irs-pdf/f706sc.pdf (provided by the user) and full instructions at IRS.gov/Form706.
What Assets Go on Schedule C (Mortgages, Notes, and Cash)?
Schedule C captures assets the decedent owned or was entitled to at death. Report them in this recommended order:
- Mortgages (receivable by the decedent)
- Promissory notes
- Contracts for the sale of land (installment sales)
- Cash on hand (currency, safe deposit box contents if solely owned)
- Cash in banks or financial organizations (checking, savings, CDs, etc.)
Key inclusions:
- Mortgages or notes where the decedent was the lender/creditor.
- Accrued but unpaid interest up to the date of death.
- Bank account balances, including accrued interest on time deposits.
- Money market funds or similar if treated as cash equivalents.
Exclusions (report elsewhere):
- Mortgages or debts owed by the decedent → deduct on Schedule K.
- Jointly owned property → generally on Schedule E (report the decedent’s share on Schedule C only in specific cases; check instructions).
- Life insurance proceeds → Schedule D.
- Other miscellaneous property → Schedule F.
Note: For portability-only filings (estate below exclusion), you may only need to identify assets without full values in some columns.
Valuation Rules for Schedule C Assets
Value assets at fair market value (FMV) on the date of death, unless you elect alternate valuation under IRC Section 2032 (must reduce both gross estate value and tax liability; applied consistently).
- Date of death value — Standard approach; include accrued interest to death.
- Alternate valuation — 6 months after death (or date of sale/distribution if earlier) for most property. Interest accrued to death stays at date-of-death value.
- Cash — Face value (actual balance) plus accrued interest.
- Mortgages/Notes — Unpaid principal balance + accrued interest, adjusted for any doubt of collectibility (discount if necessary, with explanation). Describe collateral and terms fully.
Always document your valuation method thoroughly—IRS scrutiny on understatements can trigger penalties.
Step-by-Step: How to Fill Out Schedule C
The current Schedule C (August 2025) is straightforward with columns for each item:
(i) Item number — Sequential (1, 2, 3…).
(ii) Description — Provide detailed identification. Include:
- For mortgages/notes: Face value, unpaid principal at death, date of instrument, maker’s name/address, maturity date, interest rate, payment dates, property securing it (full address), and accrued interest to death.
- For cash: “Cash on hand” or bank name/address, account type/number, balance, and accrued interest.
Example mortgage description: “Mortgage receivable from John Doe, dated 3/15/2021, unpaid principal $168,445, 5% interest, secured by 123 Oak Street, Anytown, USA; interest accrued to DOD: $1,112.”
(iii) Alternate valuation date — Enter if elected (e.g., 6 months later).
(iv) Alternate value — Value on that date (if elected).
(v) Value at date of death — Standard FMV.
Page 2 totals:
- Line 2: Sum of column (iv) or (v), as applicable.
- Line 3: Totals from attached continuation sheets (Schedule W) or statements.
- Line 4: Grand total → Enter on Form 706, Part V, item 3.
If more space is needed, attach Schedule W (Continuation Schedule).
Real-World Examples
Example 1: Bank Account
“Chase Bank checking account #XXXX-1234, Anytown branch; balance at DOD $45,672 including $128 accrued interest.”
Example 2: Promissory Note
“Promissory note from family member Jane Smith, dated 01/01/2022, face $100,000, unpaid principal $82,500 at DOD, 4.5% interest payable annually on Jan 1; accrued interest to DOD $3,712.50.”
Example 3: Cash on Hand
“Currency and coins found in decedent’s safe deposit box (solely owned): $2,850.”
These details help IRS reviewers quickly verify inclusion and value.
Special Considerations and Common Pitfalls
- Accrued Interest — Always include up to date of death; post-death interest is estate income (Form 1041).
- Foreign Assets — Report foreign bank accounts or notes; may require additional disclosures (e.g., FBAR if applicable during life).
- Discounting Notes — If collectibility is uncertain (e.g., unsecured or distressed borrower), provide evidence for FMV discount.
- Portability Filings — Special rules may allow estimated values or identification-only in some cases.
- Community Property States — Special rules may affect inclusion percentages.
- Recordkeeping — Keep bank statements, note documents, and appraisals. Basis reporting to beneficiaries (Form 8971) is required for many assets.
Common mistakes:
- Reporting liabilities (debts owed by decedent) here instead of Schedule K.
- Omitting accrued interest.
- Insufficient descriptions leading to IRS requests for more information.
- Failing to elect alternate valuation properly when beneficial.
Tips for Smooth Filing
- Start early: Gather all bank records, loan documents, and safe deposit box inventories soon after death.
- Use professional help: Complex estates often benefit from an estate attorney or CPA experienced with Form 706.
- Double-check cross-references: Ensure mortgaged property appears on Schedule A (real estate) at full value.
- Stay current: Always download the latest forms and instructions from IRS.gov, as amounts and rules are inflation-adjusted annually.
For the official Schedule C form and detailed instructions, visit the IRS website or use the PDF link provided: https://www.irs.gov/pub/irs-pdf/f706sc.pdf.
Final Thoughts
Schedule C might seem simple compared to valuing real estate or businesses, but accurate reporting of mortgages, notes, and cash ensures the gross estate is complete and supports proper tax calculations or portability elections. Errors here can delay closing the estate or trigger audits.
Estate tax rules are complex and fact-specific. This article is for informational purposes only and is not tax or legal advice. Consult a qualified estate planning attorney, CPA, or enrolled agent familiar with current IRS Form 706 requirements for your specific situation.
Keywords for further reading: IRS Form 706 instructions 2025, estate tax Schedule C, reporting cash in gross estate, valuing promissory notes for estate tax, DSUE portability Form 706.
Last updated based on IRS publications as of 2025/2026. Always verify the most recent revisions on IRS.gov.