What is the difference between accrued income includible under IRC 2033 and income in respect of a decedent under IRC 691?

Accrued income that the decedent had a fixed right to receive at death (such as accrued salary for services already performed, or interest earned but not yet paid on a note the decedent held) is includible in the gross estate under IRC 2033 as property in which the decedent had an interest at death. This income is also subject to income tax when received by the estate or beneficiary. Income in respect of a decedent (IRD) under IRC 691 refers to income the decedent had earned but not yet recognized for income tax purposes at death under the cash method -- such as unpaid compensation, deferred compensation, or the gain component of an installment obligation. IRD is includible in the gross estate under IRC 2033 (or related provisions) at fair market value, and is also subject to income tax when received; however, the estate or beneficiary receiving IRD is entitled to an income tax deduction under IRC 691(c) for the estate tax attributable to the IRD item. Verify at IRS.gov.

What documentation is required to support IRC 2033 values on Form 706?

For assets without readily available market quotations -- such as closely-held business interests, real estate, limited partnership interests, and promissory notes with non-market terms -- the estate must support the values reported on Form 706 with qualified appraisals prepared by qualified appraisers. The appraisal must use methods consistent with Treas. Reg. 20.2031-1 and the applicable asset-class regulations (for example, Rev. Rul. 59-60 for business interests). The appraisal must be attached to or filed with Form 706. For publicly traded securities, the mean between the high and low quoted sale prices on the date of death (or the date-of-death interpolated price if the date of death falls on a weekend or holiday) is used per Treas. Reg. 20.2031-2. Inadequate documentation increases the risk of an IRS challenge and may prevent the estate from establishing the reasonable-cause defense against IRC 6662 accuracy-related penalties. Verify at IRS.gov.

IRC 2033 Gross Estate: All Property in Which the Decedent Had an Interest at Death

Q: What does 'interest at the time of death' mean under IRC 2033?

An interest at the time of death under IRC 2033 requires three elements: (1) the decedent must have had ownership or a beneficial interest in the property at the moment of death; (2) the interest must have been legally transferable by the decedent or through the decedent's estate; and (3) the interest must have had ascertainable fair market value at the date of death under the willing-buyer/willing-seller standard of Treas. Reg. 20.2031-1. An interest that terminated automatically at death (such as a life estate held by the decedent) is generally not includible under 2033 because the decedent had no transferable interest at death; that interest may be captured under IRC 2036 instead. Pure expectancies and contingent interests that had not ripened at death may not be includible, depending on whether they had ascertainable value. Verify at IRS.gov.

Q: How are installment sale obligations included in the gross estate under IRC 2033?

An installment sale obligation held by the decedent at death is includible in the gross estate under IRC 2033. Under Treas. Reg. 20.2033-1(b), the includible amount is the unpaid balance of the obligation at the date of death, plus accrued interest to the date of death, valued at fair market value. The unpaid balance is the standard starting point; if the note bears below-market interest or other terms that affect its fair market value, a discount or premium may apply. The income tax consequences of including an installment obligation in the gross estate are addressed separately: the decedent's deferred gain is not automatically recognized at death unless a specific trigger applies. See the installment obligation income tax acceleration warning in the callout below. Verify at IRS.gov.

Q: How are partnership and LLC interests included in the gross estate under IRC 2033?

A partnership or LLC interest owned by the decedent at death is includible in the gross estate under IRC 2033 at its date-of-death fair market value. The fair market value of a partnership or LLC interest reflects the hypothetical willing-buyer/willing-seller price for that interest in the entity -- it is not a pro-rata share of the entity's underlying net asset value. Applicable valuation discounts for lack of control (minority interest discount) and lack of marketability are applied in determining the fair market value of the interest, which reduces the amount includible under 2033. The discounted value also determines whether the interest qualifies as an interest in a closely-held business for the IRC 6166 installment payment election. A qualified appraisal is required; discount positions are subject to IRS challenge. Verify at IRS.gov.

Q: What is the distinction between tenancy-in-common and jointly-held property for gross estate purposes?

Tenancy-in-common (TIC) interests are included in the gross estate under IRC 2033 based on the decedent's fractional ownership share, valued at date-of-death fair market value of that fractional interest. A fractional interest discount may be available. Jointly held property (joint tenancy with right of survivorship, or JTWROS) is governed by the separate rules of IRC 2040, not IRC 2033. Under IRC 2040(a), the general rule is that the full value of jointly held property is included in the estate of the first joint tenant to die, minus the portion attributable to the surviving joint tenant's consideration. IRC 2040(b) provides a simplified 50% inclusion rule for qualified joint interests between spouses. Misclassifying TIC as JTWROS or vice versa on Form 706 is a common error that can produce either overinclusion or underinclusion. Verify at IRS.gov.

Q: How does community property affect IRC 2033 gross estate inclusion?

In community property states, only the decedent's half-interest in community property is includible in the gross estate under IRC 2033. The surviving spouse's half of the community property is not included in the decedent's estate because the surviving spouse owned that half independently during the marriage. However, IRC 1014(b)(6) provides that both halves of community property receive a stepped-up basis to date-of-death fair market value if at least half of the community property was includible in the decedent's gross estate -- meaning the surviving spouse's half receives a basis step-up even though it is not included in the taxable estate. This basis result is a significant planning advantage of community property over common-law separate property in high-appreciation asset situations. Verify at IRS.gov.

Q: Are S-corporation shares includible in the gross estate under IRC 2033?

Yes. S-corporation shares owned by the decedent at the time of death are includible in the gross estate under IRC 2033 at their date-of-death fair market value. The fair market value of S-corporation shares is determined under the willing-buyer/willing-seller standard of Treas. Reg. 20.2031-1, typically through a qualified appraisal using methods such as a capitalization of earnings approach, an asset-based approach, or a market comparable approach. Minority interest and lack-of-marketability discounts may reduce the includible value below a proportionate share of the entity's net asset value. Additionally, the death of an S-corporation shareholder may have corporate-level consequences (such as a short tax year for the S-election period); verify with qualified counsel. Verify at IRS.gov.

By Americas Tax Editorial Team | Last reviewed: July 2026 | Published: July 24, 2026

IRC 2033 is the bedrock gross estate inclusion provision. Its statutory language is short -- "all property to the extent of the interest therein of the decedent at the time of his death" -- but its application to real-world asset structures is far from straightforward. This practitioner guide walks through the three-part inclusion analysis, the treatment of installment obligations and partnership interests, the critical distinction between tenancy-in-common and jointly-held property, community property half-interest rules, the boundary between accrued income and income in respect of a decedent, and the Form 706 Schedule E mechanics that bring these rules into the return. OBBBA planning implications for the permanent $15 million exemption are addressed throughout.

1. The Statutory Foundation: What IRC 2033 Says and Why It Matters

Section 2033 of the Internal Revenue Code states: "The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death." Verify at IRS.gov. In six words -- "interest therein of the decedent" -- Congress created the primary hook for including owned assets in the federal gross estate.

IRC 2033 is the first and most broadly applicable of the gross estate inclusion provisions in Subchapter A of Chapter 11. The remaining provisions (IRC 2034 through IRC 2044) function as supplements that reach non-ownership interests the decedent controlled or could benefit from, including retained interests in transferred property (IRC 2036 to 2038), powers of appointment (IRC 2041), annuities (IRC 2039), life insurance proceeds (IRC 2042), and QTIP property (IRC 2044). When a practitioner asks "is this in the estate?", IRC 2033 is the starting question. If the decedent owned it and it had value, it is in.

The scope of IRC 2033 is broad by design. The gross estate under IRC 2031 encompasses property wherever situated -- real or personal, tangible or intangible. See our guide to IRC 2031 and 2032 gross estate date-of-death valuation for the foundational fair market value standard that governs the measurement of includible property. IRC 2033 is not limited to probate assets; any property in which the decedent had an ownership interest that did not automatically terminate at death falls within its reach.

2. The Three-Part Inclusion Test

Practitioners applying IRC 2033 to a specific asset work through three questions in sequence:

Part 1: Did the Decedent Have an Ownership or Beneficial Interest?

The interest must belong to the decedent, not merely pass through or relate to the decedent. Equitable interests, beneficial interests in trusts where the decedent held beneficial ownership, and interests in co-owned property are included based on the decedent's actual ownership percentage. A decedent who served as trustee of a trust but held no beneficial interest is generally not treated as owning the trust property under IRC 2033 (though other provisions, particularly IRC 2036 and IRC 2038, may reach retained powers). Verify at IRS.gov.

Part 2: Was the Interest Legally Transferable?

An interest that terminated automatically at the moment of death does not meet the transferability element. A classic example: a life estate held by the decedent, where the decedent's life was the measuring life, terminates at death and is not includible under IRC 2033 (it may be includible under IRC 2036, which reaches interests transferred with retained interests). Nonassignable rights, licenses that expire at death, or purely personal rights are also generally excluded. By contrast, a fee interest, a partnership interest, an S-corporation interest, or a contractual right that passes to the estate on the decedent's death is transferable and therefore includible. Verify at IRS.gov.

Part 3: Did the Interest Have Ascertainable Fair Market Value at the Date of Death?

The inclusion under IRC 2033 is measured at the date-of-death fair market value under the willing-buyer/willing-seller standard of Treas. Reg. 20.2031-1. If the interest had no ascertainable value at death -- for example, a purely contingent right dependent on unresolved events with no probability-weighted value -- inclusion may be zero. Speculative or contingent interests that do have probability-weighted ascertainable value are includible at that value. The burden is on the estate to establish the value reported on Form 706. Verify at IRS.gov.

3. Installment Sale Obligations: Inclusion and Income Tax Traps

When a decedent sold property on the installment method under IRC 453 and died while the buyer still owed payments, the remaining installment obligation is a receivable in the decedent's estate includible under IRC 2033. Treas. Reg. 20.2033-1(b) provides that the value of the unpaid balance (principal plus accrued interest to the date of death) is includible, measured at its date-of-death fair market value under the willing-buyer/willing-seller standard. If the note bears a market-rate interest and the buyer is creditworthy, the fair market value will generally approximate the unpaid principal balance plus accrued interest. Verify at IRS.gov.

The income tax consequences at death for installment obligations are addressed under IRC 453B. The general rule is that a transfer of an installment obligation (including a transfer at death) is treated as a disposition of the obligation and triggers immediate recognition of the deferred gain, at a rate equal to the difference between the face amount and the decedent's basis in the obligation. However, a specific exception in IRC 453B(c) provides that no gain is recognized at the decedent's death; instead, the obligation carries over to the estate or beneficiary, who may continue to report income on the installment method as payments are received. The estate or beneficiary steps into the decedent's shoes for installment reporting purposes. If the executor distributes the obligation to a beneficiary, that distribution is generally not a taxable disposition under the estate-transmission exception. Verify at IRS.gov.

Critical Tax Trap: Installment Obligation Income Tax Acceleration

An installment obligation included in the gross estate under IRC 2033 does NOT automatically trigger deferred gain recognition at death -- the IRC 453B(c) estate exception generally prevents that. However, if the estate later satisfies, cancels, transfers in satisfaction of a bequest, or otherwise disposes of the obligation (other than by transmitting it to a beneficiary), that event is a taxable disposition under IRC 453B(a). The deferred gain becomes immediately recognizable to the estate as income in respect of a decedent. Executors who cancel an installment note rather than distributing it, or who use a note to satisfy a specific pecuniary bequest, may trigger immediate income tax on the entire deferred gain. Consult qualified counsel before taking any action with an installment obligation held by the estate. Verify at IRS.gov.

Critical Tax Trap: Below-Market Promissory Notes at Death

If the decedent held a promissory note bearing interest below the applicable federal rate (AFR), the IRC 7872 below-market loan rules may have treated the decedent as receiving phantom ordinary income (original issue discount, or OID) during life, even without actually collecting it. At death, the full face value of the note is includible under IRC 2033, but the estate may inherit a note with a distorted tax basis due to the OID that was recognized (and taxed) during the decedent's life. Additionally, if the note is collectible at a discount from face value due to creditworthiness concerns or below-market terms, the fair market value for estate inclusion purposes may be below the unpaid principal balance -- but that discount determination requires a qualified appraisal and is subject to IRS scrutiny. Do not report the face value as fair market value without a valuation analysis when the note bears below-market interest or when the obligor's creditworthiness is uncertain. Verify at IRS.gov.

4. Partnership and LLC Interests: Discounts, Valuation, and IRC 6166

A partnership interest or membership interest in a limited liability company owned by the decedent at death is includible in the gross estate under IRC 2033 at its date-of-death fair market value. The critical principle: the fair market value of the interest is not the same as the decedent's proportionate share of the entity's underlying net asset value. A hypothetical buyer of the decedent's limited partnership interest or minority LLC membership interest would pay less than the pro-rata share of the entity's assets because the buyer would have no ability to force a liquidation, direct distributions, or readily sell the interest in a public market. Verify at IRS.gov.

Applicable Valuation Discounts

Two categories of discount reduce the includible value of a partnership or LLC interest below its proportionate net asset value:

Lack-of-control (minority interest) discount: Reflects the reduced rights of a non-controlling interest holder who cannot compel distributions, liquidation, or management decisions. Typical discount ranges vary substantially based on entity type, governing documents, and the economic environment; see a qualified appraiser for supportable figures.
Lack-of-marketability discount: Reflects the difficulty of selling an interest in a private entity where no established market exists. This discount compounds with the lack-of-control discount in many circumstances.

Both discounts must be supported by a qualified appraisal prepared by a qualified appraiser using methods consistent with Treas. Reg. 20.2031-1 and Rev. Rul. 59-60. The IRS actively challenges valuation discount positions, particularly in family limited partnership structures. Document the economic substance of the entity, the actual restrictions on transfer in the governing documents, and the appraiser's methodology. Verify at IRS.gov.

Practice Alert: Valuation Discounts Drive Both Estate Tax and IRC 6166 Eligibility

The date-of-death fair market value of the partnership or LLC interest -- after applying applicable discounts -- is the value that determines whether the interest qualifies as an interest in a closely-held business for the IRC 6166 installment payment election. Under IRC 6166, the estate may defer estate tax attributable to closely-held business interests and pay over up to 14 years if the business interests exceed 35% of the adjusted gross estate. A higher discount reduces the includible value, which reduces both the estate tax exposure and the IRC 6166-eligible amount. Practitioners must model the interaction between the discount position and the IRC 6166 threshold before finalizing the appraisal strategy. See our guide to IRC 6166 installment payment of estate tax for the eligibility mechanics. Verify at IRS.gov.

5. Tenancy in Common vs. Jointly-Held Property: The IRC 2040 Distinction

The form of co-ownership determines which inclusion rule applies, and getting it wrong on Form 706 produces either overinclusion or underinclusion of the gross estate.

Tenancy in Common Under IRC 2033

A tenancy-in-common (TIC) interest is includible under IRC 2033 based on the decedent's fractional ownership share. If the decedent owned a 40% undivided TIC interest in commercial real estate, the estate includes the fair market value of that 40% undivided interest -- which may be subject to a fractional interest discount below 40% of the property's whole value, because a hypothetical buyer of an undivided interest does not control the asset and cannot force a partition without litigation. The decedent's interest passes through the decedent's estate and is fully transferable; IRC 2033 governs. Verify at IRS.gov.

Jointly-Held Property Under IRC 2040

Joint tenancy with right of survivorship (JTWROS) property is NOT governed by IRC 2033. It is governed by IRC 2040. Under IRC 2040(a), the general rule is that the entire value of jointly held property is included in the gross estate of the first joint tenant to die, reduced by the proportion attributable to the surviving joint tenant's original contribution to the purchase price (the contribution test). Under IRC 2040(b), for qualified joint interests between spouses only, 50% of the value is included in the estate of the first spouse to die, regardless of contribution. Verify at IRS.gov.

Practice Alert: TIC vs. JTWROS Misclassification Is a Common Form 706 Error

State law governs the form of co-ownership. A deed creating a joint tenancy must typically include specific survivorship language; absent that language, most states default to tenancy in common. Practitioners must review the actual deed or ownership document -- do not rely on the client's characterization. Reporting a TIC interest under IRC 2040 (and including only 50%) understates the gross estate. Reporting a JTWROS interest under IRC 2033 (and including only the decedent's fraction) also understates the gross estate when the decedent funded most of the purchase. Pull the title documents, confirm the form of ownership under the governing state law, and apply the correct IRC section. Verify at IRS.gov.

6. Community Property: Half-Interest Inclusion and the Basis Advantage

In the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), married couples generally own equally all property acquired during the marriage through community funds or community labor. At the death of one spouse, only the decedent's half of the community property is includible in the gross estate under IRC 2033. The surviving spouse owned the other half independently; it was never the decedent's to include. Verify at IRS.gov.

In addition to the decedent's half of community property, the decedent's separate property (property owned before marriage, or received during marriage as a gift or inheritance) is fully includible in the gross estate under IRC 2033 because the decedent held that property outright. Practitioners must trace community versus separate property characterization, which is governed by state law and can be altered by transmutation agreements.

The IRC 1014(b)(6) Double Basis Step-Up Advantage

Although only the decedent's half of community property is included in the gross estate, IRC 1014(b)(6) provides that both halves of the community property receive a stepped-up basis to date-of-death fair market value -- provided that at least one-half of the community property was includible in the decedent's gross estate. This means the surviving spouse's half also receives the basis step-up, even though it is not subject to estate tax. This result is a significant advantage of community property over common-law property arrangements for high-appreciation assets (stock portfolios, real estate, closely-held businesses). The surviving spouse can sell the stepped-up community property with little or no capital gain even on the half that was not in the estate. Verify at IRS.gov.

Practice Alert: Community Property and the IRC 1014(b)(6) Step-Up Require Careful Tracing

The IRC 1014(b)(6) double step-up applies only to property that is actually community property under the governing state law. If the decedent and surviving spouse commingled community and separate funds, converted property through transmutation agreements, or moved between community and common-law states, the property's characterization may be contested. Practitioners must trace the source of the assets using state-law community property principles. Reporting separate property as community property (to claim the double step-up on the surviving spouse's half) is incorrect and may expose the return to audit. Always review the complete marital property history before reporting community property on Form 706. Verify at IRS.gov.

7. Accrued Income vs. Income in Respect of a Decedent Under IRC 691

Two categories of income-related rights may be included in the gross estate under IRC 2033, but their income tax treatment differs substantially. Getting the classification right affects both the estate tax return and the income tax returns filed by the estate and beneficiaries.

Accrued Income Includible Under IRC 2033

Income that the decedent had an unconditional, fixed right to receive at death -- even if not yet paid -- is includible in the gross estate under IRC 2033 as property in which the decedent had an interest. Examples include: accrued salary for pay periods completed before death, accrued interest on bonds or notes the decedent held, dividends declared but not yet paid on stock the decedent owned, and rent receivable under a lease. The gross estate includes the accrued amount at its fair market value as of the date of death. Verify at IRS.gov.

Income in Respect of a Decedent Under IRC 691

Income in respect of a decedent (IRD) under IRC 691 refers to income the decedent earned or had a right to but had not recognized for income tax purposes at death under the decedent's accounting method. IRD is also includible in the gross estate at fair market value under IRC 2033 (or related provisions), but it is also subject to income tax when the estate or beneficiary receives it. The IRD recipient is entitled to an income tax deduction under IRC 691(c) equal to the federal estate tax attributable to the IRD item -- this prevents double taxation, but does not eliminate it entirely. See our guide to IRC 691 income in respect of a decedent for the mechanics of the IRD deduction.

Common IRD items include: deferred compensation not yet paid, the income portion of an annuity, traditional IRA and 401(k) balances (which are includible under IRC 2039 but are also IRD), the gain component of an installment obligation, and unpaid commissions. The practitioner's task is to identify each IRD item, include it in the gross estate at fair market value, and ensure the estate's and beneficiaries' income tax advisors are aware of the IRD nature of each item so the IRC 691(c) deduction is claimed. Verify at IRS.gov.

8. Contingent and Reversionary Interests

The treatment of contingent and reversionary interests under IRC 2033 depends on whether the interest had an ascertainable fair market value at the date of death. An interest that was purely speculative -- with no reasonable basis for valuation and whose value depended entirely on unknowable future events -- is generally not includible because it lacks ascertainable fair market value. An interest with a probability-weighted value that a hypothetical buyer and seller would transact on is includible at that probability-weighted value. Verify at IRS.gov.

Reversionary interests warrant particular attention. A reversionary interest is the possibility that property transferred by the decedent during life may return to the decedent's estate. If the decedent retained a reversionary interest in transferred property, IRC 2037 provides the primary inclusion rule when the reversion's value exceeded 5% of the property's value immediately before the decedent's death. IRC 2033 may apply to reversionary interests where the decedent held a present reversion (rather than one accessible only by surviving the decedent), but IRC 2037's specific rules generally displace IRC 2033 for reversionary interests in transferred property. Verify at IRS.gov.

Contingent beneficial interests -- for example, a right to income that would have vested if the decedent survived a particular date -- may be includible under IRC 2033 if they had value at death based on the probability of the condition being met. Courts have valued such interests actuarially. Contractual rights contingent on future performance that had begun but not completed may be includible at the expected-value amount. Each fact pattern requires individual analysis.

9. Promissory Notes Receivable and Below-Market Loan Issues

A promissory note held by the decedent (as lender) at the time of death is includible in the gross estate under IRC 2033 at its fair market value. For notes bearing a market-rate interest with a creditworthy obligor, fair market value typically approximates the unpaid principal balance plus accrued interest. Practitioners must consider three adjustments:

Credit risk: If the obligor's ability to pay is uncertain, a credit discount below the face value may be appropriate. A qualified appraisal is necessary to support below-face-value reporting. Verify at IRS.gov.
Below-market interest: If the note bears interest below the applicable federal rate (AFR) at the time the loan was made, the IRC 7872 below-market loan rules treated the lender as receiving deemed interest (as OID or as foregone interest) during the life of the loan. At death, the estate includes the face value under IRC 2033, but the interaction with the OID basis rules requires careful analysis to avoid double inclusion or double exclusion. Verify at IRS.gov.
Related-party notes: Intra-family notes are subject to IRS scrutiny for bona fide debt character. A note that does not bear adequate interest, has not been serviced with actual payments, and was structured primarily for estate planning purposes may be recharacterized as a gift rather than a bona fide loan, with consequences for both the estate and the gift tax return. Verify at IRS.gov.

10. Form 706 Mechanics: Schedules, Reporting, and Valuation Support

Property includible under IRC 2033 is reported on Form 706 across several schedules depending on asset type. Practitioners must verify current Form 706 instructions before filing; schedules and instructions are updated periodically. Verify at IRS.gov.

Schedule A: Real estate owned outright by the decedent. TIC interests are reported here at the fractional fair market value, with a notation of the decedent's ownership percentage. A qualified appraisal of the underlying property (and, if applicable, a fractional interest discount analysis) should be attached or referenced.
Schedule B: Stocks and bonds, including S-corporation stock, publicly-traded partnership units, and C-corporation shares owned outright.
Schedule C: Mortgages, notes, and cash. Installment obligations and promissory notes receivable are reported here.
Schedule E: Jointly-owned property (both TIC and JTWROS). The schedule distinguishes between qualified joint interests under IRC 2040(b) (spousal JTWROS) and other jointly-held interests. Partnerships and LLC interests are often reported on Schedule F or Schedule E depending on the ownership structure; verify with current instructions.
Schedule F: Other miscellaneous property, including interests in sole proprietorships, partnership interests where not otherwise classified, and any other property in which the decedent had an interest not covered by other schedules.

For every asset requiring a qualified appraisal, the appraisal must be prepared by a qualified appraiser using a recognized valuation method, and must be attached to or filed with Form 706. Failure to support values with adequate documentation increases the risk of an IRS challenge and may negate the reasonable-cause defense against IRC 6662 accuracy-related penalties. Verify at IRS.gov.

11. OBBBA Permanent $15 Million Exemption: Planning Implications for 2033

The One Big Beautiful Budget Act permanently increased the IRC 2010 basic exclusion amount to $15 million per person (indexed for inflation; verify the current indexed figure at IRS.gov). For most American families, this means the gross estate will not produce a federal estate tax liability. However, IRC 2033 analysis remains essential in the following circumstances:

Portability elections: An estate that files Form 706 solely to elect portability of the deceased spousal unused exclusion amount (DSUEA) under IRC 2010 must complete the gross estate analysis, including IRC 2033, to support the DSUEA computation. An incomplete or inaccurate gross estate on a portability return may undermine the surviving spouse's available exemption. See our guide to IRC 2010 OBBBA permanent $15 million estate tax exemption for portability mechanics. Verify at IRS.gov.
Basis planning under IRC 1014: The IRC 1014 stepped-up basis applies to property included in the gross estate. For estates where the gross estate exceeds the exemption threshold, maximizing includible property increases the basis step-up available to beneficiaries and reduces future capital gains tax on sale. For estates below the threshold, planners sometimes consider the trade-off between excluding appreciated property from the estate (gift during life) and including it (for basis step-up). IRC 2033 drives this analysis. Verify at IRS.gov.
Estates near or above the threshold: Estates where the gross estate may approach or exceed $15 million (or $30 million for married couples with portability) require precise IRC 2033 analysis, particularly for closely-held business interests where valuation discounts are contested. Even a $1 million discount position affects the estate tax calculation on property taxed at the 40% marginal rate. Verify at IRS.gov.
State estate taxes: Many states impose their own estate taxes with exemptions well below $15 million. The federal 2033 analysis establishes the asset inventory from which state gross estate calculations begin. Verify the applicable state estate tax law.

OBBBA Planning Note: 2033 Still Matters Even When No Estate Tax Is Owed

With the permanent $15 million exemption, many estate administrations will not produce an estate tax bill. But IRC 2033 analysis is not optional for three groups: (a) estates filing Form 706 to elect portability, where the gross estate computation drives the DSUEA calculation; (b) all estates, for IRC 1014 basis planning, since the step-up applies to property included in the gross estate; and (c) estates of decedents who made gifts within three years of death that may be pulled back into the estate under IRC 2035. See our guide to IRC 2035 gifts within three years of death for the interaction between lifetime gifts and gross estate inclusion. OBBBA guidance may still be developing; verify at IRS.gov and consult qualified counsel.

12. Gross Estate Property Inclusion Reference Table

The table below summarizes how common asset types are treated under IRC 2033 and related provisions. It is a practitioner reference only; every estate requires independent analysis of the specific facts. Verify all entries at IRS.gov and consult current Form 706 instructions before filing.

Gross Estate Inclusion Reference: Common Asset Types Under IRC 2033 and Related Provisions
Asset Type	Inclusion Rule	IRC 1014 Basis Step-Up	IRC 6166 Eligible	Valuation Discounts Available	Key Traps and Notes
Real property (TIC fractional interest)	IRC 2033 -- fractional share FMV	Yes	No (unless rental activity qualifies)	Fractional interest discount possible; requires appraisal	Confirm TIC vs. JTWROS by deed language; TIC passes through estate, JTWROS does not
Real property (JTWROS with non-spouse)	IRC 2040(a) -- full value, less co-tenant's contribution	Yes, on included portion	No	No discount on JTWROS share	Document co-tenant's contribution to purchase price; IRC 2040 not IRC 2033 governs
Real property (spousal JTWROS)	IRC 2040(b) -- 50% of FMV	Yes, on included 50%	No	No discount	Community property half-step-up under IRC 1014(b)(6) does not apply to JTWROS; compare community property treatment
Installment sale obligation	IRC 2033 -- unpaid balance at FMV	No (IRD asset; no step-up)	No	Discount for credit risk or below-market rate	IRD asset; IRC 453B(c) prevents gain recognition at death, but estate disposition may accelerate gain
Partnership or LLC interest (limited/minority)	IRC 2033 -- interest FMV after discounts	Yes	Yes, if 35% threshold met	Lack-of-control and lack-of-marketability discounts; appraisal required	Discount drives both estate tax and IRC 6166 eligibility; IRS scrutinizes FLP structures
S-corporation stock (minority interest)	IRC 2033 -- share FMV	Yes	Yes, if 35% threshold met	Minority and marketability discounts; appraisal required	Death of shareholder may trigger S-election issues if estate holds stock beyond permitted period; verify with qualified counsel
Closely-held C-corporation stock	IRC 2033 -- share FMV	Yes	Yes, if 35% threshold met	Minority and marketability discounts; appraisal required	Accumulated earnings at entity level affect per-share FMV; do not use book value
Promissory note receivable (below-market)	IRC 2033 -- note FMV	No (IRD on income component)	No	FMV may differ from face value; appraisal if credit risk exists	IRC 7872 OID may have inflated basis; verify interaction before reporting FMV
Accrued salary or bonus	IRC 2033 -- accrued amount at FMV	No (IRD)	No	No discount	IRD; income tax due when received by estate or beneficiary; IRC 691(c) deduction available
Life insurance owned by decedent	IRC 2042 -- death benefit includible	No (generally excluded from basis rules)	No	No discount	Owned by decedent at death triggers IRC 2042; transfer within 3 years may be clawed back under IRC 2035
Life insurance transferred within 3 years of death	IRC 2035 -- pulled back into gross estate	No (generally)	No	No discount	Even if transferred to ILIT, IRC 2035 inclusion applies if decedent died within 3 years of transfer; see IRC 2035 guide
Contingent interest with ascertainable FMV	IRC 2033 -- probability-weighted FMV	Yes	No	Actuarial valuation may be required	Purely speculative contingencies with no ascertainable value are not includible; fact-specific analysis required
Community property (decedent's half)	IRC 2033 -- decedent's half at FMV	Yes -- both halves under IRC 1014(b)(6)	Depends on asset type	Depends on asset type	Surviving spouse's half also receives step-up under IRC 1014(b)(6); trace community vs. separate property by state law
IRD assets (IRA, deferred compensation, annuity income portion)	IRC 2039 / IRC 2033 -- at FMV	No (IRD; no step-up)	No	No discount	Double taxation risk; IRC 691(c) deduction for estate tax attributable to IRD item offsets but does not eliminate income tax; see IRC 691 guide

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Frequently Asked Questions: IRC 2033 Gross Estate Property Interests

What is the scope of IRC 2033 and what property does it include in the gross estate?

IRC 2033 provides that the gross estate includes the value of all property to the extent of the interest therein of the decedent at the time of his death. This foundational provision captures any property interest the decedent owned outright or beneficially at the moment of death -- real property, personal property, intangible property, and equitable interests -- wherever located. The gross estate under IRC 2033 is broader than the probate estate; it includes non-probate assets in which the decedent had an ownership interest, such as TIC real estate, closely-held business interests, and promissory notes receivable. Other IRC provisions (2034 through 2044) capture interests that are not ownership-based, such as powers of appointment, retained interests, and life insurance. Verify at IRS.gov.

What does "interest at the time of death" mean under IRC 2033?

An interest at the time of death under IRC 2033 requires that (1) the decedent held ownership or a beneficial interest in the property at the moment of death, (2) the interest was legally transferable by the decedent or through the decedent's estate, and (3) the interest had an ascertainable fair market value at the date of death under the willing-buyer/willing-seller standard of Treas. Reg. 20.2031-1. An interest that terminated automatically at death -- such as a life estate where the decedent's life was the measuring life -- is not includible under 2033 because there was nothing to transfer at death. Pure expectancies and unripened contingencies without ascertainable value are also excluded. Verify at IRS.gov.

How are installment sale obligations included in the gross estate under IRC 2033?

An installment sale obligation held by the decedent (as seller) at death is includible in the gross estate under IRC 2033 at its date-of-death fair market value. Under Treas. Reg. 20.2033-1(b), the starting point is the unpaid principal balance plus accrued interest as of the date of death. Adjustments may apply for credit risk or below-market interest terms. For income tax purposes, IRC 453B(c) provides that the decedent's deferred gain is not recognized at death; the estate or beneficiary inherits the installment reporting obligation and continues to report gain as payments are received. However, if the estate later cancels, satisfies with a bequest, or otherwise disposes of the note (other than by distributing it to a beneficiary), that event triggers immediate gain recognition. Verify at IRS.gov.

How are partnership and LLC interests included in the gross estate under IRC 2033?

Partnership and LLC interests owned by the decedent at death are includible under IRC 2033 at their date-of-death fair market value -- which reflects the hypothetical price a willing buyer would pay for the interest in the entity, not a pro-rata share of the entity's underlying net assets. Applicable valuation discounts for lack of control and lack of marketability reduce the includible value below the proportionate net asset value. A qualified appraisal prepared by a qualified appraiser is required. The discounted value also determines whether the interest qualifies as an interest in a closely-held business for the IRC 6166 installment payment election. Discount positions are subject to IRS challenge, particularly in family limited partnership structures. Verify at IRS.gov.

What is the tenancy-in-common vs. jointly-held property distinction for gross estate purposes?

Tenancy-in-common (TIC) interests are includible under IRC 2033 at the fair market value of the decedent's fractional share, which may be reduced by a fractional interest discount. Jointly-held property (JTWROS) is governed by the separate rules of IRC 2040, not IRC 2033. Under IRC 2040(a), the general rule includes the full value of jointly-held property in the estate of the first joint tenant to die, reduced by the surviving joint tenant's contribution proportion. Under IRC 2040(b), qualifying spousal joint interests are included at 50%. The governing form of ownership is determined by state law and the language in the actual deed or ownership document; practitioners must confirm co-ownership form rather than relying on the client's description. Verify at IRS.gov.

How does community property affect IRC 2033 gross estate inclusion?

In community property states, only the decedent's half of community property is includible in the gross estate under IRC 2033. The surviving spouse owned the other half independently. However, IRC 1014(b)(6) provides that both halves of community property receive a stepped-up basis to date-of-death fair market value if at least half of the community property was includible in the decedent's gross estate. This gives the surviving spouse a basis step-up on the half that was not subject to estate tax -- a significant planning advantage for high-appreciation assets. The decedent's separate property (owned before marriage or received as a gift or inheritance during marriage) is fully includible under IRC 2033 as wholly owned by the decedent. Verify at IRS.gov.

What is the difference between accrued income under IRC 2033 and income in respect of a decedent under IRC 691?

Accrued income that the decedent had a fixed, unconditional right to receive at death (such as accrued salary, accrued interest, or declared dividends) is includible under IRC 2033 as property in which the decedent had an interest. Income in respect of a decedent (IRD) under IRC 691 is income the decedent earned or had a right to but not yet recognized for income tax purposes under the decedent's accounting method (such as unpaid deferred compensation or the gain in an installment obligation). Both are included in the gross estate at fair market value, and both are subject to income tax when received. However, for IRD items, the recipient is entitled to an income tax deduction under IRC 691(c) for the estate tax attributable to the IRD item. This deduction reduces but does not eliminate the income tax burden on IRD. Verify at IRS.gov.

How do contingent interests work under IRC 2033, and what is the OBBBA $15 million exemption's impact on 2033 planning?

Contingent interests are includible under IRC 2033 only if they had an ascertainable fair market value at the date of death -- typically requiring a probability-weighted or actuarial valuation. Purely speculative interests with no ascertainable value are not includible. Reversionary interests in transferred property are generally governed by IRC 2037 rather than IRC 2033 when the reversion depends on surviving the decedent. As to the OBBBA: the One Big Beautiful Budget Act permanently increased the IRC 2010 basic exclusion amount to $15 million per person (indexed; verify at IRS.gov). Most estates will not owe federal estate tax, but IRC 2033 analysis still matters for estates filing Form 706 to elect portability of the DSUEA, for all estates for IRC 1014 basis planning, and for estates near or above the $15 million threshold. OBBBA implementation guidance may still be developing; verify at IRS.gov and consult qualified counsel.

What is Form 706 Schedule E and how is it used to report IRC 2033 property?

Form 706 Schedule E is used to report jointly-owned property, including both tenancy-in-common (TIC) interests includible under IRC 2033 and joint tenancy with right of survivorship (JTWROS) interests governed by IRC 2040. TIC interests are reported on Schedule E Part 1 at the decedent's fractional fair market value. JTWROS interests are reported on Part 2, using the contribution test for non-spousal tenancies or the 50% rule for qualified spousal joint interests under IRC 2040(b). Partnership and LLC interests may appear on Schedule F (other miscellaneous property) depending on the facts. Always verify current Schedule E instructions, as Form 706 is updated periodically. Verify at IRS.gov.

Are S-corporation shares includible in the gross estate under IRC 2033?

Yes. S-corporation shares owned by the decedent at death are includible in the gross estate under IRC 2033 at their date-of-death fair market value, determined by a qualified appraisal. Valuation approaches include capitalization of earnings, asset-based methods, and market comparables. Minority interest and lack-of-marketability discounts may reduce the includible value below a proportionate share of net asset value. The death of an S-corporation shareholder may also trigger corporate-level tax consequences (such as a short S-corporation tax year), which should be addressed separately with qualified counsel. Verify at IRS.gov.

How do accrued dividends and accrued rent affect the IRC 2033 gross estate?

Dividends declared before the decedent's death but not yet paid as of the date of death create a separate property right includible in the gross estate under IRC 2033, in addition to the underlying stock. Similarly, rent receivable under a lease for periods that accrued before death is includible as an accrued income right. Both accrued dividends and accrued rent are also income in respect of a decedent (IRD) under IRC 691, subject to income tax when received by the estate or beneficiary. The IRC 691(c) deduction is available for the estate tax attributable to each IRD item. Verify at IRS.gov.

What is the interaction between IRC 2033 and IRC 2035 for gifts made shortly before death?

IRC 2033 includes only property in which the decedent had an interest at the time of death; outright gifts made during life are not included under IRC 2033. However, IRC 2035 pulls certain transfers made within three years of death back into the gross estate. The most significant application is to life insurance: if the decedent transferred a life insurance policy within three years of death, the death benefit is included under IRC 2035 even though it is excluded under IRC 2033. IRC 2035 also applies to releases of retained interests under IRC 2036 through 2038 made within three years of death. Review all transfers and gifts made in the three years before death as part of the 2033 gross estate analysis. Verify at IRS.gov.

How does the IRC 6166 closely-held business installment payment election relate to IRC 2033 inclusion?

IRC 6166 allows an estate to defer estate tax attributable to closely-held business interests and pay in installments over up to 14 years if the value of those interests exceeds 35% of the adjusted gross estate. The threshold test uses the date-of-death fair market value includible under IRC 2033 -- after applying applicable discounts for lack of control and marketability. A higher discount reduces the includible value, potentially causing the estate to fall below the 35% threshold and lose IRC 6166 eligibility. Practitioners must model the interaction between the discount strategy and the IRC 6166 threshold before finalizing the appraisal approach. Verify at IRS.gov.

Does the IRC 1014 basis step-up apply to all property included in the gross estate under IRC 2033?

IRC 1014(a) provides a stepped-up basis equal to date-of-death fair market value for property acquired from a decedent, including property includible under IRC 2033. However, IRC 1014(c) specifically excludes income in respect of a decedent (IRD) from the basis step-up. IRD items -- such as the gain component of an installment obligation, traditional IRA balances, and unpaid deferred compensation -- are subject to income tax when received by the estate or beneficiary, with no basis step-up. Practitioners must identify all IRD items in the gross estate and ensure the estate's and beneficiaries' income tax advisors account for the ordinary income character and the IRC 691(c) deduction. Verify at IRS.gov.

How does portability interact with the IRC 2033 gross estate analysis under the OBBBA?

Portability under IRC 2010 permits the executor to elect to transfer the deceased spousal unused exclusion amount (DSUEA) to the surviving spouse by filing a timely Form 706. The DSUEA equals the deceased spouse's basic exclusion amount minus the taxable estate. Under OBBBA, the basic exclusion amount is permanently $15 million per person (indexed; verify at IRS.gov), giving married couples a potential combined exemption of $30 million. An accurate IRC 2033 gross estate analysis is essential to the portability computation; an incomplete or overstated gross estate that understates the taxable estate produces an inflated DSUEA, which may be challenged on audit of the surviving spouse's estate. Even estates with no estate tax liability must complete the full gross estate analysis to support a valid portability election. Verify at IRS.gov and consult qualified counsel.