Does the IRC 2058 deduction reduce the gross estate or only the taxable estate?

IRC 2058 reduces only the taxable estate, not the gross estate. The gross estate is determined under IRC 2031 through 2046 and includes the fair market value of all property in which the decedent had an interest at death, adjusted for alternate valuation under IRC 2032 if elected. Deductions, including IRC 2058, are subtracted from the gross estate to arrive at the taxable estate. Because the gross estate figure is not reduced by IRC 2058, it retains its full value for purposes that depend on gross estate: the two-percent-of-gross-estate liquidity threshold for IRC 6166 installment payment elections, generation-skipping transfer tax computations, the 35-percent-of-adjusted-gross-estate threshold for special-use valuation under IRC 2032A, and other gross-estate-based tests. Mischaracterizing the deduction as reducing the gross estate is a common error that can lead to incorrect qualification analyses under these other Code provisions.

What is the OBBBA's impact on IRC 2058 planning for OBBBA-era estates?

The One Big Beautiful Budget Act of 2025 (OBBBA, Public Law 119-21) permanently set the IRC 2010 basic exclusion amount at $15 million per person (indexed for inflation in future years), effective for decedents dying after the date of enactment. Under prior law, the Tax Cuts and Jobs Act of 2017 (TCJA) had temporarily increased the exclusion to approximately $13.61 million for 2024, but that increase was scheduled to sunset after December 31, 2025. OBBBA eliminated the sunset by making the higher exclusion permanent and increasing it further to $15 million. At the $15 million exclusion level, most estates that previously filed Form 706 because they were above the pre-TCJA threshold (which was approximately $5.49 million in 2017) will now owe no federal estate tax, rendering the IRC 2058 deduction inconsequential at the federal level for those estates. However, IRC 2058 remains material for estates that exceed $15 million (or $30 million for married couples using portability), and the provision's role in dual-regime planning for decoupled-state estates is undiminished. Verify the current exclusion amount and OBBBA provisions at IRS.gov.

How should a practitioner handle a state estate tax on extension when Form 706 is due?

When the state estate tax return and payment are on extension and the federal Form 706 is due before the state tax has been paid, the practitioner faces the actually paid limitation directly. The recommended approach has three steps. First, if the extension of time to file Form 706 is available (generally six months under IRC 6081), request it and use the additional time to complete and pay the state return before the federal return is due. Second, if federal filing cannot wait, file Form 706 without claiming the IRC 2058 deduction (or claiming only amounts already paid), and then file an amended Form 706 after the state tax is paid, within the applicable statute of limitations. Third, file a protective claim for refund using Form 843 before the three-year statute of limitations on the original Form 706 expires, preserving the right to a refund once the state tax payment is made. Do not claim an estimate of the state tax as a deduction on the original return when the tax has not yet been paid: the deduction is contingent on actual payment, and overstating it creates a Form 706 deficiency. Verify current amended return procedures and protective claim rules at IRS.gov.

Is IRC 2058 the same as IRC 2057?

No. IRC 2057 and IRC 2058 are entirely separate provisions. IRC 2057 was a deduction for qualified family-owned business interests (QFOBI) enacted by the Taxpayer Relief Act of 1997. It expired in 2004 under EGTRRA's phase-out of the estate tax and was never reinstated. IRC 2057 is not in current effect and was not restored by OBBBA. IRC 2058 is the state death taxes deduction, which remains in current law and allows a deduction for state estate, inheritance, legacy, or succession taxes actually paid with respect to property in the federal gross estate. Practitioners should not conflate the two provisions: they have different statutory origins, different mechanics, and different current-law status. Verify the current status of both provisions at IRS.gov.

Can an estate claim the IRC 2058 deduction for inheritance taxes paid by a beneficiary?

Under IRC 2058, the deduction covers state death taxes 'actually paid' with respect to property 'included in the gross estate.' State inheritance taxes are imposed on the beneficiary's right to receive property, not on the decedent's estate directly. Whether and to what extent the estate (rather than the beneficiary) pays the inheritance tax determines whether the estate can claim the IRC 2058 deduction. If the estate pays the inheritance tax on behalf of a beneficiary, the payment is arguably made with respect to property included in the gross estate and may support the deduction. If the beneficiary pays the inheritance tax from his or her own funds after distribution, the estate has not made the payment and cannot claim the deduction. The interaction of state law (who is legally obligated to pay the inheritance tax) with federal law (what the estate paid with respect to gross estate property) requires careful state-by-state analysis. Verify the applicable state inheritance tax statute and consult qualified tax counsel.

How does the Massachusetts estate tax cliff interact with IRC 2058 planning?

Massachusetts imposes an estate tax on estates exceeding approximately $2 million, and unlike most state estate taxes, the Massachusetts tax is computed on the entire taxable estate (not just the amount above the threshold) once the threshold is crossed. This cliff effect means that an estate of $2.1 million may owe significantly more Massachusetts estate tax than an estate of $1.99 million. The Massachusetts estate tax paid by a qualifying estate generates an IRC 2058 deduction on Form 706, reducing the federal taxable estate. However, because the $15 million OBBBA exclusion far exceeds Massachusetts estates in the $2 million to $5 million range, those estates owe no federal estate tax and the IRC 2058 deduction has no federal value. Planning for Massachusetts estates below $15 million focuses on reducing or deferring the Massachusetts estate tax directly, not on the IRC 2058 interaction. Verify current Massachusetts estate tax rules at DOR.Mass.gov.

Does New York's estate tax cliff affect IRC 2058 deduction planning?

New York imposes an estate tax with a so-called cliff: if the taxable estate exceeds 105 percent of the New York exemption threshold (approximately $7.16 million, indexed), the entire estate is taxed from dollar one with no exemption benefit. This cliff makes New York estate planning particularly sensitive to the estate's total value relative to the threshold. For estates just above the 105 percent cliff, a modest reduction in the taxable estate (through deductions or discounts) can produce substantial state tax savings. The New York estate tax paid generates an IRC 2058 deduction on Form 706. Again, because OBBBA's $15 million exclusion means most New York estates in the $7 million to $14 million range owe no federal estate tax, the IRC 2058 deduction saves no federal tax for those estates: the deduction's value comes only when the estate is large enough to owe federal estate tax. Verify current New York estate tax rules at Tax.NY.gov.

Can the executor elect to delay claiming the IRC 2058 deduction?

An executor who has already paid the state estate tax but did not claim the IRC 2058 deduction on the original Form 706 may file an amended Form 706 to claim the deduction, provided the amended return is filed within the three-year statute of limitations on the original Form 706. There is no separate election to delay the deduction: the deduction is available in the year of payment, and an amended return is the mechanism for claiming it after the original return has been filed without it. The protective claim procedure under Rev. Proc. 2022-32 (filing Form 843 before the statute of limitations closes) is the correct mechanism when the state tax has not yet been paid and the statute of limitations on the Form 706 is approaching. Practitioners should calendar both the state payment date and the Form 706 statute of limitations date to avoid permanently forfeiting the deduction. Verify current amended return procedures and protective claim rules at IRS.gov.

What documentation must the executor retain to support the IRC 2058 deduction on audit?

To support the IRC 2058 deduction on IRS audit, the executor should retain: (1) a copy of the state estate or inheritance tax return filed with the applicable state, including all schedules and attachments; (2) proof of payment in the form of a canceled check, official bank wire confirmation, or state-issued tax payment receipt showing the amount paid, the date paid, and the state receiving the payment; (3) any state assessment notices, amended state returns, or correspondence with the state revenue department that affect the amount of state tax owed or paid; (4) if an installment payment arrangement was made with the state, payment receipts for each installment, since the IRC 2058 deduction is limited to amounts actually paid; and (5) any state refund notices if the state subsequently refunded part of the tax, since a refund reduces the net amount paid and requires a corresponding adjustment to the federal IRC 2058 deduction (and potentially a filing of an amended Form 706 or additional federal estate tax). Retain all documentation for the full period during which the IRS may examine the Form 706. Verify current IRS examination periods and retention requirements at IRS.gov.

IRC 2058 State Death Taxes Deduction OBBBA Guide

Q: How is the IRC 2058 deduction claimed on Form 706 -- what is Schedule T?

The IRC 2058 state death taxes deduction is claimed on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, using Schedule T (Qualified Conservation Easement Exclusion is on a different schedule -- Schedule T in earlier versions of Form 706 was dedicated to state death taxes). Under current Form 706 instructions, the deduction for state death taxes is entered on Part 5 of the return, and the estate must attach documentation supporting the deduction. That documentation includes a copy of the state estate or inheritance tax return filed with the applicable state and proof of payment, such as a canceled check, state-issued receipt, or official tax payment confirmation. If the state return has not yet been filed or the payment has not yet been made, the deduction cannot be claimed at that time. Practitioners should confirm the current schedule and line reference in the Form 706 instructions for the applicable year, as the IRS periodically revises the form layout. Always download the current-year Form 706 and instructions directly from IRS.gov.

Q: Which states currently impose a separate estate or inheritance tax?

As of mid-2026, the following states and jurisdictions impose a separate estate or inheritance tax that may generate an IRC 2058 deduction on the federal Form 706: Connecticut, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Maryland imposes both an estate tax and an inheritance tax, making it the only jurisdiction with both. Iowa is in the process of phasing out its inheritance tax. Nebraska and Pennsylvania impose inheritance taxes but no estate tax. Kentucky and New Jersey also impose inheritance taxes. The applicable exemption thresholds and tax rates vary significantly by state and are periodically adjusted. All thresholds and rates listed in the reference table in this guide should be verified at the applicable state revenue department's website before advising clients, as state legislatures may change these figures without federal announcement.

Q: What is the difference between the old IRC 2011 state death tax credit and the current IRC 2058 deduction?

Before 2005, IRC 2011 provided a dollar-for-dollar credit against the federal estate tax for state death taxes paid. A credit reduces the tax itself: every dollar of state tax paid reduced the federal estate tax liability by one dollar, up to the credit ceiling. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) phased out the IRC 2011 credit between 2002 and 2004 and repealed it entirely for decedents dying after December 31, 2004. In its place, EGTRRA created IRC 2058 as a deduction. A deduction reduces the taxable estate, which in turn reduces the tax computed on that estate. Because the top federal estate tax rate is 40 percent, a deduction saves 40 cents per dollar of state tax paid, not the full dollar that a credit would have saved. Practitioners who advise clients that state taxes are fully offset by a federal credit are citing pre-2005 law and significantly overstating the current federal benefit. The shift from credit to deduction substantially increased the net cost of state-only estate taxation for high-net-worth estates.

Q: How do state decoupling rules affect the IRC 2058 analysis?

Many states with estate or inheritance taxes compute their state tax on a base that does not mirror the federal taxable estate. Some states decouple from the federal computation entirely, using their own definitions of the taxable estate that may not include the IRC 2058 deduction. This means the IRC 2058 deduction available on the federal Form 706 does not automatically reduce the state estate tax base in every state. In practical terms, if a state computes its own estate tax on a base that does not allow a deduction for state death taxes paid (that is, the state's own tax), the state and federal computations run on different tracks. Practitioners must verify each state's specific computation methodology before advising on the net state-plus-federal estate tax cost. Massachusetts, Oregon, and Washington are frequently cited as having their own exemption thresholds and computation methods that differ from the federal framework. Verify the applicable state's tax statute and administrative guidance at the state revenue department's website.

Q: How does IRC 2058 interact with IRC 2053 estate deductions?

IRC 2053 and IRC 2058 are both deductions from the gross estate that reduce the taxable estate, but they cover different categories. IRC 2053 covers funeral expenses, administration expenses, claims against the estate, and mortgages and indebtedness. IRC 2058 covers state death taxes specifically. The two deductions operate independently and are not mutually exclusive: an estate may claim both IRC 2053 deductions (for, say, executor fees, attorney fees, and funeral expenses) and an IRC 2058 deduction for state estate or inheritance taxes actually paid. One interaction point: some state estate tax statutes allow the state tax computation to include administration expenses that also qualify under IRC 2053 on the federal return. Practitioners should verify whether the state tax base includes or excludes IRC 2053-type items before computing the state tax and the resulting IRC 2058 deduction. The double-deduction prohibition under IRC 642(g), which limits certain administration expenses to either the estate tax return or the fiduciary income tax return but not both, does not apply to IRC 2058 state death taxes. Verify current rules at IRS.gov and the applicable state revenue department.

IRC 2058 permits an estate to deduct from the federal taxable estate the amount of state estate, inheritance, legacy, or succession taxes actually paid with respect to property included in the federal gross estate. For practitioners advising executors in Massachusetts, Oregon, Washington, Hawaii, Illinois, Maryland, Minnesota, New York, Vermont, the District of Columbia, Connecticut, Rhode Island, or Maine, IRC 2058 is a live planning variable -- not a theoretical provision. This guide explains the statute's mechanics, its history relative to the old IRC 2011 credit, the "actually paid" limitation that creates timing traps, Form 706 Schedule T documentation requirements, state decoupling complications, and the provision's relevance after the One Big Beautiful Budget Act of 2025 (OBBBA) permanently set the federal estate tax exclusion at $15 million per person.

Note: IRC 2057 was a separate, now-expired provision that provided a deduction for qualified family-owned business interests (QFOBI) under the Taxpayer Relief Act of 1997. It expired in 2004 and was not restored by OBBBA. This guide is exclusively about IRC 2058, the state death taxes deduction. Do not conflate the two provisions.

Related Practitioner Guides

1. What IRC 2058 Covers: Text, Scope, and the Tax Types That Qualify

Section 2058 of the Internal Revenue Code reads, in relevant part: "For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or the District of Columbia, in respect of any property included in the gross estate."

Several features of that language define the deduction's boundaries:

Tax types covered: The deduction reaches estate taxes (imposed on the transfer of property from the decedent's estate), inheritance taxes (imposed on the recipient's right to receive property), legacy taxes, and succession taxes. The label a state assigns to the tax matters less than whether it is a transfer tax triggered by death with respect to property in the decedent's estate. Income taxes, real property taxes, and other non-death-transfer taxes do not qualify.
Jurisdictions covered: States and the District of Columbia. U.S. territories are addressed separately under other Code provisions. Foreign death taxes are not covered by IRC 2058 but may be addressed under applicable tax treaties or the IRC 2014 foreign death tax credit.
Property nexus: The deduction is limited to state death taxes paid "in respect of any property included in the gross estate." State taxes imposed on property not in the federal gross estate do not generate an IRC 2058 deduction. This requirement can become relevant when a state taxes certain nonprobate transfers or beneficiary-designated assets that are excluded from the federal gross estate under IRC 2042 or another provision.
Reduction target: The deduction reduces the taxable estate (gross estate minus allowable deductions), not the gross estate itself. This distinction carries significant consequences discussed below.

Critical: The Actually Paid Trap

IRC 2058 permits a deduction only for state death taxes that have been actually paid before the federal Form 706 is filed or due (including extensions). If the estate has not yet remitted the state estate or inheritance tax when Form 706 is due, no deduction is available on the original return for that unpaid amount. A protective claim or amended return may preserve the deduction after payment, but the window is the three-year statute of limitations on the original Form 706. Missing that window is a permanent loss of the deduction. Do not estimate or accrue state tax as a deduction without actual payment in hand.

2. Legislative History: From IRC 2011 Credit to IRC 2058 Deduction

The federal government's treatment of state death taxes has shifted significantly over the past 25 years. Understanding that history is essential because practitioners still encounter clients whose advisors reference "the federal credit for state death taxes" as though it remains current law.

2.1 The IRC 2011 State Death Tax Credit (Pre-2005)

Before 2005, IRC 2011 provided a credit against the federal estate tax for state death taxes actually paid. A credit operates dollar-for-dollar: if the estate paid $100,000 in state estate taxes, the federal estate tax liability was reduced by $100,000, subject to a ceiling tied to the size of the taxable estate. The credit ceiling was set by a table in the former IRC 2011(b) that limited the credit to a maximum percentage of the taxable estate net of the $60,000 exemption then in effect. Because nearly every state with an estate tax had calibrated its own tax to equal exactly the federal credit ceiling (the "pick-up tax" or "soak-up tax" approach), most state estate taxes under this regime cost the estate nothing in additional federal tax: the state collected money that would otherwise have gone to the IRS.

2.2 EGTRRA 2001 Phase-Out and the Creation of IRC 2058

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) phased out the IRC 2011 credit over a four-year period (2002-2004) and repealed it entirely for decedents dying after December 31, 2004. In its place, EGTRRA enacted IRC 2058 as a deduction. Because states that had relied on the pick-up tax mechanism suddenly found their estate taxes generating zero state revenue once the credit disappeared, many states decoupled from the federal computation and enacted independent state estate taxes with their own exemption thresholds and rate schedules. That decoupling dynamic explains why a dozen-plus states still impose estate or inheritance taxes today even as the federal exclusion has climbed to $15 million.

Critical: Deduction, Not a Credit

IRC 2058 is a deduction from the taxable estate, not a credit against the federal estate tax. At the current top federal rate of 40 percent, the deduction saves 40 cents per dollar of state tax paid, not one dollar per dollar. Any adviser who tells an executor that the state estate tax is "fully offset by a federal credit" is citing the pre-2005 IRC 2011 credit that no longer exists. Overstating the federal offset is a substantive planning error that can affect a client's net cost-of-death-taxes analysis by a substantial margin.

2.3 TCJA 2017 and OBBBA 2025

The Tax Cuts and Jobs Act of 2017 (TCJA) did not repeal IRC 2058. The deduction remained in the Code. However, TCJA roughly doubled the federal basic exclusion amount under IRC 2010 (from approximately $5.49 million to $11.18 million per person), which had the practical effect of removing many estates from the federal estate tax filing requirement entirely. Estates below the federal exclusion owe no federal estate tax and therefore have no federal taxable estate against which to apply the IRC 2058 deduction. The deduction became largely inconsequential for the middle tier of estates that had previously been between the old exclusion and the new higher one.

OBBBA (Public Law 119-21, enacted 2025) permanently set the IRC 2010 basic exclusion at $15 million per person (indexed for inflation), eliminating the TCJA sunset that had been scheduled for after December 31, 2025. The $15 million exclusion means that estates filing Form 706 are, by definition, either very large or filing solely for portability purposes. For large estates that remain subject to federal estate tax, IRC 2058 is relevant again: a taxable estate of, say, $20 million with $800,000 in Massachusetts estate tax paid generates an IRC 2058 deduction that reduces the federal taxable estate and, at the 40 percent rate, produces approximately $320,000 in federal tax savings. Verify the current OBBBA provisions and exclusion amount at IRS.gov.

Caution: State Decoupling

Many states with estate taxes decouple from the federal IRC 2058 deduction and compute their own state estate tax on a base that does not allow a deduction for state death taxes paid. Verify each state's computation method at the applicable state revenue department's website before advising on net state-and-federal estate tax cost. The IRC 2058 deduction affects only the federal computation; it does not automatically flow into a state's own tax base.

3. Gross Estate vs. Taxable Estate: Why the Distinction Matters

IRC 2058 reduces the taxable estate, not the gross estate. This is not a technical formality: the distinction drives several other computations that depend specifically on gross estate value.

IRC 6166 installment payments: The election to pay federal estate tax attributable to a closely held business in installments over up to 14 years is available only when the closely held business interest exceeds 35 percent of the "adjusted gross estate" (gross estate minus IRC 2053 and 2054 deductions, under IRC 6166(b)(6)). IRC 2058 does not factor into that denominator.
IRC 2032A special-use valuation: The election to value farmland or other real property used in a family business at its special-use value rather than fair market value requires that the property's value exceeds 25 percent of the adjusted value of the gross estate and 50 percent of the adjusted value of the gross estate. The gross estate, before IRC 2058, is the relevant figure.
GST tax computations: Generation-skipping transfer tax is imposed with respect to property transferred from the gross estate (or from a skip person's transfer), and the applicable exclusion and rate computations refer to values in the gross estate, not the taxable estate as reduced by IRC 2058.
Non-tax purposes: Gross estate values appear in fiduciary accountings, surety bond calculations, and creditor notices. IRC 2058 does not reduce those figures.

Caution: Deduction Does Not Reduce the Gross Estate

IRC 2058 reduces the taxable estate only. The gross estate value, as determined under IRC 2031 through 2046 and any IRC 2032 alternate valuation election, is unaffected. Do not misstate the deduction as reducing the gross estate: it will lead to incorrect IRC 6166 eligibility analyses, incorrect IRC 2032A threshold tests, and incorrect GST computations. Report the gross estate at its full fair market value and then deduct the IRC 2058 amount in the deduction section of Form 706.

4. Form 706 Schedule T: Mechanics of Claiming the Deduction

The IRC 2058 deduction appears in the deductions section of Form 706. Practitioners should always download the current-year Form 706 and its instructions directly from IRS.gov because the IRS revises schedule designations and line references periodically. The following describes the documentation requirements that apply regardless of which specific line or schedule the deduction falls on in a given year's form version.

4.1 Required Attachments

To claim the IRC 2058 deduction, the estate must attach to Form 706:

A copy of the state estate or inheritance tax return filed with the applicable state (or the District of Columbia).
Proof of payment: a canceled check, bank wire confirmation, official state tax payment receipt, or equivalent evidence that the state tax was actually paid before the Form 706 was filed or due.
If only a portion of the state tax has been paid, supporting documentation showing which portion was paid and when.

4.2 When the State Return Is on Extension

If the state estate tax return is on extension and has not yet been filed when Form 706 is due, the executor faces a documentation problem: there is no state return to attach. Options include:

Requesting an extension of time to file Form 706 under IRC 6081 (generally six months) to allow the state return and payment to be completed first.
Filing Form 706 without the IRC 2058 deduction and filing an amended Form 706 after the state return is filed and the state tax is paid, within the three-year statute of limitations on the original return.
Filing a protective claim for refund on Form 843 before the statute of limitations on the original Form 706 expires, preserving the deduction for when payment is finally made.

Caution: Schedule T Timing and Documentation

To claim the IRC 2058 deduction, the estate must attach a copy of the state estate tax return filed with the state and proof of payment. If the state return is on extension, the federal return may need to be filed without the deduction, with an amended return or protective claim filed after state payment. Do not estimate an unconfirmed state tax figure and claim it as a deduction: the deduction is predicated on actual payment, and an unsupported estimate creates a reportable deficiency on the Form 706.

5. States and Jurisdictions Imposing Separate Estate or Inheritance Taxes

The following table summarizes jurisdictions that imposed a separate estate or inheritance tax as of mid-2026. All thresholds, rates, and decoupling characteristics are subject to legislative change without federal announcement. Verify current figures at the applicable state revenue department's website before advising any client. This table is for practitioner orientation only and does not constitute legal or tax advice.

State / Jurisdiction	Tax Type	Approx. Exemption Threshold*	Top Marginal Rate*	Decouples from IRC 2058	Notes
Connecticut	Estate tax	$13.61M (2024); confirm 2026	12%	Partial	Threshold has been increased toward federal parity; verify current amount
District of Columbia	Estate tax	Approx. $4.93M (2024)	16%	Yes	Threshold indexed; confirm current year at DC Office of Tax and Revenue
Hawaii	Estate tax	$5.49M	20%	Yes	High top rate; graduated schedule; verify at Hawaii Department of Taxation
Illinois	Estate tax	$4M	16%	Yes	Flat $4M threshold; not indexed; verify at Illinois Department of Revenue
Maine	Estate tax	Approx. $6.8M (indexed)	12%	Yes	Threshold indexed for inflation; verify current amount at Maine Revenue Services
Maryland	Estate tax and inheritance tax	$5M (estate tax)	16% (estate); up to 10% (inheritance)	Yes	Only jurisdiction with both taxes; inheritance tax on non-exempt beneficiaries
Massachusetts	Estate tax	$2M	16%	Yes	Low threshold; tax applies to entire estate (not just amount above threshold); verify at DOR.Mass.gov
Minnesota	Estate tax	$3M	16%	Yes	Minnesota provides some deductions but not full federal IRC 2058 conformity
New York	Estate tax	Approx. $7.16M (indexed)	16%	Yes	Cliff effect: taxable estate within 105% of threshold is taxed in full; verify at Tax.NY.gov
Oregon	Estate tax	$1M	16%	Yes	Lowest threshold in the country; not indexed; verify at Oregon Department of Revenue
Rhode Island	Estate tax	Approx. $1.77M (indexed)	16%	Yes	Threshold indexed; verify at RI Division of Taxation
Vermont	Estate tax	$5M	16%	Yes	Flat 16% rate above threshold; verify at Vermont Department of Taxes
Washington	Estate tax	Approx. $2.193M (indexed)	20%	Yes	High top rate; threshold indexed annually; verify at WA Department of Revenue
* All thresholds and rates are approximate and subject to change by state legislation. Verify current figures at the applicable state revenue department before advising any client. This table does not constitute legal or tax advice. Several states also impose inheritance taxes (Nebraska, Pennsylvania, Kentucky, New Jersey) but not estate taxes; those are noted separately in practice but not all are shown here. Iowa's inheritance tax is being phased out; verify current status at Iowa Department of Revenue.

6. OBBBA-Era Planning: When IRC 2058 Is and Is Not Relevant

With the permanent $15 million federal exclusion under OBBBA, most estates filing Form 706 will fall into one of three planning scenarios:

6.1 Estate Below $15 Million -- No Federal Tax

An estate below $15 million owes no federal estate tax (assuming no prior taxable gifts have consumed the exclusion). In this scenario, IRC 2058 is irrelevant at the federal level: there is no federal taxable estate to reduce. However, the estate may still owe significant state estate tax. A Massachusetts estate of $5 million, for example, owes substantial Massachusetts estate tax even with zero federal tax. That state tax is a real cash cost borne by the estate's beneficiaries and deserves planning attention. The IRC 2058 deduction does not help at the federal level here, but situs-based planning (considering whether property is held in a state with no estate tax) and marital deduction planning at the state level remain relevant tools.

6.2 Estate Between $15 Million and $30 Million -- Portability Zone

A married decedent's estate in this range may owe no federal estate tax if portability was elected on the predeceased spouse's Form 706 and the deceased spousal unused exclusion (DSUE) amount is available. In the portability zone, IRC 2058 again may be irrelevant federally, but state estate tax exposure -- which does not have a portability equivalent in most states -- remains a standalone planning concern.

6.3 Estate Above $30 Million -- Federal Tax and Full IRC 2058 Value

For estates large enough to owe federal estate tax even after exhausting both spouses' exclusions and any available portability, IRC 2058 is a meaningful deduction. A state estate tax payment of $1 million generates a federal taxable estate reduction of $1 million and, at the 40 percent rate, federal tax savings of $400,000. Multi-state planning (situs selection for large asset holdings, state-specific exemption planning, and the interaction between state and federal return timing) is worth detailed modeling for these estates.

Planning Note: OBBBA-Era Dual-Regime Strategy

The $15 million OBBBA exemption means most estates will owe no federal estate tax, making IRC 2058 less consequential at the federal level for estates below that threshold. However, for estates in decoupled states -- Massachusetts, Oregon, Washington, and others -- that impose a state estate or inheritance tax on amounts above a lower state exemption threshold, the state tax is a real cost that still deserves planning attention even when no federal tax is owed. The IRC 2058 deduction is most valuable for estates between the state threshold and the $15 million federal exemption: those estates incur a state tax cost with no offsetting federal tax reduction available. Practitioners advising executors in these states should prioritize state-specific planning tools (marital deduction allocation, state-only QTIP elections where available, and gift planning to reduce the state taxable estate) rather than relying on IRC 2058 to soften a cost it cannot address when there is no federal tax.

7. Interaction with IRC 2053 Estate Deductions

IRC 2053 and IRC 2058 are parallel but independent deductions from the gross estate. IRC 2053 covers funeral expenses, administration expenses (executor commissions, attorney fees, accountant fees), claims against the estate, and mortgages and indebtedness. IRC 2058 covers state death taxes. There is no double-deduction problem between the two: an estate may simultaneously claim IRC 2053 deductions for administration expenses and an IRC 2058 deduction for state estate taxes paid.

One coordination point arises in states where the state estate tax computation itself is influenced by IRC 2053-type deductions. If a state allows administration expenses to reduce the state taxable estate, the state estate tax will be lower, and the IRC 2058 deduction on Form 706 will correspondingly be lower. Practitioners computing the net benefit of claiming administration expenses on Form 706 versus Form 1041 (the double-deduction rule under IRC 642(g)) should factor in how the choice affects the state estate tax base and thereby the IRC 2058 deduction: a lower state estate tax (because administration expenses reduced the state base) means a smaller IRC 2058 deduction on Form 706.

The double-deduction prohibition under IRC 642(g) applies to administration expenses specifically; it does not apply to IRC 2058 state death taxes. State death taxes paid are deductible on Form 706 under IRC 2058 regardless of any Form 1041 position. See the guide on IRC 2053 estate deductions for claims, expenses, and mortgages for the full double-deduction analysis.

8. Regulated Claims and Compliance Flags

The following claims in this guide are flagged for compliance review:

Claim: OBBBA permanently set the IRC 2010 basic exclusion at $15 million per person. Basis: Public Law 119-21. Flag: Verify current exclusion amount and inflation adjustment at IRS.gov; verify that the specific OBBBA provisions affecting IRC 2058 have not been subsequently amended.
Claim: The state death tax credit under IRC 2011 was repealed for decedents dying after December 31, 2004. Basis: EGTRRA 2001. Flag: Well-established statutory history; verify at IRS.gov for completeness.
Claim: State-specific exemption thresholds (Massachusetts $2M, Oregon $1M, Washington $2.193M, etc.). Flag: All state figures must be verified at the applicable state revenue department before client delivery. These figures are approximate and change by state legislation.
Claim: At the top federal estate tax rate of 40 percent, the IRC 2058 deduction saves 40 cents per dollar of state tax paid. Basis: IRC 2001(c). Flag: Verify current rate schedule at IRS.gov; confirm no bracket change under OBBBA or subsequent legislation.

9. Frequently Asked Questions

What is IRC 2058 and what state taxes does it cover?

IRC 2058 allows an estate to deduct from the federal taxable estate the amount of state estate, inheritance, legacy, or succession taxes actually paid with respect to property included in the federal gross estate. The deduction covers any state-level death transfer tax, including estate taxes imposed on the transferor's estate and inheritance taxes imposed on the recipient's right to receive property. It does not cover income taxes, real property taxes, or other non-death-transfer taxes. Taxes imposed by a state on property not included in the federal gross estate do not generate an IRC 2058 deduction. Verify the current text of IRC 2058 at IRS.gov before filing.

What is the "actually paid" limitation under IRC 2058?

IRC 2058 permits a deduction only for state death taxes that have been actually paid, not merely accrued, assessed, or estimated. If the estate owes state estate or inheritance tax but has not yet remitted the payment to the state before the federal Form 706 is filed (or before the extended due date), no deduction is available on the original return for the unpaid amount. Practitioners must either pay the state tax before Form 706 is due, request an extension of time to file Form 706 to align with the state payment date, or file Form 706 without the deduction and claim it later via amended return or protective claim after payment is made. Do not estimate state tax and claim it as a deduction without evidence of actual payment.

How is the IRC 2058 deduction claimed on Form 706 -- what is Schedule T?

The IRC 2058 deduction is claimed in the deductions section of Form 706. Under current form instructions, the estate must attach a copy of the state estate or inheritance tax return filed with the applicable state and proof of payment (canceled check, wire confirmation, or state-issued receipt). Practitioners should download the current-year Form 706 and its instructions directly from IRS.gov because the IRS revises schedule designations and line references periodically. If the state return has not yet been filed when Form 706 is due, the deduction cannot be supported with the required attachment and cannot be claimed on the original return at that time.

Which states currently impose a separate estate or inheritance tax?

As of mid-2026, the following jurisdictions impose a separate estate or inheritance tax that may generate an IRC 2058 deduction: Connecticut, the District of Columbia, Hawaii, Illinois, Maine, Maryland (both estate and inheritance tax), Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Several states impose inheritance taxes without an estate tax, including Nebraska, Pennsylvania, Kentucky, and New Jersey. Iowa's inheritance tax is being phased out. All thresholds and rates vary significantly by state and change by legislation. Verify current figures at the applicable state revenue department's website before advising any client.

What is the difference between the old IRC 2011 state death tax credit and the current IRC 2058 deduction?

Under the former IRC 2011 (repealed for decedents dying after December 31, 2004 by EGTRRA 2001), the federal estate tax was reduced dollar-for-dollar by the amount of state death taxes paid, subject to a ceiling. A credit directly reduces the tax owed. Under the current IRC 2058, the state death taxes are deducted from the taxable estate, which reduces the base on which the federal estate tax is computed. At the current 40 percent top rate, each dollar of state tax deducted under IRC 2058 saves 40 cents in federal tax, not one dollar. Practitioners who describe the current benefit as a "full federal offset" or "federal credit" are citing pre-2005 law and significantly overstating the benefit to their clients.

Does the IRC 2058 deduction reduce the gross estate?

No. IRC 2058 reduces only the taxable estate. The gross estate, as determined under IRC 2031 through 2046 (and any IRC 2032 alternate valuation election), retains its full value for all purposes that depend on gross estate: the IRC 6166 35-percent test for installment payment eligibility, the IRC 2032A special-use valuation thresholds, GST tax computations, fiduciary accountings, and creditor notice requirements. Reporting the IRC 2058 deduction as a reduction to the gross estate is a material misstatement on Form 706 and can produce incorrect eligibility conclusions under multiple other Code provisions.

How do state decoupling rules affect the IRC 2058 analysis?

Most states that impose a separate estate or inheritance tax compute their state tax on a base that does not mirror the federal taxable estate after IRC 2058. States use their own exemption thresholds, their own rate schedules, and their own definition of the taxable base. A state that decouples from the federal computation will not automatically allow a deduction for state death taxes paid when computing its own state estate tax -- meaning the state tax does not reduce itself in a circular fashion. The IRC 2058 deduction on Form 706 affects only the federal computation. Practitioners must separately model the state estate tax computation using the applicable state's rules and then use the resulting state tax payment figure as the IRC 2058 deduction on the federal return. Verify each state's methodology at the state revenue department's website.

What is OBBBA's impact on IRC 2058 planning?

OBBBA (Public Law 119-21, 2025) permanently set the IRC 2010 basic exclusion at $15 million per person, eliminating the TCJA sunset that had been scheduled for after 2025. At the $15 million level, most estates filing Form 706 will owe no federal estate tax, making the IRC 2058 deduction inconsequential at the federal level for those estates. However, state estate taxes in decoupled jurisdictions (Massachusetts, Oregon, Washington, and others) remain a real out-of-pocket cost for estates between the state's lower threshold and the $15 million federal exclusion. For very large estates above $15 million that continue to owe federal estate tax, IRC 2058 is a material deduction worth planning around. Verify current OBBBA provisions and the applicable exclusion amount at IRS.gov.

How should a practitioner handle a state tax on extension when the federal Form 706 is due?

When the state estate tax return and payment are on extension and the federal Form 706 is due before the state tax has been paid, the practitioner should: (1) request an extension of time to file Form 706 under IRC 6081 (generally six months) to allow the state payment to be completed first; (2) if federal filing cannot be deferred, file Form 706 without the IRC 2058 deduction (or claiming only amounts already paid) and file an amended Form 706 after the state payment is made, within the three-year statute of limitations on the original return; or (3) file a protective claim for refund on Form 843 before the three-year statute of limitations on the original Form 706 expires, preserving the right to a refund once the state tax is paid. Do not estimate the state tax and claim it as a deduction before payment is confirmed.

How does IRC 2058 interact with IRC 2053 estate deductions?

IRC 2053 and IRC 2058 are parallel deductions that operate independently. IRC 2053 covers funeral expenses, administration expenses, claims against the estate, and mortgages; IRC 2058 covers state death taxes. An estate may claim both simultaneously. The IRC 642(g) double-deduction prohibition (which limits administration expenses to either Form 706 or Form 1041, not both) does not apply to IRC 2058 state death taxes. One coordination point: if a state allows administration expenses to reduce the state estate tax base, a decision to claim those expenses on Form 1041 rather than Form 706 will increase the state estate tax (because the state base is higher), which in turn increases the IRC 2058 deduction on Form 706. The net benefit of that trade-off depends on the applicable marginal rates on both the income side and the estate side. Verify current interaction rules at IRS.gov and with qualified tax counsel.

Work with an Estate Tax Practitioner

Navigating IRC 2058, state decoupling rules, the actually paid limitation, and the OBBBA's $15 million exclusion framework requires both federal and state expertise. Americas Tax works with executors, estate attorneys, and CPAs on Form 706 preparation, state death tax modeling, and dual-regime planning for estates in decoupled jurisdictions.

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This guide is for informational purposes only and does not constitute legal or tax advice. State-specific thresholds, rates, and computation rules change frequently; verify all figures at the applicable state revenue department and at IRS.gov before advising any client. The status of IRC 2058 and OBBBA provisions should be confirmed at IRS.gov. Americas Tax is not responsible for decisions made in reliance on information that has become outdated after the date of last review. For questions about your specific situation, contact a qualified estate tax practitioner.

Last reviewed: July 2026 | Americas Tax -- americastax.com