IRS Form 706 Schedule E Guide: Jointly Owned Property Rules

1. Introduction – What is Form 706 (Schedule E)?

IRS Form 706 (Schedule E), officially titled Schedule E – Jointly Owned Property, is a mandatory supporting schedule attached to IRS Form 706 (United States Estate Tax Return). Governed by the Internal Revenue Service (IRS), it is used by estate executors to disclose all property owned by a decedent as a joint tenant with right of survivorship or as a tenant by the entirety.

Jointly owned property automatically transfers to the surviving owner upon a person’s death by operation of state property law. However, for federal estate tax purposes under Section 2040 of the Internal Revenue Code, jointly held assets must still be reported to determine their inclusion in the gross estate.

Schedule E provides an itemized breakdown of joint real estate, bank checking/savings accounts, joint brokerage portfolios, and personal property held with survivorship rights, applying specialized tax formulas based on whether the co-owner was a spouse or a non-spouse.

2. Purpose of the Form

The primary purpose of Schedule E is to enforce Section 2040 tax rules regarding survivorship property and prevent taxpayers from hiding assets behind joint ownership titles.

Schedule E solves the administrative challenge of evaluating financial contributions toward joint assets. When property is held jointly with right of survivorship, questions arise regarding who originally paid for the asset. Schedule E establishes clear statutory rules: a statutory 50% split for spousal joint property, and a 100% consideration furnished rule for non-spousal joint property.

Additionally, Schedule E determines the stepped-up cost basis for surviving co-owners. The percentage of asset value included in the decedent’s gross estate on Schedule E dictates the portion of the asset that receives a tax-free step-up in cost basis for future capital gains tax calculations.

3. Who Needs to File This Form

Schedule E must be completed and attached to Form 706 whenever the deceased individual held property with survivorship rights at the time of death.

An estate executor must list items on Schedule E for any of the following assets:

• Spousal Joint Property: Real estate, bank accounts, or investments titled as Joint Tenants with Right of Survivorship (JTWROS) or Tenancy by the Entirety strictly between the decedent and their surviving U.S. citizen spouse.
• Non-Spousal Joint Property: Property owned jointly with survivorship rights with a child, sibling, business partner, relative, or non-U.S. citizen spouse.
• Joint Bank & Brokerage Accounts: Bank checking/savings accounts or stock brokerage accounts with automatic right of survivorship.

4. Who Is Exempt / Not Required to File

Schedule E applies strictly to property titled with automatic rights of survivorship. Other co-ownership forms belong on different Form 706 schedules.

You should NOT list property on Schedule E in the following situations:

• Tenants in Common: Property held as a tenant in common (where each owner holds a distinct fractional share with no survivorship rights) is reported on Schedule A (Real Estate), Schedule B (Stocks/Bonds), or Schedule F.
• Community Property: Assets held purely as community property without explicit rights of survivorship are reported on Schedules A through F depending on asset type.
• Solely Owned Assets: Property owned 100% individually by the decedent is reported on Schedules A, B, C, or F.
• Trust Property: Assets held inside revocable living trusts are reported on Schedule G.

5. When to File

Schedule E is an attached supporting schedule to Form 706 and shares its exact federal filing deadline.

Review the primary submission timing deadlines:

• Nine-Month Due Date: Schedule E must be submitted attached to Form 706 within 9 months of the decedent’s date of death.
• Six-Month Extension: If the executor submits Form 4768 to request an automatic 6-month extension, Schedule E is submitted when the extended Form 706 is filed (15 months from the date of death).

6. Where and How to File

Schedule E is attached directly behind Schedule D in alphabetical schedule order on Form 706. It is filed by paper mail as part of the complete estate tax return package.

Mail the complete Form 706 package—including Schedule E, deeds, bank letters, and evidence of financial contributions—to the designated IRS submission center address listed in the official Form 706 instructions (typically the IRS Center in Kansas City, MO).

7. Step-by-Step Instructions to Fill the Form

Schedule E is divided into two distinct parts depending on the legal relationship between the joint owners. Review the structured breakdown below.

Schedule E Section	Applicable Property Type	Inclusion Rule & Tax Calculation
Part 1	Qualified Joint Interests (Spousal)	50% Rule: Automatically includes exactly 50% of the total Fair Market Value in the gross estate, regardless of contribution.
Part 2	All Other Joint Interests (Non-Spousal)	100% Rule: Presumes 100% of property value is included UNLESS executor proves surviving owner financially contributed.

Part 1 – Qualified Joint Interests (Spouses Only)

Part 1 covers property titled in joint tenancy strictly between the decedent and their surviving spouse (if the spouse is a U.S. citizen). Under Section 2040(b), the executor lists the full Fair Market Value (FMV) of the joint asset, but enters exactly 50% of that value as the taxable portion included in the gross estate. This 50% included portion typically qualifies for the unlimited marital deduction on Schedule M.

Part 2 – All Other Joint Interests (Non-Spousal Rules)

Part 2 covers joint property owned with children, relatives, business associates, or non-citizen spouses. The law presumes the decedent paid 100% of the purchase price, including 100% of the FMV in the gross estate.

To exclude a portion of the property from the gross estate, the executor must provide clear written proof of the surviving joint owner’s financial contribution (the consideration furnished test):

Includible Value = Total FMV × (Decedent’s Financial Contribution ÷ Total Acquisition Cost)

Total Line

Sum the total taxable amounts from Part 1 and Part 2. Carry this sum over to **Form 706, Part 5 (Recapitulation), Line 5**.

8. Required Documents/Information Needed Before Filling

Schedule E requires extensive title and financial documentation, especially when proving financial contributions from non-spousal co-owners.

Gather the following verification records before completing Schedule E:

• Property Deeds and Titled Certificates: Copies of recorded real estate deeds, vehicle titles, or stock certificates verifying “Joint Tenants with Right of Survivorship” wording.
• Joint Bank/Brokerage Statements: Official date-of-death statements showing joint account balances and accrued interest.
• Proof of Financial Consideration (Part 2): Canceled checks, bank wire transfers, employment tax returns, or inheritance records proving that a non-spouse co-tenant contributed independent funds toward acquiring the asset.
• Certified Appraisals: Independent appraisal reports for jointly owned real estate or business holdings.

9. Common Mistakes to Avoid

Errors on Schedule E are a frequent cause of IRS audits and step-up basis miscalculations. Avoid these major pitfalls:

• Confusing Joint Tenancy with Tenancy in Common: Reporting tenancy-in-common property on Schedule E. Tenancy-in-common property has no survivorship rights and belongs on Schedule A, B, or F.
• Assuming 50/50 Splits for Non-Spouses: Automatically listing 50% of property value for joint property held with a child or sibling. Without written proof of the child’s financial contribution, the IRS requires **100% inclusion** on Schedule E, Part 2.
• Failing to Claim the Marital Deduction: Reporting 50% spousal joint property on Schedule E, Part 1, but forgetting to offset that taxable amount by claiming a corresponding marital deduction on **Schedule M**.
• Omitting Bank Interest: Reporting principal account balances on joint bank accounts while omitting interest accrued up to the date of death.
• Missing Contribution Proof: Excluding property value on Part 2 based on verbal claims of a child’s financial contribution without attaching documentary records.

10. Penalties for Non-Filing or Errors

Failing to report joint property or understating taxable joint values carries significant financial penalties under the Internal Revenue Code.

Key penalty risks include:

• Accuracy-Related Underpayment Penalty (IRC Section 6662): A 20% civil penalty applies to estate tax underpayments caused by omitting non-spouse joint property.
• Valuation Understatement Penalty: Penalties ranging from 20% to 40% apply if reported joint asset values are substantially understated.
• Audit Interest and Reassessments: Omitted joint bank accounts trigger immediate IRS field audits, resulting in back taxes, accrued compounding interest, and delayed estate closing letters.

11. Related Forms or Schedules

Schedule E works in close coordination with several core Form 706 schedules and estate basis rules:

• Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return.
• Form 706 (Schedule A): Real Estate (for tenancy-in-common property).
• Form 706 (Schedule M): Bequests, etc., to Surviving Spouse (for spousal marital deductions).
• Form 706 (Schedule K): Debts of the Decedent, Mortgages, and Liens.
• Form 8971: Information Regarding Beneficiaries Acquiring Property From a Decedent.

12. Frequently Asked Questions

1. What is IRS Form 706 Schedule E?

IRS Form 706 Schedule E is the supporting schedule used by estate executors to itemize and report all property owned by a decedent as a joint tenant with right of survivorship or tenant by the entirety.

2. What is the difference between Part 1 and Part 2 on Schedule E?

Part 1 applies strictly to joint property owned between spouses (including 50% of FMV). Part 2 applies to joint property owned with non-spouses (including 100% of FMV unless financial contribution is proven).

3. How does the “100% Consideration Furnished” rule work for non-spouse joint owners?

Under Section 2040(a), 100% of non-spouse joint property is included in the decedent’s gross estate unless the executor proves that the surviving owner paid for a portion of the asset using their own independent funds.

4. Is tenancy-in-common property reported on Schedule E?

No. Tenancy-in-common property does not have automatic rights of survivorship and is reported on Schedule A (for real estate) or Schedules B/F (for other property).

5. Does joint property passing to a surviving spouse pay estate tax?

Generally, no. While 50% of spousal joint property is included on Schedule E, Part 1, that same 50% amount is deducted on Schedule M under the unlimited marital deduction (if the spouse is a U.S. citizen).

6. How is cost basis stepped up for joint tenancy property on Schedule E?

The portion of joint property included in the decedent’s gross estate on Schedule E receives a stepped-up cost basis to Fair Market Value on the date of death for the surviving owner.

13. Conclusion

IRS Form 706 (Schedule E) is a vital schedule for reporting survivorship property and ensuring proper federal estate tax calculations. By understanding the distinction between spousal 50% rules and non-spousal contribution rules, executors manage joint estate assets effectively.

To prepare a compliant Schedule E, review recorded deeds and account agreements, apply the 50% rule for spousal property, compile financial contribution proof for non-spouse joint owners, claim marital deductions on Schedule M, and carry totals over to Form 706.