Form 706 Portability Election for Iowa Estates: How to Preserve Your Spouse's $15 Million Exemption

When a spouse dies with an estate well below the federal exemption level, most executors skip Form 706 entirely. That may be a mistake that costs the surviving spouse millions of dollars in federal estate tax protection.

Here's what the portability election is, why it matters even for modest Iowa estates, and what to do if the deadline has already passed.

The Federal Estate Tax Exemption in 2026

The One Big Beautiful Bill Act, signed in 2025, permanently raised the federal estate tax basic exclusion amount to $15,000,000 per individual for 2026. This amount is indexed for inflation in subsequent years.

An estate below $15 million owes no federal estate tax. For most Iowa families — including those with substantial farmland portfolios — the estate will never approach this threshold.

Iowa has no state estate tax (repealed in 2005) and no inheritance tax (repealed for deaths on or after January 1, 2025). So for a typical Iowa estate, federal estate tax reporting seems entirely unnecessary.

The problem is portability.

What Portability Is and Why It Matters

Portability is a federal mechanism that allows a surviving spouse to inherit and use the deceased spouse's unused federal exclusion amount. It is called the Deceased Spousal Unused Exclusion, or DSUE.

Here is the scenario:

A husband dies in 2026 with a $4 million estate. He used none of his $15 million federal exclusion. His remaining $11 million in unused exclusion can be transferred to his surviving wife — but only if the executor files Form 706 to make the portability election.

The surviving wife already has her own $15 million exclusion. After the portability election, her effective future exclusion is $26 million ($15 million own + $11 million DSUE). A married couple can effectively shield up to $30 million from federal estate tax through this mechanism.

Without the Form 706 filing, the $11 million DSUE is lost permanently. It does not carry forward automatically. It disappears.

Who Should Consider Filing Form 706

Executors of Iowa estates that are below the $15 million filing threshold should seriously consider filing a defensive Form 706 in any of these situations:

• The surviving spouse is relatively young and may accumulate significant assets over their lifetime
• The surviving spouse may remarry and the DSUE from the first spouse's estate provides an additional cushion
• The estate includes farmland, business interests, or other assets that could appreciate substantially
• The couple's combined assets are within a few million dollars of the threshold

For many Iowa farm families, land at $10,000 to $15,000 per acre can add up quickly. A surviving spouse who continues farming and inherits additional assets over time may reach the threshold without aggressive planning.

The Standard Deadline and the Extension Under Rev. Proc. 2022-32

The standard deadline to file Form 706 is nine months after the date of death. A six-month extension is available by filing Form 4768.

This means executors have fifteen months from the date of death to file Form 706 and make the portability election, if they act promptly.

However, many executors don't think about portability until it's too late. The IRS addressed this with Revenue Procedure 2022-32, which provides a simplified method for late portability elections:

Rev. Proc. 2022-32 allows an executor to file Form 706 solely for the portability election up to five years after the date of death, provided the estate was not otherwise required to file Form 706 due to its size.

This is a significant relief provision. An executor who realizes two or three years after a death that portability was never elected can still file a "late" Form 706 under Rev. Proc. 2022-32 and preserve the DSUE — as long as five years have not passed.

Note that the estate must be clearly below the filing threshold (i.e., it did not owe estate tax) to use this simplified procedure. If the estate was required to file Form 706 and failed to do so, different rules apply.

What Filing Form 706 Requires

Filing Form 706 is not a simple one-page task. Even for a non-taxable estate filing solely for portability, the return requires:

• A complete listing of all estate assets at fair market value as of the date of death
• Documentation of the date-of-death values (real estate appraisals, account statements, business valuations)
• Calculation of the gross estate and adjusted taxable estate
• Election of the portability amount on Schedule DS of the return

For estates that include Iowa farmland or closely held business interests, date-of-death appraisals are essential. The appraised values on Form 706 are the permanent, documented basis for the DSUE amount. Sloppy valuations on the 706 can create problems when the surviving spouse's estate is later settled.

A CPA with estate tax experience should prepare Form 706. This is not a DIY return for most people.

Iowa Has No State Estate Tax — But the Federal Filing Still Matters

Iowa eliminated its state estate tax in 2005. No Iowa-equivalent form exists for state estate tax purposes.

The Form 706 discussion is entirely about federal tax. The portability election is a federal mechanism, and the DSUE protects against federal — not Iowa state — estate taxation.

Given that Iowa has no state estate tax and no inheritance tax for post-2025 deaths, the only wealth transfer tax that matters for Iowa estates is the federal estate tax. Preserving the DSUE through a timely Form 706 filing is the only proactive step available to protect a surviving spouse against future federal exposure.

Practical Guidance for Iowa Executors

Step 1: Determine the approximate size of the gross estate. If it's clearly below $15 million and there is a surviving spouse, evaluate whether portability is worth preserving.

Step 2: Consult a CPA. Portability elections involve detailed valuations and strategic calculations that require professional judgment, particularly for estates with farmland or business interests.

Step 3: If filing, act within the standard nine-month window (plus extension) to preserve full flexibility. If the deadline has already passed and it has been fewer than five years, Rev. Proc. 2022-32 may still allow a late election.

Step 4: Keep copies of the filed Form 706 permanently. When the surviving spouse's estate is eventually settled, the DSUE amount from the prior return will be needed to establish the combined exclusion.

The Iowa Final Tax & Estate Tax Guide covers the Form 706 portability question alongside Iowa's estate administration procedures — including the fiduciary tax return, Medicaid recovery notices, and the Certificate of Acquittance needed to close the estate. It's designed to give Iowa executors a sequenced view of both the federal and state obligations.

The Key Takeaway

The federal estate tax basic exclusion is $15 million per individual in 2026. Portability allows a surviving spouse to stack unused exclusion from a deceased spouse on top of their own — but only if Form 706 is filed to elect it. For Iowa estates below the filing threshold, the election is optional but often highly valuable. If you missed the nine-month deadline, Rev. Proc. 2022-32 gives you up to five years to act.

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