How to Use the Section 6166 Estate Tax Installment Calculator
When a large share of an estate is tied up in a closely-held business or farm, paying estate tax in full within nine months of death can force a fire sale. IRS Section 6166 addresses this: if the value of an includible closely-held business exceeds 35% of the decedent's adjusted gross estate, the estate can elect to defer the related tax and pay it in installments over up to 14 years instead of all at once.
The interest charged is not uniform. A special 2% rate applies only to the tax attributable to a specific inflation-indexed portion of the business value — roughly the first $1,850,000 of value for 2024, adjusted annually. Any deferred tax above that portion is charged interest at the regular IRS underpayment rate, which is set quarterly and is typically several points higher than the special 2% rate.
Enter your total deferred tax, the portion that qualifies for the 2% rate, the regular rate you expect to apply to the rest, and your installment period to see an estimated total interest cost. Because the regular rate changes quarterly and the indexed cap changes yearly, treat this as a planning estimate — confirm current figures with a CPA or the IRS before filing the election.
Frequently Asked Questions
An estate can elect Section 6166 if the value of an includible closely-held business exceeds 35% of the decedent's adjusted gross estate. It allows deferring the related estate tax and paying it over up to 14 years.
No. A special 2% rate applies only to the tax on a specific indexed portion of the taxable estate value. Any deferred tax above that portion is charged interest at the regular IRS underpayment rate, which changes quarterly.