US Inheritance Tax for Non-Residents Starts at a $60K Exemption

What the US Inheritance Tax for Non-Residents Actually Costs You

The US inheritance tax for non-residents operates on a $60,000 exemption. Not $6 million. Not $13 million. Sixty thousand dollars. A non-resident alien holding a $3 million position in US equities faces an estate tax liability of roughly $1.18 million at death, regardless of where the brokerage account sits. If you have meaningful US asset exposure, the math demands attention now, not when the estate is being administered.

How the IRS Defines Non-Resident Alien Status for Estate Tax Purposes

The IRS applies a domicile test for estate tax purposes, which is distinct from the income tax residency rules most people know. For estate tax, the question is whether the decedent was domiciled in the United States at death, meaning they lived there with no present intention of leaving. Citizenship alone does not determine domicile. A green card holder who lives primarily abroad may still be treated as a US domiciliary if their intent was to remain.

For income tax purposes, the IRS uses the substantial presence test under IRC Section 7701(b). The formula: count all days present in the current year, add one-third of days from the prior year, and add one-sixth of days from the year before that. If the total reaches 183 or more, you meet the test and are treated as a US resident for income tax. Estate tax uses the domicile standard instead, but the two tests interact in planning because residency status affects which exemptions and deductions apply.

If you spent 120 days in the US in 2024, 90 days in 2023, and 60 days in 2022, your substantial presence calculation is: 120 + (90 × 1/3) + (60 × 1/6) = 120 + 30 + 10 = 160. Below 183, so you remain a non-resident alien for income tax. But if your pattern of life suggests you intend to stay permanently, the IRS can still argue domicile for estate tax purposes.

The distinction matters enormously. A US domiciliary gets a $13.61 million federal estate tax exemption in 2024. A non-resident alien gets $60,000.

The $60,000 Exemption: What Non-Resident Aliens Actually Face

The gap between the two regimes is not a rounding error. According to the Tax Policy Center, non-resident aliens face a $60,000 US estate tax exemption compared to the $13.61 million exemption available to US citizens and domiciliaries in 2024. That $60,000 threshold has not been inflation-adjusted in decades, while the citizen exemption has risen by orders of magnitude.

The practical consequence: almost any meaningful US asset holding triggers federal estate tax exposure for a non-resident alien.

The IRS Instructions for Form 706-NA confirm the 40 percent maximum rate applies above the $60,000 threshold. On a $5 million US real estate holding, the taxable estate is $4.94 million. Working through the progressive rate schedule, the federal estate tax liability approaches $1.9 million before any state-level tax.

One additional pressure point: the elevated $13.61 million exemption for US citizens is scheduled to sunset after December 31, 2025, reverting to approximately $7 million (inflation-adjusted) under the Tax Cuts and Jobs Act expiration. For non-residents in treaty countries whose exemption is pro-rated based on the US citizen amount, that sunset reduces their benefit proportionally.

Which US Assets Are Actually Subject to Estate Tax

The IRS taxes non-resident aliens only on US-situs property. According to IRS Publication 515, US-situs assets include real property located in the United States, tangible personal property physically present in the US, and stock of US corporations, regardless of where the share certificates or brokerage accounts are held.

That last point catches people. A non-resident holding Apple or Microsoft shares through a foreign brokerage account in London or Singapore has full US estate tax exposure on those positions. The account location is irrelevant. The issuer's domicile controls.

Assets that are generally not US-situs for estate tax purposes include:

• Stock of foreign corporations (even if the foreign corporation owns US assets)
• Most US government bonds (portfolio debt exemption)
• Bank deposits held in US banks (with exceptions for deposits effectively connected to a US trade or business)
• Life insurance proceeds on the life of a non-resident alien
• Certain portfolio interest obligations

This creates a structural planning opportunity. A non-resident who holds US real estate through a foreign corporation converts the asset from US-situs real property to foreign corporate stock for estate tax purposes. The estate tax exposure disappears. But as discussed in the structuring section below, that conversion introduces FIRPTA and corporate tax complications that require full lifecycle modeling before implementation.

Do Non-US Citizens Pay Inheritance Tax on US Real Estate

Real estate is the asset class where non-residents face the sharpest exposure, for two reasons. First, it is unambiguously US-situs. Second, it cannot be restructured after death. A non-resident who dies owning a Manhattan apartment directly has no post-death options.

Federal estate tax applies to the full fair market value above $60,000 at rates up to 40 percent. But the federal bill is only part of the picture. Nine states impose their own separate estate taxes, and those state taxes operate independently of federal law. Federal estate tax treaties provide no relief from state-level taxes.

New York's estate tax illustrates the compounding effect. The 2024 New York exemption is $6.94 million, but New York applies a cliff provision: if the gross estate exceeds 105 percent of the exemption threshold, the exemption disappears entirely and the full estate value is taxed. A non-resident alien inheriting a $4 million Manhattan apartment faces federal estate tax on $3.94 million (above the $60,000 exemption) plus New York estate tax on the full $4 million value, since $4 million falls below the $6.94 million New York threshold. The combined liability can exceed $1.5 million on a single property.

Massachusetts sets its exemption at $1 million, with rates up to 16 percent. Oregon and Washington impose estate taxes with rates reaching 20 percent. For non-residents with foreign inheritance tax obligations in specific states, state-level analysis is not optional.

The capital gains tax implications for foreign investors add another layer. When heirs ultimately sell inherited US real estate, FIRPTA withholding applies separately from the estate tax already paid.

How FIRPTA Affects Non-Residents Who Inherit US Real Property

FIRPTA (Foreign Investment in Real Property Tax Act) is a separate regime from the estate tax, and it applies at the point of sale rather than at death. Under FIRPTA, when a non-resident alien inherits and subsequently sells US real property, the buyer must withhold 15 percent of the gross sales price and remit it to the IRS as a prepayment against the seller's US tax liability, according to the IRS FIRPTA overview.

The withholding is on gross proceeds, not gain. On a $3 million property sale, the buyer withholds $450,000 regardless of the seller's actual taxable gain. The non-resident then files a US tax return to reconcile the actual liability and recover any excess withholding.

Heirs who inherit US real property receive a stepped-up basis to fair market value at the date of death. If the property is sold shortly after inheritance for close to the date-of-death value, the actual capital gains tax may be minimal. But FIRPTA withholding still applies to the gross sale price, creating a cash flow timing issue that executors need to plan for.

The interaction between estate tax and FIRPTA creates a sequencing problem. The estate pays 40 percent on the value above $60,000. The heir then faces 15 percent FIRPTA withholding on the full sale price when they eventually sell. Proper approval of inheritance documents and timely filing of the estate return are prerequisites to managing both exposures cleanly.

Which Countries Have Estate Tax Treaties with the United States

The United States maintains estate and gift tax treaties with only 17 countries, according to the IRS Treaty Table. This is a short list relative to the number of income tax treaties the US has negotiated. If your country of residence is not on it, the $60,000 exemption is your baseline with no relief.

Treaty benefits typically include one or more of the following: a pro-rated share of the full US citizen exemption based on the ratio of US assets to worldwide assets, expanded deductions for debts and expenses, credits for taxes paid to the home country, and modified situs rules for certain asset types.

The pro-rated exemption calculation works as follows: if a UK resident's worldwide estate is $20 million and US-situs assets are $5 million, the US-situs fraction is 25 percent. The pro-rated exemption is 25 percent of $13.61 million, or approximately $3.4 million. That is a material difference from $60,000.

For residents of countries without treaties, countries with more favorable inheritance tax treatment may factor into longer-term residency and domicile planning. Cross-border estate planning considerations vary significantly by jurisdiction and require country-specific analysis.

What Is Form 706-NA and When Must a Non-Resident Alien Estate File It

According to the IRS Instructions for Form 706-NA, non-resident alien estates with US-situs assets exceeding $60,000 must file Form 706-NA (United States Estate and Generation-Skipping Transfer Tax Return) within nine months of the decedent's death. A six-month extension is available, but it does not extend the time to pay any tax owed. Interest accrues from the nine-month deadline regardless of extension status.

Form 706-NA requires:

• Full identification of the decedent and executor
• A schedule of all US-situs assets with fair market values at the date of death
• Applicable deductions (mortgages on US property, administration expenses, charitable bequests to US charities)
• Treaty claims, if applicable, filed alongside Form 8833
• Generation-skipping transfer tax calculations if assets pass to skip persons

Additional forms that commonly accompany 706-NA filings include Form 3520 for transactions involving foreign trusts, Form 8833 to claim treaty-based return positions, and Form W-7 if the executor needs an Individual Taxpayer Identification Number.

The nine-month deadline is firm enough that executors of non-resident estates with US real property should engage US tax counsel immediately after death, not after the foreign probate process concludes. Foreign probate timelines frequently exceed nine months, and the IRS does not pause the filing clock while foreign courts work through the estate.

Penalties for late filing without reasonable cause run at 5 percent of unpaid tax per month, capped at 25 percent. On a $1.5 million liability, that is $75,000 per month in penalties during the delinquent period.

Trust Structures for High-Net-Worth Non-Residents with US Asset Exposure Above $5 Million

For non-residents holding US assets at the scale where the $60,000 exemption creates existential exposure, the planning toolkit goes well beyond basic titling. The strategies below require qualified US tax counsel and, in most cases, coordination with home-country advisors.

Foreign Corporation Holding Structure

Holding US real estate through a foreign corporation converts the asset from US-situs real property to foreign corporate stock. Foreign corporate stock is generally not US-situs property for estate tax purposes, eliminating the estate tax exposure. The tradeoff: FIRPTA withholding still applies on disposition, and the foreign corporation introduces additional corporate-level tax layers. A full net present value analysis comparing the estate tax savings against the FIRPTA and corporate tax costs is required before implementing this structure. The math is not always favorable, particularly for properties held long-term with substantial embedded gain.

Qualified Domestic Trust (QDOT)

Under IRC Section 2056A, a Qualified Domestic Trust allows a non-citizen surviving spouse to defer US estate tax on assets passing from a deceased US-citizen spouse. At least one trustee must be a US citizen or domestic corporation. The QDOT defers tax rather than eliminating it; tax is collected when distributions of principal are made or when the surviving spouse dies. For estate planning strategies for green card holders and mixed-citizenship couples, the QDOT is often the first structure to evaluate.

Irrevocable Life Insurance Trust (ILIT)

Life insurance proceeds paid on the life of a non-resident alien are not US-situs assets. Structuring a life insurance policy inside an irrevocable trust provides liquidity to heirs without increasing the taxable estate. This is particularly useful for non-residents whose US assets are illiquid (real estate, closely held business interests) and whose heirs would otherwise need to sell assets to fund the estate tax bill.

Lifetime Gifting of US Equities

Non-residents are subject to US gift tax on gifts of US-situs tangible property. However, intangible assets including US corporate stock are not subject to US gift tax when transferred by a non-resident alien during life. This creates an asymmetry: a non-resident who holds US equities faces estate tax on those positions at death but can gift them during life without US gift tax consequences. For non-residents with large US equity portfolios, systematic lifetime gifting reduces the taxable estate without triggering the gift tax that would apply to a US citizen making the same transfers. The inheritance tax treatment of financial assets differs meaningfully between lifetime gifts and testamentary transfers for non-residents.

Charitable Remainder Trusts

Bequests to qualified US charities are fully deductible from the gross estate. A charitable remainder trust provides income to heirs during a term, with the remainder passing to a qualified charity. This reduces the taxable estate while preserving some economic benefit for beneficiaries. For non-residents with philanthropic intent toward US institutions, the structure serves both tax and legacy objectives.

Proactive Planning Before the 2025 Exemption Sunset

The Tax Cuts and Jobs Act provisions expire after December 31, 2025. For US citizens, the exemption reverts from $13.61 million to approximately $7 million (inflation-adjusted). For non-residents in treaty countries whose exemption is calculated as a pro-rated share of the US citizen amount, the sunset reduces their available exemption proportionally.

A UK resident with a $10 million worldwide estate and $4 million in US assets currently benefits from a pro-rated exemption of approximately $2.7 million (40 percent of $13.61 million). Post-sunset, that pro-rated exemption drops to roughly $1.4 million (40 percent of $7 million), increasing the taxable estate by $1.3 million and the federal estate tax liability by approximately $520,000.

Non-residents without treaty protection see no change to their $60,000 exemption. The sunset is irrelevant to them because they were never benefiting from the elevated amount.

The more actionable implication of the sunset is for navigating international estate complexities that involve both US and foreign estate tax regimes simultaneously. When the US exemption drops, the credit or offset calculations under bilateral treaties shift, potentially creating double taxation exposure that did not exist at current exemption levels.

Estate plans built around current exemption levels should be stress-tested against the post-2025 environment now. Structures that are tax-neutral today may generate material liability after the sunset, particularly for estates that straddle the treaty exemption thresholds.

The capital gains tax on foreign property holdings and retirement account inheritance tax rules add further variables for non-residents with diversified cross-border portfolios. Each asset class requires separate analysis under both the US rules and the home-country rules before a coherent estate plan can be assembled.

References

• Internal Revenue Service -- "Instructions for Form 706-NA: United States Estate (and Generation-Skipping Transfer) Tax Return" (2023).
• Internal Revenue Service -- "Publication 515: Withholding of Tax on Nonresident Aliens and Foreign Entities" (2024).
• Internal Revenue Service -- "IRC Section 2101: Tax Imposed on Nonresident Aliens"
• Internal Revenue Service -- "IRC Section 7701(b): Definition of Resident Alien and Nonresident Alien; Substantial Presence Test"
• Internal Revenue Service -- "Estate & Gift Tax Treaties (International): IRS Treaty Table" (2024).
• Internal Revenue Service -- "Foreign Investment in Real Property Tax Act (FIRPTA): IRS Overview" (2024).
• Tax Policy Center (Urban Institute & Brookings Institution) -- "How does the estate tax work for nonresident aliens?" (2023).
• American Bar Association -- "International Estate Planning for Non-US Persons with US Assets" (2022).