The federal estate tax for nonresident aliens applies to property with a U.S. situs owned at death, and it hits hard: only the first $60,000 in U.S. assets is sheltered by the unified credit, and everything above that is taxed at graduated rates that reach 40%.1Office of the Law Revision Counsel. 26 USC 2102 – Credits Against Tax Compare that to the $15,000,000 exemption a U.S. citizen or resident gets in 2026 and the size of the gap becomes clear.2Internal Revenue Service. Whats New – Estate and Gift Tax
Who the IRS Treats as a Nonresident Alien
For estate tax, residency is not about a green card or the substantial presence test used for income tax. The standard is domicile. Under Treasury regulations, a person acquires a domicile by living somewhere with no definite present intention of leaving.3eCFR. 26 CFR 20.0-1 – Introduction That requires physical presence combined with an intent to remain indefinitely.
Someone on a long-term U.S. work visa who always planned to return home can still be a nonresident alien at death. Someone without lawful status who put down permanent roots can be treated as a domiciliary. The IRS looks at where the primary home was, where the family lived, where social and business ties ran, and whether the person took steps consistent with staying for good. Immigration status is one data point, not the answer.
Which U.S. Assets Are Taxed
Only property with a U.S. situs enters the taxable gross estate. The main categories:
- Real estate located in the United States, including land, buildings, and permanent structures. This is usually the biggest item.
- Tangible personal property physically located in the U.S. at death: cars, art, jewelry, furniture. The test is where the object sits, not where the owner lived.
- Stock in U.S. corporations, regardless of where the shares are held. An investor in Tokyo who buys Apple through a Japanese brokerage still owns U.S.-situs property for estate tax purposes.4Office of the Law Revision Counsel. 26 USC 2104 – Property Within the United States
- Debt obligations of U.S. persons, subject to a portfolio-debt carveout described below.
Partnership interests are a genuine gray area. Neither the Code nor the regulations directly say whether an interest in a U.S. partnership holding American real estate is itself U.S.-situs property, and the guidance that exists dates to a 1955 revenue ruling that is widely questioned. If a partnership sits between you and U.S. real estate, don’t assume the wrapper solves the problem; get specific advice.
Assets That Escape the Tax
Several categories with obvious U.S. connections are specifically excluded from a nonresident alien’s gross estate:
- Bank deposits in U.S. accounts, so long as they are not connected with a U.S. trade or business.5Office of the Law Revision Counsel. 26 USC 2105 – Property Without the United States
- Life insurance proceeds on the decedent’s own life, even from a U.S. insurer.
- Qualifying portfolio debt obligations that would have generated tax-exempt portfolio interest during life.
- Works of art brought to the U.S. solely for exhibition and on loan to a nonprofit public gallery or museum, if on display or in transit at death. Art in a private vault or a personal residence doesn’t qualify.
These exclusions matter for planning. A nonresident who holds wealth in U.S. bank deposits rather than U.S. real estate faces a very different estate tax picture.
The $60,000 Exemption and the Rate Schedule
The unified credit for a nonresident alien estate is $13,000, which offsets tax on roughly the first $60,000 of U.S.-situs assets.1Office of the Law Revision Counsel. 26 USC 2102 – Credits Against Tax Above that, the same graduated rate schedule that applies to citizens under Section 2001(c) kicks in: 18% on the first $10,000 of taxable estate, climbing through the brackets to 40% on amounts over $1,000,000.6Office of the Law Revision Counsel. 26 USC 2101 – Tax Imposed
The practical effect: a nonresident alien who dies owning a $2 million U.S. condo and $500,000 of U.S. corporate stock can owe several hundred thousand dollars in federal estate tax, with only $60,000 of that pool sheltered by the credit.
Treaty Relief: The Prorated Unified Credit
The single most valuable planning tool for many nonresident alien estates is a bilateral estate tax treaty. The United States has estate and gift tax treaties with fifteen countries.7Internal Revenue Service. Estate and Gift Tax Treaties (International)
- Estate and gift tax treaties: Australia, Austria, Denmark, France, Germany, Japan, and the United Kingdom.
- Estate tax treaties only: Canada (through the income tax treaty), Finland, Greece, Ireland, Italy, the Netherlands, South Africa, and Switzerland.
Most of these treaties let the estate claim a share of the full citizen-level unified credit rather than the flat $13,000. The share equals the ratio of U.S. assets to worldwide assets. If a Canadian decedent’s worldwide estate is $10 million and $2 million of it sits in U.S. real estate, U.S. assets are 20% of the total, and the estate can claim 20% of the credit available to a citizen. That can shelter roughly $3,000,000 instead of $60,000.8Internal Revenue Service. Frequently Asked Questions on Estate Taxes for Nonresidents Not Citizens of the United States
Treaty benefits never apply automatically. The estate must document the entire worldwide estate to establish the ratio and disclose the treaty position on Form 8833. For decedents from countries with no U.S. estate tax treaty, the $60,000 exemption is all that’s on the table.
Deductions
Nonresident alien estates get three categories of deductions, each narrower than the citizen version.
Prorated Expenses and Debts
Funeral costs, administration expenses, debts, and claims against the estate are deductible only in proportion to the share of the worldwide estate located in the United States.9Office of the Law Revision Counsel. 26 USC 2106 – Taxable Estate If U.S. property is 30% of the worldwide estate, only 30% of these expenses come off the top. Nonrecourse mortgage debt secured entirely by U.S. real estate is the main exception and may be fully deductible.
Charitable Bequests
Bequests to charity are deductible only if the recipient is a U.S. governmental body, a qualifying domestic charity, or a domestic trust that uses the funds inside the United States. Gifts to foreign charities don’t qualify.
A Non-Citizen Spouse and the QDOT
The unlimited marital deduction that lets a citizen pass any amount to a surviving spouse tax-free is not available when the surviving spouse is not a U.S. citizen. To defer the tax, property has to pass into a Qualified Domestic Trust. A QDOT must have at least one trustee who is a U.S. citizen or a domestic corporation, and the trust document must give that trustee power to withhold tax on distributions of principal.10Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust The executor makes the QDOT election on the estate tax return.
A QDOT defers the tax; it doesn’t eliminate it. When the surviving spouse takes distributions of principal, or when the surviving spouse dies, the deferred tax comes due, collected on Form 706-QDT.11Internal Revenue Service. Instructions for Form 706-QDT (08/2025) Without a properly established QDOT, the marital deduction simply isn’t available and the full value passing to the non-citizen spouse is taxed.
Lifetime Gifts Are Treated Very Differently
Gift tax rules for nonresident aliens contain a striking asymmetry. Transfers of intangible property are completely exempt from federal gift tax.12Office of the Law Revision Counsel. 26 USC 2501 – Imposition of Tax Stock in U.S. corporations counts as intangible for this purpose. A nonresident alien can give away U.S. stock during life with no federal gift tax, even though the same shares would be fully taxable in the estate at death.13Internal Revenue Service. Gift Tax for Nonresidents Not Citizens of the United States
The exemption does not cover U.S. real estate or tangible personal property located here. Those gifts are taxable, with a $19,000 annual exclusion per recipient for 2026. Gifts to a non-citizen spouse have a higher annual exclusion of $194,000 for 2026, but there is no lifetime gift tax credit available above that amount.14Internal Revenue Service. Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States Nonresident aliens who exceed the thresholds file Form 709-NA.
Filing Form 706-NA
When a nonresident alien dies owning more than $60,000 in U.S.-situs assets, the estate must file Form 706-NA.8Internal Revenue Service. Frequently Asked Questions on Estate Taxes for Nonresidents Not Citizens of the United States The executor, or whoever is in possession of U.S. property, is responsible. The return needs fair market value appraisals of all U.S.-situs assets as of the date of death, and for real estate or closely held business interests a professional appraisal is effectively required.
Estates claiming a prorated credit under a treaty must disclose the entire worldwide estate. The IRS instructions require a certified copy of the foreign death tax return, or, if none was filed, a certified estate inventory and schedule of debts from the foreign probate proceeding.15Internal Revenue Service. Instructions for Form 706-NA (Rev. September 2025) Form 8833 must be attached for any treaty position.
The return is due nine months after the date of death. An automatic six-month filing extension is available on Form 4768, but that extends only the time to file, not the time to pay.
Penalties and Interest
Missing the deadline triggers two penalties running at once. Failure to file costs 5% of the unpaid tax per month, capped at 25%.16Internal Revenue Service. Failure to File Penalty Failure to pay adds 0.5% per month, also capped at 25%.17Internal Revenue Service. Failure to Pay Penalty When both apply, the filing penalty is reduced by the payment penalty amount, so the combined charge is 5% per month.
Interest accrues on top, compounded daily, at the federal short-term rate plus three points. That was 7% for the first quarter of 2026.18Internal Revenue Service. Quarterly Interest Rates Interest runs from the original due date whether or not the estate got a filing extension. Estates expecting to owe should send an estimated payment with the extension request.
Transfer Certificates and Frozen Accounts
U.S. banks, brokerages, and transfer agents usually won’t release a nonresident alien’s assets to heirs without a transfer certificate from the IRS confirming that estate tax obligations have been satisfied or waived.19Internal Revenue Service. Transfer Certificate Filing Requirements for the Estates of Nonresidents Not Citizens of the United States The IRS issues the certificate after reviewing the return and confirming any tax due, including deficiencies, has been paid.
Even estates below the $60,000 filing threshold often need a transfer certificate to move the assets. In that case the estate skips Form 706-NA and instead sends the IRS supporting documents directly: a copy of the will, a death certificate, and an affidavit from the personal representative. Without the certificate, U.S. accounts can sit frozen for months. Filing early and accurately is the way to keep the assets moving.