A nonresident alien who owns US property or investments faces federal estate tax on those holdings at death, with only $60,000 protected from tax compared to the $15,000,000 exemption a US citizen receives in 2026.1Internal Revenue Service. Whats New – Estate and Gift Tax Everything above that $60,000 line is taxed at rates running from 18 percent to 40 percent, and the 40 percent top rate kicks in once the taxable estate crosses $1,000,000. A modest Manhattan condo or a mid-sized US brokerage account can generate a six-figure tax bill that must be paid before heirs see anything.
The good news is that most of the exposure is manageable with planning done before death. Treaties, holding structures, spousal trusts, and the choice between gifting and bequeathing all shift the outcome significantly.
Who the IRS Treats as a Nonresident Alien
For estate tax purposes, the IRS does not use the day-count test that governs income tax. It uses a domicile test.2Office of the Law Revision Counsel. 26 USC 2101 – Tax Imposed A “resident” is someone who was living in the United States with no definite intention of leaving. Anyone else who is not a US citizen is a nonresident alien for these rules, regardless of how many days they spent in the country.
The inquiry looks at intent through hard evidence. Where were the closest family ties? Where were the most valued personal belongings kept? Where did the person vote, worship, or hold professional memberships? Someone who spent months in the country for medical treatment or seasonal work can still be a nonresident alien if they always meant to return home. Getting a green card or moving a family into a purchased US home points the other way.
This label controls whether the estate gets the full $15,000,000 exemption or is stuck with $60,000. When both the United States and another country claim someone as a resident, some bilateral treaties supply tie-breaker rules that look at permanent home, center of personal and economic ties, habitual abode, and finally nationality. Not every treaty has these provisions, and the specific agreement has to be checked.
Which US Assets Get Taxed
Only “US-situs” property is caught. The main categories are broader than most foreign investors expect:
- Real estate located in the United States, including residential, commercial, and undeveloped land.
- Tangible personal property physically in the country at death, including vehicles, jewelry, furniture, and artwork.
- Stock in any corporation organized under US law, even when the shares sit in a foreign brokerage account.3Internal Revenue Service. Some Nonresidents With US Assets Must File Estate Tax Returns
- Certain debt obligations of US persons, including some bonds and notes issued by US companies or government entities.4Office of the Law Revision Counsel. 26 USC 2104 – Property Within the United States
The stock rule catches many foreign investors off guard. A nonresident who holds Apple or Tesla shares through a brokerage in Zurich or Singapore still owns US-situs property. The same goes for US-listed ETFs and shares in mutual funds issued by domestic investment companies.
Which US Assets Are Exempt
Several categories with obvious US connections are treated as located outside the country and escape the tax:
- Life insurance proceeds on the nonresident’s life, regardless of who issued the policy or where the proceeds are paid.5Office of the Law Revision Counsel. 26 USC 2105 – Property Without the United Statesa>
- Money in US bank accounts, provided the deposits are not tied to a US trade or business.3Internal Revenue Service. Some Nonresidents With US Assets Must File Estate Tax Returns
- Certain portfolio debt instruments, where the interest would have qualified for the portfolio interest exemption during the decedent’s lifetime.6Office of the Law Revision Counsel. 26 USC 2105 – Property Without the United States
- Stock in a corporation organized outside the United States, even if that corporation owns substantial US assets.
The last item is the foundation of the most widely used planning strategy. A nonresident who holds a Miami condo directly owes estate tax on its full value. The same person holding the condo through a foreign holding company technically owns foreign stock, not US real estate, for estate tax purposes. The structure carries maintenance costs and can affect income tax outcomes, but the estate tax savings can be dramatic.
How the Tax Is Calculated
The tax starts with a unified credit of $13,000, which wipes out the tax that would otherwise be owed on the first $60,000 of US-situs assets.7Office of the Law Revision Counsel. 26 USC 2102 – Credits Against Tax That $60,000 isn’t an exemption written into the statute. It’s the dollar amount of taxable estate that generates exactly $13,000 of tax under the rate schedule.
The rate schedule is the same one that applies to US citizens. It starts at 18 percent on the first $10,000, climbs through twelve brackets, and tops out at 40 percent on every dollar above $1,000,000.8Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax Because the 40 percent rate covers everything past the first million, the effective tax on larger portfolios approaches that rate for nearly their entire value.
Two examples show the shape of the bill. A nonresident dying with $500,000 of US stock owes roughly $70,800 of tax on the full amount, then subtracts the $13,000 credit, leaving about $57,800 payable. A $2,000,000 estate produces roughly $332,800 in tax after the credit.
Treaty Relief for Residents of Treaty Countries
The United States has estate tax treaties with roughly 15 countries, including Canada, the United Kingdom, Germany, France, Japan, Australia, and the Netherlands. These treaties usually replace the $60,000 threshold with a proportional share of the citizen exemption.
The math works on a ratio. The estate figures out what fraction of the decedent’s worldwide assets were US-situs property, then applies that fraction to the credit a US citizen would receive. For 2026, that citizen credit is approximately $5,945,800, corresponding to the $15,000,000 exclusion.1Internal Revenue Service. Whats New – Estate and Gift Tax A Canadian resident who died with $20,000,000 worldwide and $2,000,000 of US stock has a 10 percent US ratio. Ten percent of $5,945,800 is about $594,580 of credit, sheltering far more than the $60,000 statutory threshold.
The benefit is available only to residents of the treaty country at the time of death. The estate has to prove residency on the return and disclose worldwide holdings to support the ratio. Without a valid treaty claim, only the $13,000 statutory credit applies.
Spouses Who Aren’t US Citizens
US citizens can leave unlimited property to a spouse tax-free. That marital deduction does not apply when the surviving spouse is not a US citizen.9Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse Families often assume the spousal transfer is automatic, and it isn’t. If a nonresident’s US-situs assets pass outright to a non-citizen spouse, the estate owes the full tax with no marital offset.
The fix is a Qualified Domestic Trust, or QDOT. If the US-situs assets pass into a trust meeting specific requirements, the marital deduction is restored and the tax is deferred.10Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust The main requirements:
- At least one trustee must be a US citizen or a domestic corporation, with the power to withhold estate tax from principal distributions.
- If the trust holds more than $2,000,000, additional security is required, typically a bond or letter of credit equal to 65 percent of the trust’s value, or a US bank acting as trustee.11eCFR. 26 CFR 20.2056A-2 – Requirements for Qualified Domestic Trust
- Estate tax gets collected when principal is distributed to the surviving spouse or when that spouse dies. Income distributions don’t trigger the tax.
The trust has to exist and be funded before the estate tax return is due. Property can be transferred to the QDOT or irrevocably assigned to it by that deadline.9Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse Missing that window is one of the most expensive mistakes in this area of the law.
The Gift Tax Loophole for US Stock
The federal gift tax applies to nonresident aliens, but only on transfers of US real estate and tangible personal property physically located here.12Internal Revenue Service. Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States Gifts of intangible property, including stock in US corporations, are generally not subject to gift tax when made by a nonresident.
The asymmetry is worth understanding. US corporate stock sits in your taxable estate at death, but you can give it away during your lifetime without triggering gift tax. For nonresidents holding significant US equity positions, lifetime gifting to heirs or into structures is one of the cleanest ways to shrink the future estate.
Annual exclusion amounts still matter for the property types that are covered. For 2026, the annual gift tax exclusion is $19,000 per recipient. Gifts to a non-citizen spouse have a separate, higher exclusion of $194,000.12Internal Revenue Service. Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States Nonresidents get no lifetime gift tax credit, so taxable gifts above the annual exclusion trigger tax at the same graduated rates used for the estate tax.
Filing Form 706-NA and Paying On Time
Form 706-NA is the estate tax return for a nonresident alien decedent.13Internal Revenue Service. About Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return It’s due nine months after the date of death, mailed to the IRS Service Center in Kansas City, MO 64999.14Internal Revenue Service. Instructions for Form 706-NA A six-month filing extension is available by submitting Form 4768 before the original deadline. The extension covers filing only. Estimated tax still has to be paid by the nine-month mark.
Executors should have the following ready before starting the return:
- A complete inventory of all US-situs assets with fair market values as of the date of death, including brokerage statements, property deeds, and vehicle titles.
- Professional appraisals of real estate and valuable tangible property.
- A certified copy of the death certificate, translated into English if the original is in another language.
- Documentation of worldwide assets if the estate intends to claim deductions or a treaty pro-rata credit.
- Records of debts secured by US property, funeral expenses, and administration costs.
Missing the deadline triggers two penalties running at the same time. The failure-to-file penalty is 5 percent of the unpaid tax per month or partial month, capped at 25 percent.15Internal Revenue Service. Failure to File Penalty The failure-to-pay penalty is 0.5 percent per month on unpaid tax, also capped at 25 percent.16Internal Revenue Service. Failure to Pay Penalty When both apply in the same month, the filing penalty is reduced by the payment penalty, so the combined rate during the first five months is 5 percent, not 5.5. After a notice of intent to levy and 10 days of nonpayment, the payment penalty jumps to 1 percent per month. Interest compounds on top. For a large tax bill, five months of delay can easily add tens of thousands of dollars.
Getting US Assets Released to Heirs
Banks, brokerages, and other institutions holding a nonresident’s US assets will usually refuse to release funds to foreign heirs or executors without IRS clearance. The clearance document is called a transfer certificate.
If Form 706-NA was filed, the executor requests the certificate by faxing a copy of the filed return to the IRS.17Internal Revenue Service. Transfer Certificate Filing Requirements for the Estates of Nonresidents Not Citizens of the United States If US-situs assets totaled less than $60,000 and no return was required, the executor instead submits an affidavit listing all US assets and their values, the decedent’s citizenship and residence, and a certified death certificate. The IRS then issues confirmation that no filing was needed, and the institutions release the assets.
A transfer certificate isn’t required when a US-based executor or administrator has already been appointed by a domestic court. For estates administered entirely from abroad, expect the transfer certificate process to take several months, and factor that into any liquidity planning for the heirs.
State Estate Taxes Are a Separate Layer
Federal estate tax isn’t the only exposure. Several states impose their own estate or inheritance taxes, and these can apply to nonresidents who own property in the state. Exemption thresholds vary widely, and a number of states set their exemptions well below the federal level. A nonresident with real estate in one of those states could owe state tax even if the federal number looks manageable. Rules on which assets are taxable, what credits apply, and whether treaty benefits carry over differ from state to state, so anyone owning real estate or tangible property in a specific US state should check that state’s rules directly.