US estate tax for foreign owners of US property

Who is covered?

The IRS says certain deceased nonresidents who were not U.S. citizens are subject to U.S. estate tax on their U.S.-situated assets. Citizens, by contrast, are taxed on worldwide assets, even if they live abroad. For this purpose a citizen of a U.S. possession is not a U.S. citizen.

The tax is imposed by 26 U.S.C. 2101 on the taxable estate of every decedent “nonresident not a citizen of the United States.” Whether you count as a “nonresident not a citizen” is a question of tax law that these sources do not settle for each person, so ask a tax professional how it applies to you.

What counts as a U.S. asset?

The IRS lists examples of U.S.-situated assets: real estate located in the U.S., tangible personal property (excluding some art), and stock of corporations organized under U.S. law, even if the certificates are held abroad or in a nominee’s name.

The 706-NA instructions say real estate and tangible personal property are located in the U.S. if they are physically located there. A house in Arizona or a condo in Miami is a U.S. asset wherever the owner lives.

The IRS also says some property is treated as outside the U.S.: certain deposits and debt obligations described in section 871(g)-(i), bank accounts at a foreign branch of a domestic commercial bank, and proceeds of life insurance on the decedent’s life. Stock of non-U.S. companies is outside the U.S. under the instructions, which raises the planning question of how the property is held. Statute section 2104(b) also reaches property transferred within three years of death or by revocable transfers, so do not assume a late transfer removes it.

How is the tax computed?

1. Gross estate in the U.S. The part of the worldwide gross estate situated in the U.S. at death (26 U.S.C. 2103).
2. Deductions. Under 2106, expenses, losses and debts are deductible only in the proportion that the U.S. part bears to the worldwide estate. The IRS notes that unless a treaty allows otherwise, the marital deduction requires a surviving spouse who is a U.S. citizen, or a qualified domestic trust. Charitable gifts generally must go to U.S. or domestic charities.
3. Rate. The tentative tax follows the schedule in 26 U.S.C. 2001(c): 18 percent on the first $10,000, rising in steps to 40 percent over $1,000,000.
4. Credit. Section 2102(b) allows a credit of $13,000. That equals the schedule’s tax on the first $60,000, which is why the exemption is described as $60,000. Where a treaty requires, the credit is prorated by the U.S. share of the worldwide estate.

Worked example

A nonresident dies owning only a $400,000 U.S. home and no other U.S. assets or taxable gifts. Before any deductions: $70,800 + 34 percent of ($400,000 - $250,000) = $121,800 tentative tax. Subtract the $13,000 credit: $108,800. Deductions for a mortgage, the proportion of expenses and treaty relief would lower it. This is an illustration from the statutory schedule, not a forecast.

When and how is the return filed?

• Who files. The executor files Form 706-NA when the date-of-death value of the decedent’s U.S.-situated assets, plus the gift tax specific exemption and adjusted taxable gifts, exceeds $60,000 (IRS instructions, revised 09/2025).
• When. Within 9 months of death. Form 4768 gives an automatic 6-month extension to file.
• Collection. The IRS may collect unpaid estate tax from anyone who receives a distribution of the decedent’s property.
• Heirs who sell. A foreign heir who later sells the property may face FIRPTA withholding; see also selling an inherited home.

Do treaties help?

The IRS says estate tax treaties often give nonresidents better treatment by limiting which assets are treated as U.S.-situated. The instructions list death tax treaties with Australia, Austria, Canada (through Article XXIX B of the income tax treaty), Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland and the United Kingdom. A return position based on a treaty must be disclosed with an attached statement. Read the treaty for your country, listed in the Treasury’s treaty resource center.

Where states differ

Estate tax here is federal. Some states add their own estate or inheritance tax, which the IRS pages above do not cover, so check your state revenue department. Property tax, transfer tax and closing costs also vary: see property tax and transfer tax by state, and the overview buying property in the US as a foreigner.