Inheritance Tax for Non-US Citizens: $60,000 Threshold and 40% Rate

A non-citizen who was never domiciled in the United States pays US estate tax only on assets located in the US, but with a catch that trips up many families: the effective exemption is roughly $60,000, not the $15 million a citizen gets in 2026, and the top rate is 40%.¹ The US estate tax for non-citizens turns on two questions: were you domiciled in the US at death, and which of your assets does the IRS treat as US property? Get those right, and the planning options — lifetime gifts, treaty credits, and a qualified trust for a surviving spouse — often make the difference between a substantial tax bill and none at all.

Domicile Decides Which Rules Apply

If the IRS considers a non-citizen domiciled in the United States at death, they are taxed the same way a citizen is: on their worldwide assets, with the full $15 million exclusion in 2026.² If not, they are a “nonresident not a citizen” — often shortened to non-resident non-domiciliary, or NRND — and only US-situs property is taxable, with a fraction of the exemption.

Domicile for estate tax means living in the country with no definite present intention of leaving. It is not the same as the residency tests used for income tax. The IRS looks at where you kept bank accounts, voted, held a driver’s license, spent your time, and built your social ties. Statements in a will or immigration filing carry weight, but behavior overrides paperwork if the two disagree. Holding a green card does not by itself establish domicile, but for someone who has lived in the country on a green card and built a life here, the IRS’s case is nearly automatic.³

The rest of this article addresses the NRND situation, where the planning stakes are highest.

Which Assets Are Taxed

For an NRND, the tax reaches only property with a US “situs.” The main taxable categories:

US real estate — land, houses, condominiums located in the country.²
Tangible personal property physically in the US at death: artwork, jewelry, vehicles, furniture.
Stock in US corporations. This is the trap. Shares of any company organized under US law are US-situs property even when the shares sit in a brokerage account outside the country.⁴
Certain US debt obligations, including federal and state government bonds.⁴

Notable exclusions, which are just as important for planning:

Deposits with a US bank, savings institution, or credit union — exempt.²
Life insurance proceeds on the life of a nonresident non-citizen — treated as located outside the US.²
Most publicly traded portfolio debt instruments that qualify under the tax code — excluded.

The stock rule is the one that ambushes families. A non-citizen abroad holding $2 million in US equity index funds through a foreign brokerage has a $2 million US-situs estate, and the exemption shielding it is about $60,000.

The $60,000 Threshold and the 40% Rate

An NRND estate receives a statutory credit of $13,000, which offsets the tax on roughly the first $60,000 of US-situs assets.¹ The $13,000 figure has not moved in decades and is not indexed. For comparison, a US citizen dying in 2026 has a $15 million basic exclusion.⁵

Rates are graduated from 18%, climbing to 40% on taxable amounts above $1 million.⁵ Because the exemption is so small, even a modest US portfolio hits the top bracket quickly.

Deductions for funeral costs, administration fees, and debts are available, but only in proportion to how much of the worldwide estate sits in the US. If US assets are 10% of the decedent’s global holdings, only 10% of allowable deductions offset the US estate. That ratio is why the executor has to disclose worldwide assets on the return.⁶

What the Math Looks Like

Take an NRND who dies in 2026 with $3 million in US corporate stock and $12 million in assets outside the country. The US gross estate is $3 million. After the proportional share of deductions (say $20,000 after applying the ratio), the taxable estate is $2,980,000. The tentative tax at graduated rates comes to roughly $1,140,800. Subtract the $13,000 credit and the estate owes about $1,127,800 — more than a third of the US holdings, on assets that were only a small slice of the family’s wealth.

Lifetime Gifts of US Stock: The Biggest Planning Lever

The gift tax rules for NRNDs handle intangible property completely differently than the estate tax does. Transfers of US-situs intangible property — most importantly, stock in US corporations — by a nonresident non-citizen are not subject to US gift tax.⁷ An NRND can give away shares of Apple, Google, or any other US company during life without triggering a penny of US gift tax.⁸ Hold the same stock until death, and the estate faces rates up to 40%.

Gifts of US real estate and tangible personal property located in the US remain subject to gift tax. The 2026 annual exclusion is $19,000 per recipient.⁹ Gifts to a non-citizen spouse get a much higher annual exclusion of $194,000 in 2026.¹⁰

For NRNDs holding significant US equities, lifetime gifting should be the first item on the agenda with a tax advisor. The gap between the gift tax treatment and the estate tax treatment of the same shares is the single largest lever in the entire system.

Leaving Assets to a Non-Citizen Spouse

The unlimited marital deduction that lets US citizens leave everything to a spouse tax-free is not available when the surviving spouse is not a US citizen, even if that spouse is a US resident. Congress’s concern is that a non-citizen spouse could leave the country with the assets, permanently beyond IRS reach.

The workaround is a Qualified Domestic Trust, or QDOT. If the deceased spouse’s assets pass into a properly structured QDOT, the estate qualifies for the marital deduction and the tax is deferred until the surviving spouse takes principal distributions or dies. The trust must have at least one US citizen trustee or a US corporate trustee, that trustee must have the power to withhold estate tax on principal distributions, and the executor must make an irrevocable QDOT election on the estate tax return.¹¹

Distributions from a QDOT are not gentle. Any distribution of principal to the surviving spouse triggers estate tax as if that amount had been included in the deceased spouse’s estate. Income distributions and hardship distributions escape the QDOT tax. Whatever remains in the trust when the surviving spouse dies is taxed as though it were part of the original deceased spouse’s estate.¹¹

One escape valve: if the surviving spouse becomes a US citizen before the estate tax return is due, the assets can pass directly and qualify for the ordinary marital deduction with no QDOT needed. A will that simply leaves everything to a non-citizen spouse, with no QDOT contingency, can generate an immediate and avoidable tax bill.

Treaty Relief for 15 Countries

The US has estate tax treaties with Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland, and the United Kingdom.¹² Some cover gift tax as well. Two kinds of relief are possible.

The most valuable is the prorated unified credit. Instead of the $13,000 statutory credit, a treaty-eligible estate can claim a share of the full US citizen exemption equal to the ratio of US assets to worldwide assets.¹ A UK-domiciled decedent whose US holdings are 20% of a worldwide estate would get a credit equivalent to 20% of $15 million, or $3 million, instead of $13,000. For estates where US assets are a small slice of global wealth, the treaty can wipe out the tax entirely.

Some treaties also re-characterize specific assets as non-US property, removing them from the US taxable estate altogether. The particulars vary by treaty, so the text of the applicable agreement controls. For decedents domiciled in countries without a US estate tax treaty — most of the world — the statutory rules apply in full, and the $13,000 credit is the only shelter available.

Treaty benefits do not apply automatically. Claiming them requires filing Form 706-NA and disclosing worldwide assets. No filing, no credit.

Filing Form 706-NA

The executor must file Form 706-NA when the value of the decedent’s US-situs assets plus adjusted taxable gifts exceeds $60,000.⁶ A filing is also required when a treaty-based credit is being claimed, even if the result is zero tax.

The return and the tax are both due nine months after the date of death.⁶ Filing an automatic six-month extension is available through Form 4768, but the extension does not extend the time to pay; payment extensions must be requested separately on the same form.¹³ Interest and penalties run from the original nine-month deadline regardless of a filing extension.

The return itself requires the value of the worldwide estate, not just US property, along with appraisals of US-situs assets, a certified copy of the death certificate, and certified translations of any foreign-language documents.

Late filing carries a penalty of 5% of the unpaid tax per month, up to 25%.¹⁴ A separate late-payment penalty of 0.5% per month also accrues.

There is also a practical enforcement point that makes ignoring the filing hard. Before a US corporation or transfer agent will release stock held by a deceased non-citizen, they typically require an IRS transfer certificate confirming the estate tax has been paid or provided for.¹⁵ Banks and custodians can be held personally liable if they hand over assets without one. Estates with US assets under $60,000 do not need the certificate.

The Basis Step-Up Trade-Off

Property included in an NRND’s US gross estate generally gets a stepped-up basis for the heirs, equal to fair market value at the date of death.¹⁶ Decades of unrealized appreciation on US stock or real estate can be wiped clean for capital gains purposes.

Some structures try to avoid the estate tax by keeping US assets out of the individual’s estate — for example, holding US real estate through a foreign corporation. Those arrangements can reduce or eliminate the estate tax, but they also forfeit the basis step-up. When the heirs eventually sell, they owe capital gains tax on the full appreciation from the original purchase price. On assets with large built-in gains, the capital gains cost can approach the estate tax that was avoided. Run the numbers both ways before locking in a structure.

1
Office of the Law Revision Counsel. 26 USC 2102 – Credits Against Tax
2
Internal Revenue Service. Some Nonresidents with US Assets Must File Estate Tax Returns
3
Internal Revenue Service. 4.25.4 International Estate and Gift Tax Examinations
4
Office of the Law Revision Counsel. 26 US Code 2104 – Property Within the United States
5
Internal Revenue Service. Whats New – Estate and Gift Tax
6
Internal Revenue Service. Instructions for Form 706-NA (Rev. September 2025)
7
Office of the Law Revision Counsel. 26 USC 2501 – Imposition of Tax
8
Internal Revenue Service. Gift Tax for Nonresidents Not Citizens of the United States
9
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
10
Internal Revenue Service. Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States
11
Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust
12
Internal Revenue Service. Estate and Gift Tax Treaties (International)
13
Internal Revenue Service. Instructions for Form 4768 (Rev. February 2020)
14
Internal Revenue Service. Failure to File Penalty
15
eCFR. 26 CFR 20.6325-1 – Release of Lien or Partial Discharge of Property; Transfer Certificates in Nonresident Estates
16
Office of the Law Revision Counsel. 26 US Code 1014 – Basis of Property Acquired from a Decedent