The $60,000 Trap: US Estate Tax for Nonresident Aliens
US estate tax for nonresident aliens hits assets above $60,000 at rates up to 40%. How it is computed, which assets count, and what deadlines run.
A condo in Brickell. Appraised at $500,000 on the day its owner died, a businessman from Monterrey who spent about three weeks a year in Miami and never applied for a green card. His children did what any family does. They called the lawyer in Mexico, opened the estate there, and started talking to brokers.
Nobody mentioned that a US return fell due nine months after the death: Form 706-NA, with $142,800 of tax on it.
No one miscalculated. That is the rate schedule. (The case is assembled from pieces of several. The arithmetic is literal and appears below.)
The United States imposes estate tax on the US-situs assets of anyone who dies without being a citizen and without being domiciled there. The rate schedule is the same one a citizen gets, and it reaches 40% once the taxable estate passes $1,000,000. What changes is the shield. A citizen has $15,000,000 in 2026. Someone not domiciled in the United States has $60,000.
And that shield, strictly speaking, is not an exemption.
There is no $60,000 exemption. There is a $13,000 credit
The statute says it in one line, section 2102(b)(1) of the Internal Revenue Code: "A credit of $13,000 shall be allowed against the tax imposed by section 2101." A credit of $13,000. There was a real exemption once, $30,000, in the old text of section 2106. The Tax Reform Act of 1976 repealed it and put this credit mechanism in its place, which is a different thing and behaves differently.
The $60,000 is arithmetic. Under the section 2001(c) schedule, the tentative tax on a taxable estate of exactly $60,000 is $13,000, and the next line of that table begins: "$13,000, plus 26% of the excess over $60,000". The credit covers that much and not one dollar more.
Now the consequence, which almost nobody writes down. The credit is consumed entirely inside the 18% to 24% brackets, so the estate never gets the benefit of the low rates. The first dollar taxed above $60,000 does not pay 18%.
It pays 26%.
A US-situs estate of $61,000 owes $260.
In 1976 Congress handed foreigners the number its own citizens had just discarded
The Tax Reform Act of 1976 (Pub. L. 94-455) did two things inside one subsection, 2001(c)(1)(J). Clause (i) raised the filing threshold for US citizens from $60,000 to $175,000. Clause (ii) raised the nonresident threshold from $30,000 to $60,000.
Same paragraph, same statute. Foreigners got the figure citizens had just walked away from.
That threshold lives today in section 6018(a)(2) and has not been touched since. The credit that produces the same result started at $3,600 and went to $13,000 with TAMRA in 1988 (Pub. L. 100-647). It has not moved since either. Two different numbers from two different laws: the 1976 threshold says when you have to file, the 1988 credit says how much you pay. Neither one is indexed to inflation.
Had the threshold been adjusted from 1977, the year it took effect, it would sit near $331,000 today. The consumer price index went from 60.6 to 333.952 between that annual average and June 2026. The $60,000 retains roughly 18% of its original purchasing power, and nobody ever voted for that reduction.
On the other side of the same Code, a US citizen or domiciliary who dies in 2026 has a $15,000,000 exemption (Rev. Proc. 2025-32, announced by the IRS on October 9, 2025). With portability, thirty million for a married couple. The ratio between the two figures is 250 to 1.
One correction to what you probably read two years ago. The halving of that exemption, scheduled for January 2026, did not happen. P.L. 119-21 set the $15,000,000 permanently, indexed for inflation after 2026. A great deal of the material still circulating on this subject warns about a sunset that no longer exists. If an adviser raises it with you as news, he is working from old files.
$500,000 in Brickell is $142,800
The examples assume the simplest case: no treaty, no prior gifts, no section 2106 deductions, no marital or charitable deduction, no state tax. Any one of those variables moves the answer. Some states also charge their own tax on real property located in their territory, and that runs separately.
| US-situs taxable estate | Tentative tax | Less credit | Tax due | Effective rate |
|---|---|---|---|---|
| $61,000 | $13,260 | $13,000 | $260 | 0.4% |
| $150,000 | $38,800 | $13,000 | $25,800 | 17.2% |
| $300,000 | $87,800 | $13,000 | $74,800 | 24.9% |
| $500,000 | $155,800 | $13,000 | $142,800 | 28.6% |
| $1,000,000 | $345,800 | $13,000 | $332,800 | 33.3% |
| $2,000,000 | $745,800 | $13,000 | $732,800 | 36.6% |
Look at the jump from $150,000 to $300,000. The taxable estate doubles and the tax nearly triples.
The same Code can treat you as a resident and a nonresident in the same year
For income tax the test is objective: green card or substantial presence. You count days.
For estate tax you do not count days. You determine domicile, which is something else. Treasury Regulation 20.0-1(b)(1) puts it without hedging: "A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom."
Physical presence plus an intention to stay indefinitely. The second element is subjective, and it is proved with facts.
Courts weigh eight factors: green card status; place of birth; time spent at the claimed domicile; how the US home compares with the foreign one, in size and in furnishings; where personal investments and business assets sit; the person's own statements about where he lives; family ties; and participation in religious organizations, social clubs, and political or community groups. No single factor decides.
That produces the two inversions that surprise clients. You can be a nonresident for income tax and die a US domiciliary for estate tax, with your entire worldwide estate inside the $15,000,000 and 40% regime. And the reverse: file Form 1040 as a resident, green card in your wallet, and die not domiciled, with $60,000 of shelter.
Holding a green card does not make you domiciled. Failing the substantial presence test does not make you not domiciled. Much of the advisory market treats "resident" and "domiciled" as synonyms, and of all the common errors in this area, that is the one that costs the most.
And the answer gets settled after death. By officials or judges who never met the decedent, reading what he said about himself while he was alive: visa applications, or the email in which he told a friend he no longer planned to go back.
A Delaware share sits in the United States even if the certificate sits in Geneva
Inside the taxable estate: real property located in the United States, tangible personal property sitting there, shares of a US corporation (section 2104(a) treats them as situated in the country "irrespective of the location of the certificates"), debt obligations of US persons and, routinely forgotten, deposits with the US branch of a foreign bank.
It makes no difference where the certificate is or what country the holder lives in. If the company was incorporated in Delaware, the share is in the United States.
Outside it: shares of foreign corporations, even where their only assets are US securities; bank deposits whose interest would be exempt under section 871(i)(1); deposits with the foreign branch of a US bank; portfolio debt under section 871(h)(1); and life insurance on the life of the nondomiciled decedent himself.
Be careful generalizing from that list. Not every account at a US bank falls outside, and cash sitting in a brokerage account does not get the same treatment as a bank deposit. That point belongs to your lawyer, not to an article.
And there is one error that repeats across the whole market. For years, shares in a US mutual fund got a look-through: the portion invested in foreign assets stayed out of the taxable estate. That rule, section 2105(d), stopped applying to deaths after December 31, 2011. Today a US-domiciled fund holding nothing but European bonds is, in full, a US-situs asset. An Irish UCITS holding those same bonds is not. Same economics, opposite result.
Giving away US shares costs no tax. Dying with them does
Section 2501(a)(2) takes transfers of intangible property by a nonresident not a citizen outside the gift tax. Treasury Regulation 25.2511-3 confirms it from the other direction: for that donor, the gift tax reaches only real property and tangible personal property situated in the United States.
Shares of a US corporation are intangible. Given away during life, they generate no federal gift tax. Those same shares, in the decedent's hands on the day he dies, go into the taxable estate in full.
Real property gets no such asymmetry. It is taxed in life and taxed at death.
Before anyone gets excited, a counterintuitive limit: gifts do not create room, they subtract it. The $60,000 threshold that triggers the 706-NA is measured by adding US assets at death to adjusted taxable gifts made after 1976. A nonresident's gift tax regime has its own rules and its own limits. This is a decision to make with your lawyer before moving a single share.
Fifteen treaties. None with a Spanish-speaking country
The United States has estate tax treaties with fifteen countries. Seven cover estates and gifts: Australia, Austria, Denmark, France, Germany, Japan and the United Kingdom. Eight cover estates only: Canada, Finland, Greece, Ireland, Italy, the Netherlands, South Africa and Switzerland. Canada is its own case, because its estate provisions live inside Article XXIX B of the income tax treaty.
Not one of the fifteen is a Spanish-speaking country. Not Mexico, not Spain, not Argentina, Chile, Colombia, Peru, Uruguay or the Dominican Republic. Not Brazil either. (Some sources still list Norway. It does not appear on the current IRS table, reviewed September 8, 2025.)
What is lost has a concrete shape. Where a treaty requires it, section 2102(b)(3)(A) replaces the flat $13,000 credit with the full applicable credit, prorated by the weight of the US assets within the worldwide estate. For 2026 that full credit equals the tax on $15,000,000, or $5,945,800. A decedent from a treaty country whose US assets were 10% of his worldwide estate would claim close to $594,580. His Mexican neighbor, with the identical condo, claims $13,000.
With one caveat. The 706-NA instructions note that only nine of the fifteen treaties contain provisions bearing on that proration. You check treaty by treaty, never by analogy.
If your spouse is not a US citizen, the unlimited marital deduction does not exist
The unlimited marital deduction, the one that lets an American couple defer the tax until the second death, does not apply when the surviving spouse is not a US citizen. Section 2056(d)(1) is blunt: no deduction is allowed, and section 2040(b) also stops applying, the rule that presumes a fifty-fifty split on jointly held spousal property. Without that presumption, the estate has to prove who contributed what, with documents from decades ago.
This is not a problem confined to nondomiciliaries. A US citizen married to a foreign national loses the marital deduction in exactly the same way, and that group of families is considerably larger than people assume.
The statute's way out is the QDOT, the qualified domestic trust: a trustee who is a US citizen or a domestic corporation, with the right to withhold the tax, plus an express election by the executor before the return is filed. A QDOT defers. It does not forgive. Corpus distributions during the spouse's life, and whatever remains at her death, are taxed again under section 2056A(b). Income distributions are not.
There is a door few people know about. If the surviving spouse naturalizes before the return is filed, and was a US resident continuously between the death and the naturalization, section 2056(d)(4) gives the deduction back.
One recent item, in case you are in the middle of a filing: T.D. 10050, effective July 2026, changed how security is handled for a QDOT holding more than $2,000,000. Bonds and letters of credit no longer get attached to the 706 or the 706-NA. They are filed separately, with the IRS Estate Tax Advisory Group.
During life, gifts to a non-citizen spouse get no marital deduction either. There is a special annual exclusion: $194,000 for 2026.
The part that can cost the executor his own money
Nine months from the death. That is the deadline to file Form 706-NA, and it is also the deadline to pay.
Form 4768 grants an automatic six-month extension, and this is where most people get comfortable too early. An extension to file is not an extension to pay. Interest runs from the original date.
The penalties are priced. For failure to file, 5% of the tax per month or part of a month, capped at 25%, absent reasonable cause. For failure to pay, 0.5% a month, with the same cap. And if the reported value of an asset turns out to be 65% or less of the correct value, section 6662 adds 20%.
None of that is the serious part.
The serious part is not in the tax law at all. It is in another title of the federal code. 31 U.S.C. § 3713(b) provides that a representative of an estate who pays any debt before satisfying a claim of the Government is personally liable, up to the amount paid, for the unpaid federal claims.
Put it in a scene: the daughter who lives in Bogotá agrees to serve as executor, sells the Miami condo, and splits the proceeds among her siblings. If the estate tax went unpaid, the IRS can collect from her, out of her own pocket, up to the amount she distributed. Bad faith is not required. Paying in the wrong order is enough.
There is one more cost that families outside the United States rarely anticipate. To deduct funeral expenses, administration expenses or the decedent's debts, section 2106 requires prorating them by the weight of the US assets in the worldwide estate, and it also requires the executor to disclose the value of everything the decedent held outside the United States. To deduct the funeral bill, the family has to tell the IRS what it owns around the world. Some prefer not to deduct, and that is a defensible decision.
Section 2105(a) is the only line in the subchapter that works in your favor
In a regime built almost entirely out of asymmetries, this is the clean exception: the amount receivable as insurance on the life of a nonresident not a citizen is not treated as property situated in the United States. No carve-out for US insurers, and no proration by the weight of worldwide assets.
A policy issued in New York, on the life of a Peruvian client, payable to his children: that death benefit does not enter the taxable estate. (The rule speaks to insurance on the decedent's own life. A policy the decedent owned on a third party's life is a different question, and it is not resolved here.)
There is a second function, and in practice it matters more than the first. The problem with the Brickell condo is not the number. It is the form the number takes: $142,800 in cash, in nine months, when the only asset capable of producing it is the condo itself, which does not sell quickly without cutting the price and which usually has to clear local probate first. Insurance pays sooner, and it pays from outside the estate.
Our practice is limited to exactly that: life insurance. We do not build structures or draft trusts. Your lawyer does that. We put the numbers on the table and you decide.
One line from Treasury, this past July
When it published the new QDOT rules, Treasury rejected a comment asking it to raise the exclusion amount. The answer was a single line: "The basic exclusion amount applicable to the Federal estate and gift taxes is determined by statute and therefore cannot be changed by regulations."
Congress sets the figures. It set the threshold in 1976 and the credit in 1988, and it has not returned to either one since. Meanwhile the deed to the condo is still in an individual's name, and the nine-month clock starts running on a day nobody chose.
This article is general information for educational purposes. It is not legal or tax advice, and it is not an offer. Every case turns on its own facts: consult your attorney and your accountant.
One team, the whole problem
Complex is fine. Unattended is the expensive part.
Everything above is general information. Your own answer depends on your country, your ownership, and facts a professional has to confirm. We measure the exposure, place the life insurance that funds it, and coordinate the licensed attorneys, accountants, and trustees who complete the plan, so one team is accountable for the outcome.
