Mexico Has No Estate Tax Treaty With the United States. Canada Does, and the Difference Comes Due in Cash
US estate tax for Mexican nationals: with no estate tax treaty, the exemption equivalent is $60,000 and the rate reaches 40%. The real numbers.
A $1,000,000 apartment in Brickell, titled in one name, no mortgage, no other US assets. The federal estate tax on that estate is $332,800. It is payable in cash nine months after the death, and the brokerage account the family was counting on to cover it can still be frozen well past that date, waiting for the IRS to issue a transfer certificate.
None of that changes because the owner filed his taxes in Mexico his entire life and never applied for a green card. It turns on two facts: the property sits in the United States, and the decedent was neither a US citizen nor domiciled there. Domicile, not tax residence. The two get confused constantly.
One calibration point before going further. The balance in an ordinary US bank account falls outside the taxable estate, and the same money parked in the brokerage account next door may not. That is the kind of detail that decides whether the liquid side of an estate was actually handled or only looked that way.
"But Mexico has a treaty with the United States"
There is one. It does not do this.
It was signed in Washington on September 18, 1992, entered into force on December 28, 1993, and took effect on January 1, 1994. The full name says what it covers: Convention ... with Respect to Taxes on Income. Article 2 leaves no room: "This Convention applies to income taxes imposed by each of the Contracting States." Neither that article nor any other in the Convention, nor its protocols, touches transfers at death.
The United States does have estate tax treaties, with fifteen countries. None in Latin America.
What makes the confusion reasonable is Canada. Canada never negotiated a separate estate tax treaty. It folded the relief into its income tax treaty, at Article XXIX B. So a client's instinct that the double taxation convention "should cover this" is not sloppy thinking. It is literally how it works on the other side of the northern border. The Mexican Convention was not drafted that way.
The US code itself leaves a door open that Mexico cannot walk through. Section 2102(b)(3) enlarges the unified credit "to the extent required under any treaty obligation of the United States." No such obligation exists with Mexico, so the general rule applies, section 2102(b)(1), and the credit stays at a flat $13,000.
Between April 2025 and March 2026, Mexican buyers acquired 9,400 US homes worth $5 billion, according to the National Association of Realtors. Mexico is the second largest source country by number of foreign buyers, at 14% of the total, behind Canada at 16%. Two land borders, the same trade bloc, estate tax coverage for one of them.
If anyone tells you the treaty "helps somewhat," ask them to point at the article. There is no article.
Notario, appraisal, ISAI at 0%: what it costs to inherit in Mexico
Anyone who has been through a Mexican estate knows the route: the notario, who is a licensed attorney holding a civil-law public office and nothing like a US notary public; the appraisal; the deed of adjudication; the entry in the Registro Público de la Propiedad. And they know the rhythm. The family gathers documents, waits on the appraisal, goes back to the notaría for the one paper that was missing, waits again, and there is almost always a relative who ends up carrying the whole file because it fell to somebody. There are fees and there are months of paperwork. What there is not is a federal inheritance tax. Mexico's income tax law, the Ley del Impuesto sobre la Renta (LISR), settles it at article 93, fracción XXII: "Los que se reciban por herencia o legado," anything received by inheritance or bequest. The heading over that article reads Ingresos exentos. Exempt from ISR, Mexico's income tax.
In Mexico City, the local tax code will apply a 0% rate on property acquired by inheritance. The tax is ISAI, the Impuesto Sobre Adquisición de Inmuebles, the local property transfer tax. The zero holds provided the value does not exceed the stated ceiling, the deed of adjudication is signed and submitted for registration within five years of the death, and the recipient is the spouse, the domestic partner, or a first-degree descendant. That is a rule of the capital. Every state has its own, and the state rule is worth reading before anyone treats the zero as given.
The exemption does not grant itself, either. The third paragraph of article 150 requires anyone with total income above 500,000 pesos for the year to report all of it, the inheritance included. An heir who is required to report it and does not, loses it.
A notario, an appraisal, an ISAI line that often reads zero, a registration. Nothing in that experience has a slot for a 40% federal rate. Which is why the American $60,000 threshold does not read as low. It reads as nonexistent.
$60,000 is not an exemption. It is a credit of $13,000
Section 2102(b)(1) says it flatly: "A credit of $13,000 shall be allowed against the tax imposed by section 2101." That $13,000 is, to the penny, what the section 2001(c) table produces on $60,000 once its 18%, 20%, 22% and 24% brackets are added up. The table itself opens the next line with "$13,000, plus 26 percent of the excess." That is where the number everyone repeats comes from. Above $1,000,000 the rate is 40%. The credit is a fixed dollar figure, with no indexation for inflation.
The same $60,000 sets the filing threshold. If the US-situs assets were worth more than that on the date of death, Form 706-NA is due.
A US decedent dying in 2026 has an exclusion of $15,000,000, raised from $13,990,000 on January 1 by the OBBB Act. A Mexican national domiciled in Guadalajara who owns an apartment in San Diego has the equivalent of $60,000. Two hundred fifty to one. The gap widened this year, because nobody moved the $60,000.
With no deductions and no treaty, the numbers come out like this:
| US-situs assets | Federal estate tax | Effective rate |
|---|---|---|
| $300,000 | $74,800 | 24.9% |
| $500,000 | $142,800 | 28.6% |
| $1,000,000 | $332,800 | 33.3% |
| $2,000,000 | $732,800 | 36.6% |
| $5,000,000 | $1,932,800 | 38.7% |
This is not a billionaire problem. It is a house-in-San-Antonio problem.
Brokerage cash is not bank cash
This is where a good part of the market gets it wrong, including advisors with years of Latin American clients. For estate tax purposes, an ordinary bank deposit held by someone not domiciled in the United States, unconnected to a US business, falls outside the taxable estate under section 2105(b). A money market balance sitting inside a brokerage account does not necessarily. A brokerage firm is not a bank. The authority is Estate of Rodolfo Ogarrio v. Commissioner, 40 T.C. 242 (1963), aff'd 337 F.2d 108 (D.C. Cir. 1964).
US-situs assets, with no argument: real estate; shares of corporations organized under US law, even where the certificates are held abroad or registered in the name of a nominee (Reg. 20.2104-1(a)(5)); and US-domiciled mutual funds and ETFs.
Corporate bonds are where the expected answer is the wrong one. Section 2105(b)(3) puts a debt obligation outside the US estate when the interest on it would be eligible for the portfolio interest exemption of section 871(h)(1). Congress wrote that exemption into the estate tax chapter, not only the income tax one, and most US corporate debt in registered form qualifies. The exceptions are narrow enough to be worth checking rather than assuming.
Moving custody to Geneva or Nassau does not move it either. Situs follows the asset, not the custodian.
Nine months to pay, twelve to eighteen to collect
Form 706-NA is filed within nine months of the death, with the IRS center in Kansas City, Missouri. Form 4768 grants an automatic six-month extension of time to file, not to pay. Section 6651 penalties run on both.
On the other side sits the transfer certificate, which the IRS issues once satisfied that the tax "has been fully discharged or provided for." The IRS's own page warns that processing takes twelve to eighteen months, counted from the point it receives all the necessary documentation. Custodians should demand that certificate before retitling anything.
The tax is due in month nine. The money is released in month twelve, or month eighteen, or later if a document was missing. The estate is born illiquid by construction.
The son who received the apartment is personally liable
Under section 2203, any person or institution in actual or constructive possession of the decedent's US property is an executor for tax purposes, appointed or not. That reaches the son who already has the keys and the brokerage firm that holds the account.
From there it gets personal. Section 6324(a)(2) makes the beneficiary or the surviving joint owner liable for the tax out of his own assets, up to the date-of-death value of what he received, and the IRS states this as collection policy rather than as a theoretical warning. Section 6324(a)(1) adds a lien on the gross estate for ten years from the date of death, which clouds title to the property the moment somebody wants to sell it clean. And 31 U.S.C. 3713(b) reaches the executor who paid the lawyer and the siblings first.
The deductions carry their own surprise. Section 2106(b) allows no deduction for expenses, debts and losses, and none for charitable transfers, unless the executor reports the value of the estate situated outside the United States, and line 2 of Part IV of the 706-NA asks for exactly that total. To deduct the mortgage on the Miami apartment, the family has to tell the IRS what everything else it owns is worth, in Mexico and anywhere else. For people accustomed to discretion, that is usually the most uncomfortable fact in the entire conversation.
There is no marital deduction either if the widow is not a US citizen, unless the property passes to a QDOT under section 2056A. "Everything goes to my wife" is neutral in Mexico. In the United States it is not.
Mexico gives no credit for that tax, and no deduction either
Article 5 of the LISR allows a credit for "el impuesto sobre la renta que hayan pagado en el extranjero," income tax paid abroad, and only against the Mexican tax on income that is itself taxable. The US estate tax is not an income tax. It is a tax on the transfer. And the inheritance is exempt under article 93, fracción XXII, so there is no Mexican tax to credit anything against.
The same article closes the exit: "La parte del impuesto pagado en el extranjero que no sea acreditable de conformidad con este artículo, no será deducible para efectos de la presente Ley." Foreign tax that is not creditable under the article is not deductible under it either.
What was paid in the United States stays in the United States.
These families already operate through a fideicomiso, and it is not this one
Many of these families own a house in Los Cabos or Rosarito, inside the restricted zone of article 27, fracción I of the Mexican constitution: one hundred kilometers along the borders and fifty along the coasts. A foreigner cannot take direct ownership there. What he gets is use and enjoyment through a fideicomiso, the Mexican bank trust built for exactly this situation under Title Two of the Foreign Investment Law, with a Mexican credit institution as trustee and a maximum term of fifty years. It is not a US trust and should not be read as one. The mechanics, though, are already familiar: a third party holds title, the family holds the benefit, a written instrument governs the arrangement.
That is where the resemblance ends. The restricted-zone fideicomiso solves a constitutional prohibition on ownership. An irrevocable life insurance trust, an ILIT, solves a problem of inclusion in the US taxable estate. In the first, the family keeps control, which is the entire point of it. In the second, the insured must not keep that control over the policy, because if he does the death benefit comes back into the estate. What is the virtue in one is the defect that collapses the other.
And it is worth saying without hedging: a Mexican fideicomiso does nothing against the US estate tax. It is Mexican law on Mexican land.
The one thing Congress wrote out of the statute by name
Section 2105(a) of the Internal Revenue Code: "the amount receivable as insurance on the life of a nonresident not a citizen of the United States shall not be deemed property within the United States."
It does not say the proceeds may be excluded if the structure is right. It says they are not treated as property situated in the United States, and it holds even when the policy was issued by a US carrier.
The practical effect is a matter of the calendar. The death benefit is paid to the named beneficiary, and it was never inside the account the custodian froze while waiting for the transfer certificate.
On the Mexican treatment of that benefit we take no position. Article 93, fracción XXI of the LISR writes the insurance exemption for income received from "instituciones de seguros constituidas conforme a las leyes mexicanas," insurers organized under Mexican law, and how that applies to a policy issued in the United States is contested among tax practitioners in Mexico. It is a question for a Mexican accountant, and it is worth asking before the policy is bought.
Form 706-NA gets filed in Kansas City. It is worth knowing, years ahead of time, what numbers it will have written on it.
This content is general information for educational purposes and does not constitute legal advice, tax advice, or an offer of any product. Consult your attorney and your accountant in each jurisdiction before making decisions.
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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.
