US Estate Tax for Nonresidents: The $60,000 Trap

A foreign buyer who pays $2 million in cash for a Manhattan condominium creates, in that same transaction, an unfunded US tax liability of roughly $733,000. It falls due nine months after death, in cash, on heirs who often do not know it exists.

The cause is a single provision that never appears on a closing statement. Nonresident aliens receive a US estate tax exemption of $60,000 on US-situs assets. US citizens and domiciliaries receive $15 million per person in 2026.

That gap is not a rounding error. It is a factor of 250. Let's examine which assets trigger the tax, what a realistic bill looks like on a typical New York purchase, and which planning tools genuinely reduce the exposure rather than relocate it.

The 250-to-1 Exemption Gap

The United States taxes nonresident decedents on US-situs assets only, but at almost the same rates it applies to its own citizens. Rates are graduated from 18% to 40%, and the top 40% bracket begins at just $1 million of taxable estate.

The $60,000 figure is not a deduction. It arrives as a $13,000 unified credit against tentative tax, a number fixed since 1988 and never indexed for inflation. Meanwhile the credit available to a US person in 2026 is $5,945,800.

Two further asymmetries compound the arithmetic. The unlimited marital deduction is available only where the surviving spouse holds US citizenship, and portability of an unused exemption between spouses does not extend to nonresident estates. Neither of the usual American workarounds is on the table.

Which Assets Are US-Situs, and Which Are Not

US real property is always US-situs. There is no holding period, no minimum value, and no exception for an owner who has never set foot in the country. A Manhattan condominium, a Brooklyn brownstone, or a Florida rental all enter the estate at fair market value on the date of death.

Shares of US corporations are also US-situs for estate tax purposes, even when held in a foreign brokerage account. Bank deposits not connected with a US trade or business, and most portfolio-interest debt, generally are not. The categories do not follow intuition, and they differ from the gift tax rules.

Why a US LLC does not solve it

Foreign buyers are frequently told that titling the apartment in a US LLC handles the problem. A single-member LLC that is disregarded for income tax purposes is generally treated as holding the property directly, so the estate exposure survives the restructuring intact. The LLC organizes liability and privacy. It does not move the asset out of the US estate. See our guide to US property holding structures for how the alternatives compare.

The Math on a $2 Million Condominium

A nonresident who dies owning a $2 million Manhattan condominium outright leaves a federal estate tax bill of approximately $733,000 before any treaty relief. That is roughly 37% of the property's value, payable within nine months, in dollars.

Two details move that number materially. Nonrecourse mortgage debt reduces the includible value dollar for dollar, so a $1.2 million nonrecourse loan would cut the taxable base to $800,000. Recourse debt is deductible only in proportion to US assets against the worldwide estate, and claiming it requires disclosing that worldwide estate to the IRS.

New York adds its own layer

New York imposes a separate estate tax on real and tangible property located in the state, and nonresidents are within its scope. The basic exclusion is indexed annually and stood at $7.16 million for deaths in 2025, with rates reaching 16%.

New York also applies a cliff rather than a threshold: once an estate exceeds 105% of the exclusion, the benefit disappears entirely and the whole amount is taxed. The apportionment method for a nonresident is not simply the apartment's value in isolation, which is why the state calculation belongs with counsel rather than a spreadsheet.

Treaty Relief and the Structures People Use

The United States maintains estate or gift tax treaties with roughly 15 countries, including Japan, Germany, the United Kingdom, France, Italy, Switzerland, and the Netherlands. Relief varies by treaty, and several were negotiated generations ago. The treaty with Japan was signed in 1954 and remains in force in substantially its original form.

Where a treaty applies, the common benefit is a prorated unified credit: the US person exemption multiplied by the ratio of US-situs assets to the worldwide estate. On the $2 million condominium above, an estate with $20 million worldwide might see the tax fall dramatically. The price of admission is full disclosure of the worldwide estate on Form 706-NA.

Four structures recur in cross-border planning, each carrying a real cost. A foreign corporation blocker converts US real property into non-US-situs shares. In exchange it surrenders preferential long-term capital gains treatment, exposes the owner to a potential 30% branch profits tax, and denies heirs a step-up in basis.

Irrevocable trusts can remove the property from the estate when funded before the asset becomes US-situs, though retained control or benefit can pull it back in. Nonrecourse leverage reduces the includible value without disturbing ownership at all, at the cost of interest and a lender's underwriting.

Life insurance on the life of a nonresident is not US-situs property, which makes it the cleanest instrument for funding a liability you cannot eliminate. It solves nothing structurally and it prices the risk honestly, which is often the correct outcome for a single apartment held for family use rather than a portfolio.

Is the exposure overstated?

Some advisors argue the risk is theoretical, on the view that foreign estates rarely file and that US enforcement over overseas heirs is limited in practice. It is not an unreasonable observation about collection rates.

The rebuttal is procedural rather than moral. Heirs cannot readily sell or refinance US real property without clear title, and institutions and title companies commonly look for an IRS transfer certificate before releasing or conveying assets. Any eventual sale also runs through FIRPTA withholding, which places the estate directly in front of the IRS.

Final Thoughts

The practical starting point is unglamorous. Inventory every US-situs asset, calculate the tax as it stands today, and confirm whether a treaty with your country of domicile applies. Most owners discover the number is larger than expected and that the cheapest fixes are available only before purchase, not after.

Nothing above is a recommendation. Blockers, trusts, leverage, and insurance each shift tax from one column into another, and the right combination depends on your domicile, the size of your worldwide estate, your expected holding period, and what your heirs intend to do with the property.

These decisions should be made in consultation with independent cross-border tax counsel and licensed financial advisors. The interaction between a treaty, a US entity, and your home country's own inheritance rules is precisely where specialist advice earns its fee, and where generic planning does the most damage.

We help international clients coordinate that work alongside the transaction itself, from estate tax planning basics through capital gains exposure on a future sale and the annual property tax carrying cost. The estate question is best answered before the wire is sent.

Reinvent NY provides business consulting, operational support, and coordination services. Legal advice and immigration filings are handled by independent licensed attorneys. Real estate services are provided through licensed professionals and applicable brokerage relationships. This article is for informational purposes only and does not constitute legal or investment advice.

More on US property tax: Closing Costs USA 2026, 1031 Exchange in 2026, CEMA Loans in New York.