Understanding U.S. Estate Tax Exposure for Foreign Real Estate Investors

Foreign investors often overlook one of the most significant tax risks associated with owning real estate in the United States: U.S. estate tax. When a non-resident dies holding U.S. property, whether directly or through a U.S. company, the estate may be subject to tax rates ranging from 28% to 40%, with an exemption of only $60,000. This article explains how U.S. estate tax applies to foreign owners, which countries benefit from treaty protection, and how proper legal planning can eliminate or dramatically reduce potential liability.

The Estate Tax Risk for Foreign Investors

Foreign investors continue to see the United States—especially Miami, New York, and Los Angeles—as one of the most attractive real estate markets in the world. But few realize that U.S. estate tax rules can create significant tax exposure upon death, even for non-U.S. residents who own only one American property.

Under U.S. law, when a non-resident foreign individual dies owning real estate located in the United States, their estate is subject to U.S. estate tax at rates ranging from 28% to 40%, with an exemption of only $60,000.

That means that if you or a family member owns U.S. property—directly or through a U.S. entity—your heirs could lose a substantial portion of the property’s value to U.S. taxes unless proper planning is done in advance.

Countries With Estate and Gift Tax Treaties

Only a few countries have comprehensive Estate and Gift Tax Treaties with the United States. These treaties help prevent double taxation and may increase the exemption available to residents of those countries.

Countries with both estate and gift tax treaties include:

• Australia
• Austria
• Denmark
• France
• Germany
• Japan
• United Kingdom

Countries With Estate-Only Treaties

Other countries have estate tax treaties only, meaning they do not include provisions to protect against U.S. gift tax exposure.

These countries are:

• Canada (through Article XXIX B of the U.S.–Canada Income Tax Treaty)
• Finland
• Greece
• Ireland
• Italy
• Netherlands
• South Africa
• Switzerland

Even among these, treaty provisions vary significantly, so not all treaties provide the same level of protection. Some increase the exemption, while others merely clarify jurisdiction or provide limited credits.

What Happens If You’re From a Country Without a Treaty

For investors from countries not listed above, there is no estate or gift tax treaty with the United States. That means the U.S. rules apply in full.

Upon your death, the IRS calculates estate tax based on the fair market value of your U.S. real estate at the time of death, with only the first $60,000 exempted.

If your property is valued at $600,000, your heirs could face an estate tax of approximately $180,000—nearly one-third of the property’s value—simply because of the lack of a treaty and proper planning.

How U.S. Estate Tax Is Calculated

Here’s how the tax is typically computed:

1. Determine the gross value of the U.S. property at the date of death (for example, $600,000).
2. Subtract the $60,000 exemption, leaving a taxable estate of $540,000.
3. Apply the graduated estate tax rates, which range from 28% to 40%, depending on the total value.

In this example, the approximate U.S. estate tax liability would be around $180,000, payable by the estate before the property can be transferred to the heirs.

Real Estate Owned Through a U.S. LLC or Corporation

Owning U.S. property through a U.S. LLC or corporation does not automatically eliminate estate tax exposure.

• If a foreign individual owns a U.S. single-member LLC, the LLC is “disregarded” for tax purposes—so the IRS treats the property as if owned directly by the individual.
• Even shares in a U.S. corporation are considered U.S.-situs assets, and therefore included in the taxable estate.

To fully mitigate exposure, a different ownership structure—such as a properly organized foreign corporation or foreign trust—is often required.

How Proper Planning Can Eliminate Estate Tax Exposure

For one of our recent clients, the father (a foreign resident) owned a U.S. property worth $600,000.

Without planning, his family would have owed about $180,000 in estate tax upon his death. Instead, we implemented a custom estate plan that restructured ownership through a compliant entity and trust combination. When he passed away, his heirs paid zero estate tax—saving the family the entire amount.

Why You Should Have Your Treaty Reviewed

Even if your country appears on the list of those with a U.S. estate or gift tax treaty, not all treaties are equal. Some treaties provide only limited relief, and the benefits depend on how ownership is structured and where you reside at the time of death.

That’s why it’s essential to have your treaty status and estate structure reviewed by a qualified cross-border tax attorney. Small differences in wording can mean the difference between full exemption and a six-figure tax bill.

Work With a Cross-Border Estate Planning Lawyer

If you or your parents are citizens or residents of a country without a U.S. estate and gift tax treaty, and you own real estate in the United States, planning ahead is crucial.

At Bianchi Fasani Green Law, we help international investors protect their U.S. real estate from unnecessary taxation through customized legal and tax planning strategies. Our team has extensive experience advising foreign clients from Europe, Latin America, and beyond on how to structure ownership and trusts to minimize exposure.

Contact us today to schedule a consultation and learn how we can help you protect your family’s inheritance and eliminate unnecessary estate tax.