Your gift and estate tax responsibilities will depend on your status as a resident or non-resident alien. This is determined a bit differently than your status regarding income tax.
For gift and estate taxes, the IRS will determine whether you are domiciled in the U.S. at the time of the gift or the death. This is tricky, because being domiciled requires “no definite present intention of later removing therefrom,” according to the U.S. Treasury.
If you’re scratching your head, you’re not alone.
It’s hard to legislate intent, but that’s what this statement boils down to. If you have no intention of leaving the U.S. at the time of the gift or your death, you're considered domiciled here. Of course, a country with a tax treaty might have its own rules established. The tax treaty would take precedence in that case. You should have an advisor and/or attorney in your home country to advise on the issue.
Resident AliensIf you are classified as a resident alien, you must usually follow the same gift and estate tax rules as U.S. citizens. Most importantly, your entire estate is subject to the U.S. estate tax when you pass away. You may also have to pay tax in your country of citizenship, unless a tax treaty removes this obligation.
- In 2017, the U.S. estate tax threshold is $5,450,000.
- All your property, no matter where in the world it’s located, is subject to U.S. estate tax.
- The estate tax marital deduction is not available unless your spouse is a U.S. citizen, becomes a U.S. citizen before the estate tax is due, or you had a Qualified Domestic Trust.
- A life insurance death benefit will not count toward the estate total if it’s owned in an Irrevocable Life Insurance Trust (ILIT).
- You will owe gift taxes if you are domiciled in the U.S. at the time the gift is made.
- In 2017, the annual gift tax exclusion is $14,000 per person per year.
Non-Resident Aliens
If the IRS classifies you as a non-resident alien, your gift and estate tax will depend on where you're domiciled. To be domiciled somewhere, the IRS will look at things like your driver’s license state of issue, home bank, voter registration records, and how much time you spend traveling abroad. If you are a non-resident alien not domiciled in the U.S.:
- Only your U.S. situs property will be subject to the estate tax. This includes tangible and intangible property, including the stock of U.S. corporations. If a county's tax treaty specifically excludes stock or other property types from U.S. estate tax, the tax treaty takes precedence.
- In most cases, the life insurance death benefit will not be subject to estate tax.
- You can only use the estate tax marital deduction if your spouse is a U.S. citizen, becomes a citizen before the tax is due, or you have a Qualified Domestic Trust.
- In 2017, the U.S. estate tax transfer exemption is $60,000 for non-resident aliens.
- Only real estate and tangible property (including cash) in the U.S. will be subject to the gift tax.
- In 2017, the annual exclusion limit is $14,000 per person per year.