Whether or not you are a U.S. citizen, you may own real estate in another country, either that vacation condo you bought in Aruba or the family property you inherited in Italy. What happens to that in terms of estate taxes and passing on ownership?
For federal estate tax purposes, the answer is simple: if you are a U.S. citizen, the value of your overseas property will be included in your estate and taxed like any other property if your estate exceeds $12.060 million (in 2022). However, there may be an offset if you must pay estate taxes in the other country, which would depend on tax treaties between the two nations. The United States has such tax treaties with Australia, Austria, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, Norway, South Africa, Switzerland, and the United Kingdom. Pursuant to these treaties, these countries may tax the estates of US decedents for property in their countries and the United States will permit such estates to apply a credit for such taxes on their US estate tax returns, thus avoiding double taxation.
The states with estate taxes, on the other hand, may not tax out-of-state or out-of-country property because doing so violates provisions of the US Constitution. But be aware that if you live out of the country and have real estate in the United States, the state where it’s located may apply an estate tax on property even if you die as a resident of another state or another country.
