This report explains the major provisions of the federal estate and gift transfer taxes for transfers by nonresident aliens in 2014. In determining estate tax liability, the Internal Revenue Code (IRC) differentiates between the estates of U.S. citizens, resident aliens, and nonresident aliens. The estates of resident aliens follow the same rules and regulations to determine estate tax liability as do estates of U.S. citizens. However, the estates of nonresident aliens are taxed differently. Definition of a Nonresident Alien

Under the estate tax regulations, a "resident" decedent is a decedent who, at the time of his death, had his domicile in the United States. A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later leaving that place. The determination of federal estate tax liability involves a series of adjustments and modifications of a tax base known as the "gross estate." Certain allowable deductions reduce the gross estate to the "taxable estate." Then, the total of all lifetime taxable gifts made by the decedent is added to the taxable estate before tax rates are applied. The result is the decedent's estate tax which, after the reduction for certain allowable credits, is the amount of tax paid by the estate. The Gross Estate: The Federal Estate Tax Base

The first step in determining estate tax liability for citizens, resident aliens, and nonresident aliens is to designate the "gross estate," which consists of property in which the decedent held an interest at the time of death. However, the gross estates of nonresident aliens, for federal estate tax purposes, include only property "situated" in the United States. Estates of citizens, resident aliens, and nonresident aliens share many deductions, including estate administration expenses, certain debts and losses, charitable bequests, and the amount of qualified transfers to a surviving spouse, although some differences in calculating these deductions may apply. The Federal Gift Tax for Nonresident Aliens

The federal gift tax is a tax imposed on an annual basis on all gratuitous transfers of property made during life. The tax seeks to account for transfers of property that would otherwise reduce the estate and accordingly estate tax liability at death. The donor's tax liability on the gift depends upon the value of the "taxable gift." The taxable gift is determined by reducing the gross value of the gift by the available deductions and exclusions. The Taxable Gift

Nonresident aliens are subject to the federal gift tax only on gifts of their interest in U.S. real estate and tangible personal property situated in the United States. The major deductions and exclusions available for nonresident alien donors are the annual exclusion, the gift tax marital deduction, and the gift tax charitable deduction. The tax liability of a taxable gift is measured initially by the value of the transferred property.
This report explains the major provisions of the federal estate and gift transfer taxes as they apply to transfers by nonresident aliens in 2014. Estate and gift taxes are two federal transfer taxes imposed on the passing of property title from one person or entity to another. The federal estate tax is levied on the transfer of property at death, while the federal gift tax is levied on the transfer of property during life by one individual to another while receiving nothing or less than full value in return. The following discussion provides basic principles regarding the computation of these two transfer taxes for this particular group of taxpayers.
In determining estate and gift tax liability, the Internal Revenue Code (IRC) differentiates between the estates of citizens, resident aliens, and nonresident aliens. Under the estate tax regulations, a "resident" decedent is a decedent who, at the time of his death, had his domicile in the United States. A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later leaving that place. The estates of resident aliens follow the same rules and regulations as do the estates of U.S. citizens to determine estate tax liability. However, the estates of nonresident aliens are taxed differently.
The federal estate tax is measured by the size of the decedent's estate. The tax is computed through a series of adjustments and modifications of a tax base known as the "gross estate." Unlike the estates of U.S. citizens, the gross estates of nonresident aliens include only property "situated" in the United States. Certain allowable deductions reduce the gross estate to the "taxable estate," to which is then added the total of all lifetime taxable gifts made by the decedent. Estates of citizens, resident aliens, and nonresident aliens share many deductions, including estate administration expenses, certain debts and losses, charitable bequests, and the amount of qualified transfers to a surviving spouse, although estates of nonresident aliens calculate some deductions differently. The tax rates are applied and, after reduction for certain allowable credits, the amount of tax owed by the estate is reached.
The federal gift tax for nonresident aliens is a tax imposed on gratuitous transfers of U.S. real estate and tangible personal property situated in the United States during life. The tax seeks to account for transfers of property that would otherwise reduce the estate and accordingly estate tax liability at death. The donor's tax liability of the gift depends upon the value of the "taxable gift." The taxable gift is determined by reducing the gross value of the gift by the available deductions and exclusions. The major deductions and exclusions available for nonresident donors are the annual exclusion, the gift tax marital deduction, and the gift tax charitable deduction.