Estate Tax and Inheritance Basics: 2025 and 2026 Exclusions, Form 706, and Nonresidents

The short answer

The federal estate tax is a tax on the estate of the person who died, not on the heirs. For U.S. citizens and U.S. domiciliaries, the basic exclusion amount is $13,990,000 for deaths in 2025 and $15,000,000 for deaths in 2026, so most estates owe nothing. Heirs generally do not pay federal income tax on what they inherit, and inherited property usually takes a basis equal to its value at death. The big exception is nonresident non-citizens who own U.S. assets: their estates can have to file Form 706-NA above just $60,000.

Estate tax, inheritance tax, and gift tax

Lifetime taxable gifts reduce the exclusion left at death, which is why Form 706 asks for "adjusted taxable gifts." Gifts within the annual exclusion do not count.

Which estate tax rules apply: three groups

• Domicile: for estate tax, you acquire domicile in a place by living there, even briefly, with no definite present intention of later moving.
• Income tax residency is different. The green card test and the substantial presence test decide income tax residency. The Form 706-NA instructions say a decedent may be a U.S. resident for income tax purposes yet a nonresident for estate tax purposes.
• Territories: someone who is a citizen only because of a connection to a U.S. territory is not treated as a U.S. citizen for these rules.

Form 706 for citizens and domiciliaries

• Who must file: the executor, if the gross estate plus adjusted taxable gifts and any specific exemption is more than the basic exclusion for the year of death — or to elect portability.
• Due date: 9 months after the date of death; a 6-month extension is available on Form 4768.
• 2026 amounts: basic exclusion $15,000,000, basic credit $5,945,800 (Form 706 instructions, Rev. July 2026). The top rate is 40%.
• Portability: the executor can pass the unused exclusion to a surviving spouse by filing a timely Form 706, with a late election available up to the fifth anniversary of death under Rev. Proc. 2022-32 for estates not otherwise required to file.

When the surviving spouse is not a U.S. citizen

• Marital deduction: property left to a U.S. citizen spouse is generally deductible without limit. For a spouse who is not a U.S. citizen, the deduction is allowed only if the property passes to a qualified domestic trust (QDOT), or is transferred to one before the return is filed, and the executor elects QDOT status.
• QDOT tax: estate tax is then imposed later, as distributions are made from the trust.
• Lifetime gifts: the annual exclusion for gifts to a non-citizen spouse is $190,000 for 2025 and $194,000 for 2026.

Nonresident non-citizens and Form 706-NA

• Filing threshold: the executor must file if the date-of-death value of U.S.-situated assets, plus the gift tax specific exemption (for gifts from September 9 to December 31, 1976) and adjusted taxable gifts after 1976, exceeds $60,000.
• Filing is not the same as owing tax. The $60,000 test uses gross U.S. assets. Allowed deductions, the unified credit (generally $13,000), and any treaty benefits can reduce the tax, sometimes to zero, but the return is still required.
• Due date: 9 months after death; Form 4768 for an extension.
• No portability for an NRNC estate, and the marital deduction is available only for a U.S. citizen spouse or a QDOT unless a treaty allows otherwise.

Treaties: the Form 706-NA instructions list estate or death tax treaties with Australia, Austria, Canada (through the income tax treaty), Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland, and the United Kingdom. A treaty can change the situs rules, the credit, or the marital deduction; a treaty-based position must be disclosed. Taiwan and China are not on that list.

What heirs need to know about income tax

• Inherited cash or property: not income to you (Publication 525).
• Basis: your basis in inherited property is generally its fair market value on the date of death, or the alternate valuation date if the executor elected it (Publications 551 and 559; special rules, such as special-use valuation, can apply). If you sell soon after, there is often little gain.
• Income in respect of a decedent (IRD): income the person had a right to but had not received — such as wages earned but unpaid at death, or the taxable balance of an inherited traditional IRA — is taxable to whoever receives it (Publication 559), even though it is also included in the estate.
• Estate tax on IRD: if the estate paid federal estate tax on IRD, the recipient may be able to deduct the part of that tax as an itemized deduction.
• Inherited retirement accounts: distribution timing rules apply; see our retirement withdrawals guide.

Examples

Mr. Wu's figure uses Table A in the Form 706 instructions and assumes no prior gifts, no deductions, no state death tax, and that the bank deposit is not connected with a U.S. business; Taiwan is not on the treaty list. His heirs' basis in the U.S. stocks is generally their value at his death. Daniel's domicile rests on where he lived and his intent to stay, not on the green card alone; if his estate were above the exclusion, his wife would need a QDOT for a marital deduction. All three examples are simplified.

Common mistakes

• Assuming the $15,000,000 exclusion applies to foreign parents who own U.S. stock or real estate.
• Treating income tax residency as estate tax domicile.
• Not electing portability when the first spouse dies, losing the unused exclusion.
• Reporting an inheritance as income, or forgetting that inherited IRA withdrawals are taxable.
• Using the original purchase price instead of the date-of-death value as basis.
• Ignoring state estate or inheritance taxes, which can apply at much lower amounts.