When a nonresident alien passes away owning U.S. real estate, their estate may be subject to U.S. estate tax. If the total value of the decedent’s U.S.-based assets exceeds the exemption amount, an estate tax return (Form 706-NA) must be filed. At that point, a federal estate tax lien automatically attaches to the property — without the need to record any lien document with the land records. This lien gives the IRS a legal claim to ensure any estate taxes owed are paid.
It’s critical for real estate agents and settlement agents to understand the IRS estate tax filing requirements, clearance processes, and potential delays so they can set realistic expectations for the estate representatives, surviving spouse, or beneficiaries. Let’s break it down.
Estate Tax Filing Requirements for Nonresident Aliens
For nonresident aliens, U.S. estate tax applies to property located in the United States — including both tangible assets like real estate and intangible ones like stocks or business interests. When valuing these assets, the fair market value at the time of death is used, not the original purchase price or acquisition value.
Unlike U.S. citizens and residents, who have a generous estate tax exemption of $13,990,000 (for 2025), nonresident aliens are only allowed a $60,000 exemption. If the total value of the decedent’s U.S.-situated assets exceeds this amount, the estate must file Form 706-NA, even if no tax is ultimately owed. The return is due within nine months of death, although a three-month extension may be requested.
The IRS Processing Timeline and the Estate Clearance Letter
After the 706-NA is submitted, the IRS review process can take a significant amount of time. The instructions suggest waiting at least 9 months before requesting the Estate Tax Closing Letter (ETCL), though processing times can extend beyond 18 months during peak periods. Once the IRS completes the review, the ETCL can be requested for a fee on their website. This letter confirms that the review is complete and indicates whether any estate tax is owed. Without it, potential tax liabilities remain, which can prevent title companies from releasing sales proceeds.
The Role of Title Companies in Estate Sales
Title companies play a crucial role in ensuring compliance with federal tax laws when a nonresident alien’s property is sold. Here’s why:
✅ Estate Tax Liens: Federal estate tax liens attach to all of the decedent’s U.S. estate immediately upon death. Title companies require proof that no tax liability remains before they can insure the property.
✅ Escrow Requirement: Title companies typically won’t disburse sale proceeds until they confirm that the IRS has no claim against the property. This can be a shock to the seller if they weren’t expecting it.
✅ Liability Risk: If the property is sold without confirming that the tax has been paid or that no tax is due, the silent estate tax lien stays attached and can become the buyer’s burden to bear.
✅ IRS Enforcement: If estate taxes remain unpaid, the IRS retains the right to foreclose on the lien even after a sale has occurred. In such cases, the title insurer may be forced to pay off the lien to protect the buyer’s interest in the property and uphold the title insurance policy.
Discrepancies in the Industry Can Cause Confusion
While the process should be standard across the nation, the handling of estate tax matters for nonresident aliens tends to vary from transaction to transaction. In some situations, sales proceeds are retained in escrow pending an ETCL, and in others, the funds are released without considering the estate tax matter at all.
Speculatively, the inconsistencies involving estate tax can be blamed on a few key issues:
✅ The lack of knowledge regarding the deceased’s tax status and the impact it has on the transaction.
✅ No mechanism in place to consistently identify deceased nonresidents.
✅ Confusion surrounding state affidavits, which are irrelevant for federal tax purposes.
This inconsistency creates unnecessary risks for buyers, title agents, and underwriters, making education and standardized processes crucial.
Best Practices for Real Estate Agents & Closing Agents
To avoid complications, industry professionals should follow these best practices:
✅ Interview Early: During the listing process, real estate agents should inquire about the history of ownership to determine the possibility of any estate issues.
✅ Compliance: Learn if the surviving seller has filed IRS Form 706-NA. If not, encourage them to contact a trusted tax advisor immediately to confirm if filing is needed.
✅ Consistency: Learn FIRPTA regulations and estate tax implications for nonresident aliens and implement standardized protocols for handling estate-related sales with deceased nonresidents.
By following these steps, title companies and estate representatives can protect themselves from liability while ensuring compliance with U.S. estate tax laws.
Final Thoughts
Estate tax requirements for non-resident aliens can be complicated and time-consuming. Not properly preparing sellers for estate tax issues can damage trust and cause frustration. However, by understanding filing deadlines, IRS processing times, and the importance of an estate clearance letter, costly mistakes can be prevented.
If you are handling an estate involving a foreign owner, make sure you partner with professionals who understand the process because, in estate tax matters, cutting corners can be an expensive mistake.
Need Help with Estate Compliance?
Our team at Total FIRPTA assists in estate tax compliance for non-resident aliens. Contact us today to ensure your transaction is handled the right way. No penalties, no delays, just peace of mind!