Gina Lee
Gina Lee is your trusted guide for U.S. tax law, corporate compliance, and estate planning, providing personalized, strategic counsel to help achieve your financial and personal goals with confidence.
Making sense of U.S. taxes is no small feat—especially when you’re living across borders, juggling green cards, dual citizenships, and tax treaties. Whether you’re a globe-trotting entrepreneur, a recent immigrant, or an advisor guiding international clients, understanding the intricacies of U.S. income and transfer tax residency rules is essential. The U.S. imposes an income tax on its residents not only on what they earn domestically but also on their entire worldwide income, and its reach doesn’t stop there. In this article, we will dive into U.S. transfer taxes, including gift tax, estate tax, and generation-skipping transfer tax.
Understanding U.S. Tax Residency and Transfer Taxes
U.S. taxation reaches far and wide—literally. If you’re considered a U.S. tax resident, you are subject to U.S. income tax on your worldwide income. Tax residency is determined under two key tests: Green Card Test and Substantial Presence Test. However, even if you qualify as a tax resident, treaties with other countries may allow you to be treated as a nonresident for income tax purposes, though not for all other tax considerations.
When it comes to transfer taxes—namely, gift and estate tax—U.S. residency for transfer tax purposes is defined differently. It depends on whether you are “domiciled” in the U.S., which is based on such factors as your intent to stay, where you live, work, vote, own property, where your family lives, and more. Notably, someone can be considered a resident for income tax purposes but not for transfer taxes, or vice versa.
U.S. Gift and Estate Tax for U.S. Persons
U.S. persons are subject to gift and estate taxes on their global assets. The good news? There is currently a generous applicable exclusion amount—$13.61 million in 2024 and $13.99 million in 2025—that covers lifetime gifts and estate value. Gifts to U.S. citizen spouses are unlimited, but the unlimited marital deduction is not available on transfers to non-U.S. citizen spouses. An annual gift exclusion of $18,000 (2024) or $19,000 (2025) per recipient helps reduce taxable amounts for gifts.
The estate tax kicks in at death, applying a maximum 40% tax rate to the taxable estate. Assets included in the estate typically receive a “step-up” in basis, reducing future capital gains tax for heirs. If wealth is transferred to grandchildren or similarly “skipping” generations, the Generation-Skipping Transfer Tax (GSTT) adds another 40% layer—but there is a $13.61 million (2024) / $13.99 million (2025) GST exemption, as well.
Transfer Tax Rules for Nonresident Aliens (NRAs)
For nonresident aliens of the U.S. (NRAs), U.S. transfer taxes only apply to assets located in the U.S. For gift tax purposes, this includes U.S. real property, tangible personal property located in the U.S., and cash located in the U.S. Notably, transfer of stock in a U.S. corporation is not subject to U.S. gift taxation whereas an NRA who holds U.S. stock at death would be subject to federal estate taxation. NRAs have no gift tax applicable exclusion, therefore all gifts by NRAs of real or tangible property located in the U.S. are subject to U.S. gift tax. NRAs have an unlimited marital deduction on gifts to spouses who are U.S. citizens. Same as U.S. persons, NRAs are allowed to exclude $18,000 (2024) or $19,000 (2025) per recipient per year. The same maximum gift tax rate of 40% applies.
For estate tax, the net is wider, capturing U.S. real and tangible personal property, brokerage deposit accounts, cash accounts, mutual funds, stock of U.S. corporations, and even intangible assets tied to U.S. entities. Unlike U.S. persons, NRAs generally do not receive the $13.61 million (2024) / $13.99 million (2025) exclusion for estate tax—instead, they’re limited to a $60,000 exemption unless a tax treaty provides otherwise. GST tax can also apply, though there is some debate about the applicable exclusion amount for NRAs, with $13.61 million (2024) / $13.99 million (2025) exclusion often used by analogy.
Planning Considerations
The key in determining whether an individual is subject to U.S. transfer taxes is domicile. If the individual is considered domiciled in the U.S., he or she may be subject to U.S. gift tax, estate tax, and generation-skipping transfer tax. Certain countries where the individual is a domiciliary of may have an estate and gift tax treaty with the U.S. reducing the U.S. gift and estate taxes. Such treaty can cover federal gift, estate, and generation-skipping transfer tax of the U.S. and the other country. Depending on the individual’s situation and types of assets in the U.S., there are many planning opportunities available to them. Should they gift their U.S. assets to U.S. spouses or other U.S. persons? Should they create a U.S. trust? Should they form a company to hold the U.S. assets? With the right planning and careful attention to domicile and treaty benefits, individuals can take meaningful steps to reduce or even avoid unnecessary U.S. transfer tax exposure. Tailored strategies—whether gifting, trust creation, or corporate structuring—can make all the difference.