US Estate Tax for Canadians: $60,000 Exemption vs Treaty

For most Canadian residents, $60,000 isn’t the real limit. Left alone, a Canadian who isn’t a US citizen gets a $13,000 credit against US estate tax, which covers exactly $60,000 of taxable estate. The Canada-US treaty lets the estate of a Canadian resident claim instead a prorated share of the credit a US citizen’s estate gets, which for 2026 deaths runs off a $15,000,000 basic exclusion. It isn’t automatic: the IRS’s position is that you claim it on a filed Form 706-NA. For the condo owner’s wider picture, start with the snowbird tax guide.

Is the $60,000 US estate tax exemption real?

It’s real as arithmetic and as a filing threshold, but the statute doesn’t say it. IRC 2102(b)(1) reads “A credit of $13,000 shall be allowed against the tax imposed by section 2101” (IRC 2102). Under the IRC 2001(c) rate table, the tentative tax on exactly $60,000 is exactly $13,000 (IRC 2001), so the credit covers a $60,000 taxable estate and nothing past it.

• A credit isn’t an exclusion. The tax on a nonresident’s estate is the 2001(c) tentative tax on the whole taxable estate plus adjusted taxable gifts, less the tentative tax on those gifts (IRC 2101(b)), and the $13,000 comes off that tax. On a US$640,000 condo with no deductions, the bill isn’t zero.
• Only US-situated property is in the gross estate of a “decedent nonresident not a citizen of the United States” (IRC 2103).
• “Nonresident” here means domicile, not a day count. A nonresident decedent is one who at death “had his domicile outside the United States” (Treas. Reg. 20.0-1(b)). That’s a different test from the income tax day count, and the two answers can differ.
• $60,000 is also the filing threshold. The executor must file Form 706-NA if US-situated assets, “together with the gift tax specific exemption and the amount of adjusted taxable gifts,” exceed $60,000 (Instructions for Form 706-NA, Rev. September 2025).

What does the treaty give a Canadian’s estate?

A bigger credit, if the estate claims it. Article XXIX B(2) gives the estate of an individual “other than a citizen of the United States” who was a resident of Canada at death a unified credit equal to the greater of a prorated share of the credit allowed to a US citizen’s estate and the ordinary nonresident credit (Article XXIX B, 1995 Protocol). The share is US-situated gross estate over worldwide gross estate.

The citizen’s credit is the tentative tax on the basic exclusion amount (IRC 2010(c)). The IRS lists the basic exclusion as $13,990,000 for 2025 deaths and $15,000,000 for 2026 deaths (IRS, What’s new: estate and gift tax). On the 2001(c) table that’s a full credit of $5,541,800 for 2025 and $5,945,800 for 2026. The statute indexes the $15,000,000 for deaths after 2026.

	Nobody claims the treaty	Treaty credit claimed on a filed 706-NA
Credit against the tax	$13,000 (IRC 2102(b)(1))	Greater of $13,000 or US share x $5,945,800 for a 2026 death
Taxable estate it covers	Exactly $60,000	Depends on the US-over-worldwide fraction
Grows with inflation?	No, a flat $13,000	Yes, after 2026, through the basic exclusion
Reduced by prior gift credit	Yes, IRC 2102(b)(3)(B)	Yes, XXIX B(2) and 2102(b)(3)(B)
What gets filed	Form 706-NA once over the $60,000 threshold	Form 706-NA plus a statement invoking the treaty and showing the computation

Three things narrow the treaty credit.

• Treaty-exempt property leaves the fraction. IRC 2102(b)(3)(A) applies the proration and adds that property “shall not be treated as situated in the United States if such property is exempt from the tax imposed by this subchapter under any treaty obligation of the United States.”
• Information condition. XXIX B(2) allows the prorated credit “only if all information necessary for the verification and computation of the credit is provided.” In practice that means disclosing the worldwide estate.
• A cap. The credit “shall not exceed the amount of the tax imposed by section 2101” (IRC 2102(b)(4)). It can zero the bill but never produces a refund.

Is there a marital credit for a Canadian spouse?

Yes, and it stacks on top of the unified credit. XXIX B(3) gives a non-refundable credit for property passing to a surviving spouse that would qualify for the US marital deduction if the spouse were a US citizen, provided the spouse was a resident of Canada or the US at the death and the executor elects it and irrevocably waives the US marital deduction (Article XXIX B(3)).

• Under XXIX B(4) the marital credit is the lesser of the unified credit allowed under paragraph 2 and the estate tax that would otherwise be imposed on the property passing to the spouse.
• The Form 706-NA instructions call it the “Canadian marital credit” (line 10) and require a statement that refers to the treaty and shows the computation.
• In the US$25,000,000 example, if the condo passes to a Canadian-resident spouse, the marital credit is the lesser of $237,832 and $345,800, so $237,832. That covers the remaining $107,968, and the US tax is $0.

What counts as US property for estate tax?

The condo and the furniture in it, plus US shares. The regulation makes a nonresident non-citizen’s property US-situs if it’s “(1) Real property located in the United States. (2) Tangible personal property located in the United States” (Treas. Reg. 20.2104-1(a)), and stock counts only “if issued by a domestic corporation” (IRC 2104(a)), wherever the certificates are held (Treas. Reg. 20.2104-1(a)(5)).

• US mutual funds. The old carve-out for regulated investment companies “shall not apply to estates of decedents dying after December 31, 2011” (IRC 2105(d)(3)), and a regulated investment company is by definition a “domestic corporation” (IRC 851(a)). So US funds are US property.
• Life insurance on the deceased’s own life is not US property (IRC 2105(a)).
• US bank deposits are generally outside, where the interest wouldn’t be taxable to a nonresident because it isn’t connected with a US business (IRC 2105(b)(1); IRC 871(i)). A brokerage account holding US shares isn’t a deposit.
• Partnership and LLC interests aren’t named in the statute or regulation, so the holding vehicle changes the question rather than settling it. See how a Canadian should own US property and the joint tenancy guide for title held with a spouse.

What about the US$1.2 million small-estate rule?

It exists, and it doesn’t protect the condo. XXIX B(8) says that if a Canadian resident’s (non-citizen’s) worldwide gross estate doesn’t exceed 1.2 million US dollars, the US may tax property in the estate “only if any gain derived by the individual from the alienation of such property would have been subject to income taxation by the United States in accordance with Article XIII (Gains)” (Article XXIX B(8)).

• Real property is the core of Article XIII: gains from “the alienation of real property situated in the other Contracting State may be taxed in that other State” (Article XIII(1)). A gain on a Florida condo would be US-taxable, so the condo stays inside the US estate tax even for a small estate.
• What the rule does shelter is mostly US securities. The 706-NA instructions describe a small estate exemption “from tax on U.S. securities or certain other U.S. situs property”, claimed by listing the exempt assets in a statement saying you rely on the treaty.
• The US$1.2 million is a flat treaty figure with no indexing language.

When is Form 706-NA due, and who files it?

The executor files Form 706-NA when the US-situated assets, with the gift tax specific exemption and adjusted taxable gifts, exceed $60,000, and must “File Form 706-NA within 9 months after the date of death unless an extension of time to file was granted” (Instructions for Form 706-NA). Form 4768 gets an automatic 6-month extension to file, and the tax itself is due within 9 months unless an extension to pay was granted.

• The treaty statement. The IRS manual says a statement “invoking the right under the Treaty described above and showing the tax calculation must be attached to Form 706-NA” (IRM 4.25.4.3.1). The instructions add that treaty-based items need a statement that the return position is treaty based, under Reg. 301.6114-1. The IRM is internal guidance for examiners, and neither it nor the statute says what happens if the statement is missing.
• Worldwide numbers. IRC 2106(b) denies the deductions for debts, expenses and charitable gifts “unless the executor includes in the return” the value of the estate outside the US (IRC 2106). The treaty fraction needs those numbers anyway.
• Debts, including “unpaid mortgages” on property in the gross estate (IRC 2053(a)(4)), are deducted only in the proportion the US estate bears to the worldwide estate under IRC 2106(a)(1). A mortgage the estate isn’t liable for works differently: only the equity, the value less the debt, goes into the gross estate (Treas. Reg. 20.2053-7).

The return line by line is in our guide to filing Form 706-NA for a Canadian estate.

How does Canada tax the same death?

Canada has no estate tax, but at death a Canadian resident is deemed to have disposed of each capital property “immediately before the taxpayer’s death” for proceeds equal to fair market value (ITA 70(5)). The gain on the Florida condo lands on the final T1. Property left to a spouse or spousal trust resident in Canada can roll over instead under ITA 70(6).

• Credit for the US estate tax. XXIX B(6) lets the US federal and state estate tax on US property be deducted from the Canadian tax otherwise payable for the year of death on income and gains arising in the US, and, where the worldwide gross estate is over US$1.2 million, on income from US property (Article XXIX B(6)). A gain the US may tax under the treaty, which includes a gain on US real property, is deemed to arise in the US under Article XXIV(3)(a) (consolidated treaty text), so the deemed gain on a Florida condo is generally the income the relief runs against.
• The limit. The relief runs against the Canadian tax on that US income, so a large US estate tax bill on a small Canadian gain generally leaves part of the US tax without relief.
• The two systems are compared side by side in deemed disposition at death vs the US step-up. The general “what happens when a Canadian dies owning US assets” page is US estate tax for Canadians who own US property, and a condo that’s also a rental is covered in US estate tax on a Florida vacation rental.

US estate tax rates for nonresidents

Nonresidents use the same IRC 2001(c) table as citizens (IRC 2001). The tentative tax runs from 18% on the first $10,000 to 40% on the excess over $1,000,000.

Taxable amount	Tentative tax
Not over $10,000	18% of the amount
$10,000 to $20,000	$1,800 plus 20% over $10,000
$20,000 to $40,000	$3,800 plus 22% over $20,000
$40,000 to $60,000	$8,200 plus 24% over $40,000
$60,000 to $80,000	$13,000 plus 26% over $60,000
$80,000 to $100,000	$18,200 plus 28% over $80,000
$100,000 to $150,000	$23,800 plus 30% over $100,000
$150,000 to $250,000	$38,800 plus 32% over $150,000
$250,000 to $500,000	$70,800 plus 34% over $250,000
$500,000 to $750,000	$155,800 plus 37% over $500,000
$750,000 to $1,000,000	$248,300 plus 39% over $750,000
Over $1,000,000	$345,800 plus 40% over $1,000,000

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.