 |
|
|
| How to Calculate the Tax Treaty Credit for Non-Resident Estate Tax |
| Introduction |
| Provided that whether an individual is considered to be a resident or nonresident of the U.S. for estate purposes is based on domicile, i.e. he/she resides in the U.S., even for a short time, without an intent to leave, if a foreign individual is determined to be a nonresident of the U.S., he/she qualifies for a mere $60,000 in estate tax exemption, versus a much higher estate tax exemption amount granted to U.S. residents, which is $13.99 million dollars in 2025.
|
| |
| U.S. Situs Property is included in the Gross Estate |
| All property that is situated in the U.S., i.e. U.S.-situs property, is included in an individual’s gross estate to be reported in the 706-NA, or the estate tax return for non-residents in the U.S. It is good to refer to the IRS rules on what would be classified as U.S.-situs property, and what would not be considered as such. For example, real estate and tangible personal property are considered to be U.S. situs property if they are located physically in the U.S. However, personal bank accounts in the U.S. are often considered to be located outside of the U.S. if they do not have any ties with performing a U.S. business or trade and hence, are not included in the U.S. gross estate.
|
| |
| Tax Treaty Credit under the U.S.-Japan Estate and Gift Tax Treaty |
Even though the estate tax exemption amount of $60,000 for non-residents of the U.S. seems small, non-residents of countries that have a tax treaty with the U.S. can seek benefits provided under such treaty to qualify for less tax payment or no tax payment at all. For example, a Japanese national can make use of the U.S.-Japan estate and gift tax treaty to lower or entirely eliminate the U.S. estate tax. The formula for determining the foreign tax credit under the U.S.-Japan Estate and Gift Tax Treaty is: Gross Value of U.S. Estate divided by the Gross Value of Worldwide Estate (i.e. Sum of U.S. and Japan Assets) multiplied by the Credit Equivalent Amount that is provided in the Instructions for Form 706-NA for the year in which the decedent died.
If, for example, the gross estate amount of U.S. estate was $400,000 and the gross value of Japanese estate of a deceased was equivalent to $1,000,000, the gross value of worldwide estate (i.e. the sum of U.S. estate and Japan assets) will be $ 1,400,000. If the decedent of the estate died in 2023, the Instructions for Form 706-NA provides for the Credit Equivalent Amount for that year as $5,113,800. By applying the formula above, $400,000 (gross value of U.S. estate) divided by $1,400,000 (gross value of worldwide estate), multiplied by $5,113,800 will yield an approximate $1,461,086 tax treaty credit amount that is permitted under the treaty.
As often, the treaty tax credit amount is large enough that it surmounts the amount of taxes due under a non-resident’s estate tax return, non-residents will often end up having to pay 0 taxes, despite the fact that a mere $60,000 is permitted as the estate tax exemption amount for non-residents.
|
| |
| Conclusion |
| It is good for non-residents of the U.S. to understand any tax treaty that the U.S. has with certain countries, in order for them to be able to take full advantage of the tax treaty credit that can be granted under non-resident estate tax returns. |
| |
|
| |
|
| I started a podcast for the Hongo Law Office, LLLC! |
|
|
|
I started a podcast for the Hongo Law Office, LLLC!
While I will mainly discuss estate planning/administration issues by myself each month, I also welcome guests on my podcast. I am now inviting anyone to be on my show. Please email me at yuka.hongo12@gmail.com if any of you might be interested in appearing as a guest on my show!
I had the pleasure of hosting Ms. Kimiko May of Locations Hawaii as my guest on Vol. 6 of my podcast. Kimiko May is a trusted real estate agent on Oahu Island with over 20 years experience in helping clients both local and from Japan to purchase and sell their real estate. In this episode, we talk about the most important things to consider when purchasing and selling real estate in Hawaii as well as some of the great activities that Kimiko gets up to including Sogetsu-style Ikebana and Tai chi. Please enjoy this episode!
Episode Link |
|
|
|
| |
|
| Client Comments |
| "Lawyers in the U.S. can be difficult to talk to at times, but I think people find it easy to talk to Ms. Hongo. I also like the fact that Ms. Hongo follows up with her clients on a timely basis." |
| Sachiko Trillo, Honolulu |
|
|
| "Hongo Tsuji Tax & Consulting, our accounting firm, introduced me to Ms. Hongo. I consulted her with regards to estate planning, and I appreciated the fact that she took care of our documents in a timely manner." |
| K.A., Tokyo |
|
|
| |
|
| "I appreciated Ms. Hongo's professional expertise and the kind way in which she took care of our matter. I am truly happy that she helped us." |
| Mitsuko Seto, Osaka |
|
|
| "Ms. Hongo not only prepared my trust, but also took care of legal matters involving my company. Her fee is reasonable and she follows up with you in a timely manner." |
| S. Suzuki, Company Owner |
|
|
| |
|
| "Ms. Hongo took care of our matter in a kind manner. We liked the fact that her office was located in Waikiki, near our home." |
| Sugiyama, Waikiki |
|
|
| "I became a successor to 2 condominiums that my wife owned in Hawaii, after my wife passed away. Ms. Hongo took care of our probate matter in a short timeframe of 1 year. We feel very grateful to her." |
| Shuichi Sakamoto, Nasu |
|
|
| |
|
| "Our clients were very satisfied with Ms. Hongo's service because she was able to explain matters such as probate in an easy-to-understand manner. Ms. Hongo is someone we can rely on for any matter." |
| Noboru Ohhashi, List Sotheby's, Tokyo |
|
|
| "Given that the U.S. real estate recording process and its pertaining laws differ from those of Japan, and it is difficult to learn about them in English, I appreciated Ms. Hongo being able to explain them to me in an understandable manner. I would like to seek her help in the future for other matters." |
| K. Iwasaki, Honolulu |
|
|
| |
|
| "Ms. Hongo helped me with the estate planning for my real estate in Hawaii. I was glad she was able to help me during her visit in Japan." |
| S.T., Kawasaki |
|
|
| "It was our long-term goal to prepare a trust for our family. We are now able to take the next step in our lives, as Ms. Hongo applied her proficient bilingual skills to efficiently take care of our matter. We are very grateful for what she did for us." |
| A.P., Honolulu |
|
|
| |
|
| |
| Attorney Yuka Hongo has been included as an honored listee in Marquis Who's Who for 2024. Marquis has chronicled the lives of accomplished individuals and innovators since 1898. |
|
|
|
|
| |
|
| |
| Hongo Law Office LLLC is proud to have been acknowledged as one of the "Best Probate Attorneys in Honolulu for 2025" by Expertise.com. |
|
|
|
|
| |
|
| |
| Attorney Yuka Hongo has been named a 2025 Elite Lawyer in the area of Estate Planning in Hawaii. The award recognizes attorneys who have displayed a high level of competence in their practice. |
|
|
|
|
| |
|
| You're invited to call or email |
"If you have questions about estate planning and administration, please don't hesitate to call. I'll be glad to hear from you." – Yuka
Call (808) 237-9944 or email yuka.hongo12@gmail.com |
|
|
|
|
|
| Meet Yuka Hongo, Esq. |
| Yuka Hongo is a respected estate planning attorney based in Honolulu, Hawaii. She has practiced law for 10 years and is fluent in both English and Japanese. |
|
|
| |
|
Practice Areas: Yuka represents clients in matters related to estate planning such as the preparation of Trusts, Wills, and the Transfer on Death Deed. She also provides services in the area of estate administration, including probate.
Education: In 2000, Yuka graduated from Oberlin College (Oberlin, OH), where she earned a Bachelor of Arts Degree in Economics and East Asian Studies. In 2004, she graduated from Loyola Law School (Los Angeles, CA), where she earned her Juris Doctor Degree. In 2022, Yuka graduated from Keio University (Tokyo, Japan) where she earned a Master of Laws Degree.
Court Admissions and Bar Memberships: Yuka is a member of the Hawaii, California, the District of Columbia Bar, and New York Bar Associations. Yuka is a member of the Advisory Committee for the Hawaii Tax Institute Program.
Additional Qualifications: Yuka is a Certifying Acceptance Agent who can obtain the ITIN tax number for foreigners in the U.S. In addition, she is a Life Insurance Agent and a licensed Notary Public in the State of Hawaii. Also, Yuka is fully bilingual in Japanese and English and has in-depth legal work experience working with both languages.
Multicultural Background: Yuka has experience living and working in both the U.S. and Japan and has a thorough understanding of both cultures in these two countries. In addition, she loves working with people from other multicultural backgrounds and working on international matters.
Educational Presentations: Yuka has presented seminars in Japan and in the U.S. relating to various estate planning/estate administration issues.
Residence & Interests: Yuka lives in Honolulu, Hawaii and is single. She enjoys scoping out new eateries and restaurants. |
| |
| Add a friend to our list |
If you have a friend or colleague who would like to receive this newsletter, please give us the person's name and email address and we'll add them to our distribution list. Thanks.
You can also connect with Yuka on LinkedIn, X and YouTube. |
|
|
|
| |
|
|
|
|
