US Estate Tax on a Canadian's Florida Vacation Rental: The $60,000 Threshold, the Treaty Proration, and the Form 706-NA That Makes It Zero

The US estate tax reaches the US-situs property of a non-resident who is not a US citizen, and US real estate is the clearest case. Under domestic US law, a Canadian's estate gets a $60,000 exemption and pays up to 40% on the rest, so a $600,000 Florida condo would owe roughly $180,000. The treaty changes the arithmetic: Article XXIX B(8) prorates the full US exemption ($15 million from 2026) by the ratio of the decedent's US-situs assets to their worldwide estate, and for a Canadian whose worldwide estate is under about $15 million, the prorated exemption exceeds the Florida property's value and no tax is due. The catch is procedural: the proration is claimed on Form 706-NA, filed within nine months of death, and an estate that does not file gets the $60,000.

Key takeaways

• Domestic rule: a non-resident alien's estate is taxed on US-situs assets (US real estate, tangible property in the US, shares of US corporations; not US bank deposits or Treasuries) above a $60,000 exemption, at graduated rates to 40%, on Form 706-NA due nine months after death.
• Treaty proration: the estate may claim a unified credit equal to the full US exemption multiplied by the fraction (US-situs gross estate ÷ worldwide gross estate). A $600,000 condo in a $4 million estate: 15% of $15 million is $2.25 million of exemption; no tax.
• Marital credit: where the property passes to a surviving spouse, the treaty allows an additional credit equal to the lesser of the prorated credit and the tax on the property passing to the spouse, effectively doubling the relief for married Canadians.
• Mortgage: a non-recourse mortgage reduces the property's value in the US-situs estate; a recourse mortgage is deductible only in proportion to the US share of the worldwide estate.
• Canada: no estate tax; the deemed disposition on death taxes the accrued gain on the condo on the final T1; the treaty allows a Canadian credit for US estate tax on US-situs property against the Canadian tax on the deemed disposition of that property.
• Exposure exists for Canadians with worldwide estates above about $15 million, or with very large US holdings relative to the estate; structures (a Canadian corporation, a Canadian trust that purchases the property) can remove the property from the US estate at a cost.

The domestic rule

Section 2101 imposes estate tax on the transfer of the taxable estate of every non-resident who is not a US citizen; the taxable estate is the US-situs gross estate less allowable deductions. Real property in the US is US-situs. The unified credit for a non-resident alien is $13,000, sheltering $60,000 of taxable estate; rates run from 18% to 40%. The estate files Form 706-NA within nine months (extendable six months), and pays the tax; the executor is personally liable for distributions before payment.

The treaty proration

Article XXIX B(8) allows the estate of a Canadian resident (not a US citizen) to claim a unified credit equal to the greater of the domestic $13,000 and the full US unified credit multiplied by the ratio of the US-situs gross estate to the worldwide gross estate. The worldwide estate includes everything: the Canadian home, RRSPs, investments, life insurance proceeds, the Florida condo. The credit must be claimed on a Form 706-NA that discloses the worldwide estate; an estate that wants the proration files the return even when the result is zero tax.

The marital credit

Article XXIX B(3) provides an additional marital credit where US-situs property passes to a surviving spouse (a US citizen or Canadian resident): equal to the lesser of the unified credit allowed (after proration) and the estate tax attributable to the property passing to the spouse. For a married Canadian leaving the condo to the spouse, the relief is effectively doubled. The estate must elect it and waive the QDOT marital deduction that would otherwise be the only route for a non-citizen spouse.

Debt and other deductions

A non-recourse mortgage (the lender can look only to the property) reduces the value of the property included. A recourse mortgage (personal liability) is deductible from the US gross estate only in the proportion that the US-situs estate bears to the worldwide estate. Funeral and administration expenses are deductible in the same proportion, and only if the worldwide estate is disclosed.

Canada's side

Canada has no estate tax. The condo is deemed disposed at fair market value on death; the accrued gain is taxable on the final T1 (in Canadian dollars, with a spousal rollover available). Article XXIX B(6) allows the Canadian return to credit the US estate tax on US-situs property against the Canadian tax on the deemed disposition of that property, so where US estate tax is actually paid, it is not a pure double cost.

Who is exposed

A Canadian couple with a $700,000 Florida condo and a $3 million worldwide estate: no tax after proration (23% of $15 million is $3.5 million of exemption). A Canadian with a $2 million Florida home and a $30 million worldwide estate: 6.7% of $15 million is $1 million of exemption; taxable estate $1 million; tax roughly $345,000, halved if it passes to a spouse via the marital credit. The exposure scales with the worldwide estate, not just the US property.

Alternatives for the exposed

Canadian corporation. Shares of a Canadian corporation are not US-situs; the condo inside it is outside the US estate. The cost: the corporation's income tax profile (no capital gains rate, branch profits tax, the shareholder benefit on personal use) and the loss of the treaty's capital gains rate on sale.

Canadian discretionary trust. A trust resident in Canada that purchases the property (with funds not gifted by the person who will use it, to avoid attribution and the US retained-interest rules) can hold it outside the estate; the trust files in both countries; Canada's 21-year deemed disposition applies.

Non-recourse financing. Reduces the included value dollar for dollar.

Joint ownership with a spouse. The contribution rule includes the decedent's share; the marital credit applies to the share passing to the spouse.

Life insurance owned outside the estate to fund the tax.

Worked example

A Toronto retiree dies owning a $650,000 Naples condo (no mortgage), a $1.5 million Toronto home, $1.2 million in RRIFs, and $800,000 of investments: a $4.15 million worldwide estate. Everything passes to his wife.

• Domestic. $650,000 less $60,000: $590,000 taxable; about $190,000 of tax.
• Treaty. US-situs $650,000 ÷ worldwide $4.15 million = 15.7%; 15.7% of the $15 million exemption is $2.35 million of unified credit equivalent; no tax. Marital credit available but unneeded.
• Filing. Form 706-NA within nine months, disclosing the worldwide estate and claiming the treaty credit; zero tax; without it, the estate owes $190,000.
• Canada. Deemed disposition of the condo rolled to the spouse; no tax now.

Official sources

"If the date of death value of the decedent's U.S.-situated assets, together with the gift tax specific exemption and the amount of the adjusted taxable gifts, exceeds the filing threshold of $60,000, the executor must file a Form 706-NA." — Internal Revenue Service, Estate Tax for Nonresidents not Citizens of the United States, https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax-for-nonresidents-not-citizens-of-the-united-states

"A filing is required if the gross estate of the decedent, increased by the decedent's adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent's death." — Internal Revenue Service, Estate Tax, https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax

"When a person dies, they are considered to have sold all their property just prior to death, even though there is no actual disposition or sale." — Canada Revenue Agency, Deemed disposition of property, https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/doing-taxes-someone-died/prepare-returns/report-income/capital-gains.html

Practitioner note

The $60,000 figure frightens every Canadian who owns in Florida and applies to almost none of them, because the treaty proration is worth millions to a typical estate. The proration is not automatic. The executor who does not file the 706-NA within nine months pays the domestic tax, and we have seen estates do exactly that. It is a return with a zero result, and it is the most valuable zero in cross-border estate work.

See also: For the full sequence of a Canadian move to Florida, see the Canada-to-Florida tax guide, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the estate tax exposure analysis for a Canadian with US property, the Form 706-NA with the treaty proration and marital credit, and the structuring where real exposure exists. See cross-border pricing or book a call.