Non-resident aliens are subject to U.S. estate and gift tax rules that are different from those applied to U.S. Citizens and resident aliens. The U.S. real property of a non-resident alien who dies while holding title in his or her name or jointly with someone else is subject to U.S. estate tax. The federal estate tax provides an exemption equivalent of only $60,000 for non-resident aliens as compared to $600,000 for resident aliens and citizens. Marital deduction is available only if the surviving spouse is a U.S. citizen or if the property is transferred to what is known as a qualified domestic trust. If the real estate was held in the individual name of a foreign investor who is a non-resident alien, a probate proceeding may be required in order to convey proper title from the estate. Gifts of U.S. real property by non-resident aliens are subject to U.S. gift tax. Is the rental income taxable from the foreign investor? Both rental income from real property located in the United States and the gain from its sale will always be U.S. source income subject to tax in the United States, regardless of the foreign investor's status and regardless of whether the United States has an income treaty with the foreign investor's home country. The method by which rental income is taxed depends on whether or not the foreign investor is considered to be "engaged in a U.S. trade or business". If it consists of merely passive activity such as a net lease which provides for the lessee to pay rent, as well as all other operating expenses, the rental income is subject to a flat 30% withholding tax (unless reduced by an applicable income tax treaty) applied to the gross income, rather than the "net rent" received. If, on the other hand, the foreign investor is engaged in a U.S trade or business such as development, management, or operation of a major shopping center, the rental income will be subject to withholding and will be taxed at ordinary progressive rate.