2. Residency and Asset Types

​The tax applies differently based on where the investor lived and what they owned:

​Critical Note for Foreign & Non-Resident Investors: If you own Pittsburgh real estate in your personal name, it is 100% subject to PA Inheritance Tax. However, if you own it through an LLC, Pennsylvania generally treats that LLC interest as "intangible property." For a non-resident or foreigner, intangible property is not subject to PA Inheritance Tax.

​Foreign Investors: While you may avoid the state inheritance tax via an LLC, be aware that the U.S. Federal Government has a very low estate tax exemption for non-resident aliens (only $60,000), compared to the $15 million exemption for U.S. citizens in 2026.

3. Federal Real Estate taxes - U.S.A

Federal taxes operate on a completely different scale than Pennsylvania state taxes. While PA taxes almost everyone at a low rate, the Federal government leaves most Americans alone but can be extremely aggressive toward foreign investors.

​- ​The IRS doesn't just look at your passport; they look at your domicile (where you intend to stay indefinitely).  Resident vs. Foreigner: The "Tax Domicile" Test.

4. The LLC and Foreign Corporation Advantage 

​Using an LLC is one of the most effective ways for an out-of-state or foreign investor to shield themselves.

​Conversion of Asset: By holding the property in an LLC, you convert "real property" (taxable in PA) into an "intangible partnership interest." 

A Foreign Corporation owns the LLC.

Why? When the investor dies, they are technically transferring shares of a foreign corporation, not U.S. real estate. This can effectively bypass the U.S. Federal Estate Tax.

5. How the Value is Calculated for Tax purposes (Inheritance and Federal Estate Taxes)

​The Pennsylvania Department of Revenue does not use the property’s "Assessed Value" (the value the city uses for annual property taxes). Assessed values in Pittsburgh are often significantly lower than what a house would actually sell for.  ​Instead, they determine the value through:

​Professional Appraisal: Most executors hire a certified appraiser to provide a "Date of Death" valuation. This looks at comparable sales in the neighborhood from the months immediately preceding the death.  

​The "Arm's Length" Sale: If the heirs sell the property to a stranger shortly after the death (usually within 6–12 months) for a fair price, the Department of Revenue will typically accept the sale price as the taxable value.

​Net Value: You only pay tax on the equity. You can subtract the following from the property's value before calculating the tax:

• ​Unpaid property taxes.

• Unpaid mortgage balances.

• ​Closing costs and real estate commissions (if the property is sold by the estate).

• ​Funeral expenses and administrative/legal fees.

6. ​The Capital Gains Trap

​This is the most common mistake. In the U.S., heirs get a "Step-up in Basis." * Example: You buy a building for $100k. When you die, it’s worth $500k. If the heirs report it as $500k for inheritance tax, their "basis" becomes $500k. If they later sell it for $500k, they pay $0 in Capital Gains Tax.  

​The Error: If they "under-report" the value at $300k to save 15% inheritance tax, but then sell it for $500k, they will owe Capital Gains Tax on that $200k "profit."

​The Math: Federal capital gains rates (often 15–20%) are usually higher than the PA inheritance tax (4.5%–15%). Saving a dollar on inheritance tax can cost you two dollars in capital gains tax.

7. The investor may consider

1. The ‘safest’ way to protect your inheritance is to buy life term insurance for 50% of the estate value. This will allow your heirs to pay the taxes (both Pennsylvania and federal) in the event of the investor death. 

2. Structure: Use an LLC to hold title, especially if you are not a PA resident.

3. Consider debt Loading (enrich your portfolio using mortgages).

4. ​Appraisal: Ensure you get a formal appraisal at the "date of death" value. Since Pennsylvania provides a step-up in basis, your heirs will likely avoid capital gains tax if they sell the property immediately after inheriting.

5. Discount: Heirs may pay the tax within 3 months of the death to receive a 5% discount on the total bill (life insurance funds should support this).

6. Gifting: this is a more complicated action and must be addressed using a professional.

​Since tax laws are nuanced—especially regarding international treaties for foreign investors—it is highly recommended to consult with a Pittsburgh-based estate attorney to formalize your LLC operating agreement.

We are available to refer you to qualified legal, insurance, and tax professionals within our network.