Leaving the United States
The U.S. exit tax
Giving up U.S. citizenship, or a long-held green card, can be treated as selling everything you own the day before you leave. Whether that applies to you, and what it would cost, is worth knowing years in advance.
What it is
A tax on leaving, not on moving
The expatriation tax rules, in section 877A of the Internal Revenue Code, apply when a U.S. citizen gives up citizenship or a long-term resident ends their green card status. Moving abroad on its own does not trigger them.
If you are a covered expatriate, your worldwide assets are generally treated as sold at fair market value on the day before you expatriate. Gains above an exclusion amount, which is adjusted for inflation each year, are taxed as if you had actually sold. Some items follow separate rules, including certain deferred compensation, tax-deferred accounts and interests in non-grantor trusts.
Separately, gifts and bequests from a covered expatriate to U.S. persons can be taxed to the person who receives them, which matters for families who stay behind.
The tests
Are you a covered expatriate?
You generally are if you meet any one of these tests on the date you expatriate.
| Tax liability test | Your average annual net income tax liability for the five tax years before expatriation is above a threshold set by the IRS and adjusted for inflation each year. |
|---|---|
| Net worth test | Your net worth is $2 million or more on the date of expatriation. This figure is not indexed for inflation. |
| Certification test | You cannot certify on Form 8854 that you complied with all U.S. federal tax obligations for the five tax years before expatriation. |
| Who the rules cover | U.S. citizens who renounce or relinquish citizenship, and long-term residents: generally, green card holders who held that status in at least 8 of the last 15 tax years. |
| Limited exceptions | Narrow exceptions can apply to certain people who were dual citizens from birth and to some who expatriate before a set age, provided conditions are met, including the compliance certification. |
Thresholds and exclusion amounts change every year. We confirm the current figures for your year of expatriation during the strategy.
Planning before you leave
How exit tax planning usually runs
The earlier this starts, the more options remain. Most of the work happens before the consular appointment, not after it.
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Test your status
Check the liability, net worth and compliance tests against your real figures, including your spouse’s situation where relevant.
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Value what you own
Identify unrealized gains, retirement and deferred accounts, trusts and business interests, and estimate the deemed sale.
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Fix compliance gaps
Bring prior years into order where needed, since failing the certification test alone can make someone a covered expatriate.
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Sequence the move
Secure a second citizenship and residency first, then time the expatriation date and the final filings, including Form 8854.
Does everyone who renounces pay the exit tax?
No. The tax applies to covered expatriates. Someone below the liability and net worth thresholds who is fully compliant generally is not covered, although they still file Form 8854.
Is the exit tax charged on my whole net worth?
No. For most assets it is a tax on the unrealized gain above an annual exclusion amount, calculated as if you sold on the day before expatriation. Some accounts and deferred compensation follow different rules.
Can planning reduce the exit tax?
Often, depending on your situation: the timing of expatriation, how and when gains are realized, compliance, and how family and trust arrangements are set up can all change the result. None of it works after the fact.
I hold a green card, not a passport. Does this apply to me?
It can. If you held a green card in at least 8 of the last 15 tax years, ending that status may be treated as expatriation under these rules.
Before you book a consular appointment
Know your exit tax position first
The Global Strategy Service tests your status and sequences your exit. General information only, not tax or legal advice. Your options depend on facts we have not reviewed yet.