Renouncing U.S. citizenship is an enormous step—whether or not you’re making a contemporary begin in another country, simplifying your federal tax obligations, or simply prepared to chop by way of the paperwork that comes with holding a U.S. passport. However earlier than you go, there’s one final thing to think about: the U.S. exit tax.
Designed to tax unrealized good points, the exit tax, often known as the expatriation tax, treats expatriation as a deemed sale, probably leaving you with a big tax invoice. And it’s not only for billionaires—high-net-worth people, long-term Inexperienced Card holders, and people who haven’t stored up with U.S. tax filings may additionally be affected.
So who has to pay? How is it calculated? And most significantly, is there a strategy to cut back or keep away from it? Right here’s what you could know earlier than making it official.
📋 Key Updates for 2026
- Larger exclusion quantity: In case you owe the expatriation tax, the primary $910,000 of unrealized good points is now exempt—up from $890,000 in 2025.
- Elevated tax legal responsibility threshold: You’ll be labeled as a lined expatriate in case your common U.S. earnings tax legal responsibility over the previous 5 tax years exceeds $211,000.
- Submitting necessities: To keep away from computerized classification as a lined expatriate, you should file Kind 8854 together with your remaining earnings tax return and certify full compliance with U.S. tax legal guidelines.
What’s the US exit tax?
The U.S. exit tax is a remaining tax invoice imposed on people who resign their U.S. citizenship or long-term Inexperienced Card holders who quit their resident standing. Launched in 2008, it ensures that these leaving the U.S. settle their tax obligations earlier than chopping ties, significantly in the event that they’ve amassed important wealth whereas beneath the inner income code.
The tax applies as if you happen to bought all of your belongings at honest market worth the day earlier than expatriation, even if you happen to’re not truly promoting something. This implies you may owe taxes on unrealized good points—the rise in worth of your investments, actual property, or different belongings over time.
Past taxing unrealized good points, the exit tax can even apply to sure earnings sources tied to the U.S., reminiscent of deferred compensation, specified tax-deferred accounts, and belief distributions. For these contemplating expatriation, these further tax liabilities make cautious planning important.
Who has to pay the US exit tax?
Not everybody who renounces U.S. citizenship or offers up a long-term Inexperienced Card owes the exit tax. It solely applies to lined expatriates—those that meet sure monetary or compliance standards. In case you meet any of the three IRS checks, you may be on the hook:
1. Internet Price Check
You qualify as a lined expatriate in case your web value is $2 million or extra on the date of expatriation.
- Internet value contains actual property, investments, retirement accounts, companies, and different belongings minus liabilities like mortgages, loans, and bank card debt.
- In case you personal high-value belongings but in addition have important debt, solely the web worth of your holdings counts towards the brink.
2. Tax Legal responsibility Check
Even when your web value is beneath $2 million, you should still owe an exit tax in case your common annual web earnings tax legal responsibility for the 5 years earlier than expatriation exceeds a set threshold.
- For 2026, the brink is $211,000 (adjusted yearly for inflation).
- This quantity refers back to the whole U.S. tax owed, not taxable earnings.
3. Tax Compliance Check
Even if you happen to don’t meet the web value or tax legal responsibility check, you’ll nonetheless be thought of a lined expatriate if you happen to fail to certify that you simply’ve been totally tax-compliant for the previous 5 tax years earlier than expatriation.
- This certification is finished on Kind 8854 (Preliminary and Annual Expatriation Assertion).
- Failing to file Kind 8854 robotically makes you a lined expatriate, even if you happen to wouldn’t in any other case qualify.
Professional Tip:
In case you’re behind on U.S. tax filings, applications just like the IRS Streamlined Process might assist you catch up earlier than expatriating.
Exit tax for Inexperienced Card holders
In case you’re a long-term Inexperienced Card holder fascinated with giving up your U.S. standing, you would possibly assume the exit tax solely applies to residents. However for some Inexperienced Card holders, it’s very a lot on the desk.
Right here’s the important thing rule: In case you’ve had a Inexperienced Card for no less than 8 of the final 15 years, you’re thought of a long-term everlasting resident within the eyes of the IRS. Meaning if you happen to select to relinquish your Inexperienced Card, you may be topic to the identical exit tax guidelines as somebody renouncing U.S. citizenship.
However timing issues. For a lot of inexperienced card holders, expatriation for exit-tax functions happens whenever you formally terminate LPR standing (typically by submitting Kind I-407), although different termination pathways can apply.
For these planning to go away the U.S. tax system, strategic timing and cautious planning could make all of the distinction in minimizing your tax implications—or avoiding them completely.
Different exceptions to the exit tax
Even if you happen to’re labeled as a lined expatriate, sure exemptions might let you keep away from paying the exit tax. These exceptions are significantly related to people who’ve had little or no actual connection to the U.S., reminiscent of Unintentional Individuals—those that acquired U.S. citizenship at start however by no means lived within the nation long-term.
Twin Citizenship at Beginning
In case you have been born a twin citizen, you might be able to keep away from the exit tax—however provided that:
- You nonetheless maintain citizenship in your different nation on the time of expatriation.
- You’ve got been a U.S. resident for not more than 10 of the final 15 years (as outlined for tax functions).
Minors Who Resign Earlier than 18½
Minors who resign earlier than turning 18½ will also be exempt from the exit tax, so long as they:
- Have not been a U.S. resident for greater than 10 years.
These exceptions acknowledge that some people might have U.S. citizenship on paper however little precise connection to the nation. For individuals who qualify, they supply a strategy to resign with out the monetary burden of exit tax.
How is the US exit tax calculated?
In case you’re labeled as a lined expatriate, the IRS treats your expatriation as if you happen to bought all of your belongings at honest market worth the day earlier than renouncing, even when no precise sale takes place. This implies you may owe taxes on unrealized good points—the rise in worth of your investments, actual property, and different belongings over time.
Step 1: Decide your web value
Your web value contains the whole worth of all worldwide belongings—actual property, investments, retirement accounts, companies—minus any liabilities like mortgages or loans. In case your web value is $2 million or extra, you meet the primary threshold for lined expatriates.
Step 2: Calculate unrealized good points
For every asset, subtract its adjusted price foundation (unique buy value plus any enhancements) from its honest market worth (FMV) on the time of expatriation.
Step 3: Apply the exclusion quantity
The IRS gives an exclusion to cut back taxable good points. In 2026, the primary $910,000 of unrealized good points is exempt from taxation. Any good points past this quantity are topic to tax.
Step 4: Decide Your exit tax legal responsibility
Features from the deemed sale are taxed beneath the traditional guidelines that apply to every asset (typically long-term capital good points guidelines; NIIT might apply relying in your state of affairs).
Vital be aware on liabilities:
Whereas liabilities cut back your web value for the $2 million check, they don’t cut back your unrealized good points for exit tax functions.
For instance, if you happen to personal a property value $1 million with a $700,000 mortgage:
- Internet value calculation: $1,000,000 (Property FMV) – $700,000 (Mortgage) = $300,000 (counts towards your web value)
- Exit tax calculation: The IRS considers the full $1,000,000 FMV when calculating unrealized good points—the mortgage is not subtracted.
Planning forward is vital to minimizing your tax burden and avoiding surprises when renouncing U.S. citizenship or giving up a long-term Inexperienced Card.
Methods for minimizing the exit tax
The U.S. exit tax will be expensive, however with cautious planning, you may cut back its affect—and even keep away from it altogether. The secret is to decrease your taxable web value and handle your belongings strategically earlier than renouncing. Listed here are among the simplest methods to do this.
1. Scale back Your web value
For the reason that $2 million web value threshold is likely one of the important standards for triggering the exit tax, decreasing your belongings under this restrict earlier than expatriation could make an enormous distinction.
- Present belongings to relations or trusts to carry your web value under $2 million, maintaining in thoughts U.S. reward tax guidelines and thresholds.
- Transfers to a non-U.S. citizen partner may also help in some circumstances, however U.S. gift-tax limits and planning guidelines can apply, so get specialist recommendation.
2. Promote belongings whereas nonetheless a U.S. tax resident
In case you plan to promote extremely appreciated belongings, doing so earlier than expatriation lets you reap the benefits of exclusions and tax credit accessible to U.S. residents.
- Main residence exclusion: In case you promote your main house earlier than renouncing, you might qualify for the capital good points exclusion—as much as $250,000 for single filers and $500,000 for married filers.
- Tax-loss harvesting: In case you have underperforming investments, promoting them at a loss earlier than renouncing may also help offset taxable good points.
3. Donate to charity
Charitable giving may also help cut back each web value and taxable good points. Donating extremely appreciated belongings (reminiscent of shares) to a professional charity earlier than expatriating can decrease your web value whereas additionally avoiding capital good points tax on these belongings.
4. Time your renunciation fastidiously
Once you resign can considerably have an effect on your tax legal responsibility.
- Inexperienced Card holders: In case you’ve held a Inexperienced Card for 8 of the final 15 years, you’ll be topic to exit tax guidelines. Renouncing earlier than hitting that threshold may also help you keep away from it.
- Strategic spending or gifting: In case your web value is near $2 million, decreasing it by way of spending, gifting, or donating earlier than expatriation may also help you keep under the brink.
- Keep away from asset appreciation: In case you anticipate a big improve in your belongings’ worth, renouncing earlier than appreciation happens can cut back taxable good points.
Whereas these methods may also help cut back or remove your exit tax legal responsibility, expatriation planning is complicated. Consulting with a tax skilled or monetary advisor who makes a speciality of expatriation is the easiest way to make sure compliance and maximize your tax effectivity.
Submitting Kind 8854: The ultimate step in renunciation
When you’ve made the choice to resign U.S. citizenship or relinquish a long-term Inexperienced Card, there’s one remaining step: submitting Kind 8854 (Preliminary and Annual Expatriation Assertion). This type is important—it confirms your tax compliance and determines whether or not you owe the U.S. exit tax.
- Why it issues: Submitting Kind 8854 isn’t only a formality; it protects you from future tax liabilities and ensures that you simply’re formally labeled as a non-U.S. taxpayer.
- What it contains: The shape collects detailed details about your web value, earnings tax legal responsibility, and asset documentation to find out whether or not you meet the lined expatriate standards.
Earlier than renouncing U.S. citizenship, you should file a remaining earnings tax return, which incorporates Kind 8854 to certify tax compliance and decide any exit tax legal responsibility.
- Kind 8854 is due the identical day as your U.S. tax return—sometimes April 15.
- In case you’re dwelling overseas, you might qualify for an computerized extension to June 15.
- In case you file for a tax return extension (Kind 4868), the deadline extends to October 15.
Professional Tip:
Failing to file Kind 8854 on time—or submitting an incomplete kind—can robotically classify you as a lined expatriate, even if you happen to don’t meet the online value or tax legal responsibility thresholds. Meaning you may find yourself owing exit tax penalties unnecessarily.
What occurs after renunciation?
A U.S. particular person who renounces citizenship or relinquishes a long-term Inexperienced Card is not taxed on worldwide earnings however should still have tax obligations even after expatriation.
- U.S.-sourced earnings: Earnings from U.S. rental properties, dividends, bequests, or different U.S. belongings should still be topic to withholding taxes.
- Re-entry to the U.S.: You may go to with a visa or ESTA, however entry will not be assured.
- Citizenship is remaining: Renouncing is everlasting, and regaining U.S. citizenship is sort of unimaginable.
Seamlessly navigate the US exit tax with Brilliant!Tax
Renouncing U.S. citizenship or relinquishing a Inexperienced Card comes with complicated exit tax obligations. At Brilliant!Tax, we assist expats decide in the event that they qualify as lined expatriates and develop personalised methods to attenuate tax legal responsibility. Let our professional CPAs create a tailor-made tax plan so you may transfer ahead with confidence.
Ceaselessly Requested Questions
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The exit tax has been in place since 2008, aimed toward high-net-worth people who quit their U.S. citizenship or Inexperienced Playing cards.
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Can I keep away from the exit tax?
Whereas there are methods to attenuate it, avoiding the exit tax completely is difficult for many who meet the brink of greater than $2 million USD in web value.
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Who does the exit tax apply to?
The exit tax applies to U.S. residents and long-term inexperienced card holders with a web value exceeding $2 million or a median annual tax legal responsibility over $211,000 over the past 5 years.
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My inexperienced card expired. Do I nonetheless need to pay U.S. tax?
Sure, you’re nonetheless topic to U.S. tax. Your U.S. tax residency usually ends whenever you correctly terminate LPR standing (typically by way of Kind I-407, however different termination pathways can apply).
