Exit tax for green card holders: what you need to know

The expatriation tax for green card holders generally matters only after 8 of the last 15 tax years as a lawful permanent resident and at least 1 covered-status test. Our US exit tax guide explains the federal regime.

For a 2025 expatriation tax green card review, surrendering the card does not by itself mean tax is due. Giving up a green card has separate abandonment and tax consequences.

The 2025 tests use a $2 million net-worth line, a $206,000 five-year average net income tax liability threshold, and a 5-year compliance certification. IRS Form 8854 is the main expatriation statement.

• Who may owe: A long-term resident who ends US tax residency and meets at least 1 of the 3 covered-status tests.
• Who usually does not: A green card holder below the 8-of-15-year LTR threshold, or an LTR who passes all 3 tests.
• Main filing trigger: A long-term resident who terminates residency in 2025 generally files the initial expatriation statement with the 2025 return.

Based on our client scenario at TFX: One client surrendered a green card after 6 tax years and was outside Section 877A. Another surrendered after 10 counted years and had $2.4 million of net worth, so the exit-tax rules applied.

The eight-year rule and covered expatriate status carry real financial consequences, so this is a calculation worth running past an expat tax CPA before you file Form 8854.

Do most green card holders actually owe exit tax?

Most green card holders do not owe exit tax because section 877A reaches only long-term residents who end US tax residency and meet at least 1 of 3 statutory tests. The IRS green card test continues until lawful permanent resident status is formally ended.

The following 3 points show when the tax usually does not apply, what creates exposure, and what to check next:

• It usually does not apply if you have fewer than 8 counted tax years in the 15-year lookback.
• It can apply when an LTR ends residency and fails the net-worth, tax-liability, or 5-year certification test.
• If your history is unclear, count each LPR tax year and reconcile your prior 5 federal filing years before surrender.

This green card exit tax guide uses 2025 expatriation figures. A 2026 expatriation uses a $211,000 tax-liability threshold and a $910,000 mark-to-market exclusion.

Who is considered a long-term resident (LTR)?

A long-term resident is a lawful permanent resident in at least 8 of the 15 tax years ending with the year US residency terminates. A partial LPR year can count, while a properly claimed treaty-resident year may be excluded under the 2025 Form 8854 rules.

The following 3 checks determine whether the green card exit tax 8-year rule has been met:

• Count each tax year in which you were an LPR for any part of the year.
• Look back 15 tax years ending with the year your long-term residency ends.
• Exclude a year only when treaty-resident treatment qualifies under the IRS rule and the required treaty position was not waived.

The exit tax green card 8-year test is based on tax years, not 8 full 365-day periods. US resident and nonresident alien rules can help separate immigration status from federal tax residency.

The 8-of-15 test can be reached even when several green card years were only partial years.

 

 

Warning: A treaty claim can change the analysis. If an existing LTR starts being treated as a treaty resident of another country, does not waive treaty benefits, and gives IRS notice, that event can terminate long-term residency for tax purposes.

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Are you a covered expatriate?

For a 2025 expatriation, you have covered status if even 1 of 3 tests applies: net worth of at least $2 million, a five-year average net income tax liability above $206,000, or failure to certify 5 years of federal tax compliance.

Use the following 3 yes-or-no checks before the expatriation date:

• Net worth test: Is your net worth $2 million or more on the expatriation date?
• Tax liability test: Is your average annual net income tax liability for the prior 5 years more than $206,000?
• Certification test: Can you certify full federal tax compliance for all 5 preceding tax years?

Failing any 1 of these 3 tests can create covered status for a 2025 expatriation.

 

The statutory exceptions for certain dual citizens and minors can protect against the first 2 tests, but not the 5-year certification test. These exceptions usually concern citizen expatriates rather than a typical green card abandonment.

Based on our client scenario at TFX: An LTR had $1.3 million net worth and a $92,000 five-year average tax liability but could not certify 1 missing prior-year return. Failing only the certification test was enough to create covered status.

Failing the 5-year tax-compliance certification usually isn't about willful evasion — more often it's a green card holder living abroad who simply didn't realize they still owed US returns and FBARs. If that's your situation, the IRS streamlined foreign offshore program can bring you current penalty-free before you file Form 8854, which is required to certify compliance as a covered expatriate.

Our Form 8854 guide explains the statement used to certify prior compliance and report the expatriation-year information. 

Think you may fail 1 covered-status test? Get exit tax help.

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Who is affected by the US exit tax?

The US exit tax can affect 2 groups under section 877A: US citizens who relinquish citizenship and long-term residents who terminate US tax residency. A green card holder below the 8-of-15-year test usually needs final-year filing review, not a mark-to-market exit-tax calculation.

The following 3 groups should separate immigration or citizenship action from the federal tax result:

• Green card holders: LTRs can face section 877A if they end residency and meet a covered-status test.
• Citizens renouncing: US citizenship renunciation can trigger the same section 877A regime when the statutory tests apply.
• Final-year filers: A person outside the regime may still need a final Form 1040, Form 1040-NR, or dual-status return.

The term tax exiles has no separate status under section 877A. What matters is whether the person is an expatriate under the statute, the date expatriation occurs, and whether the statutory tests apply.

If you are within either expatriating group, the next issue is whether your filings and expatriation date support the status reported to the IRS.

Can the IRS retroactively classify you as a covered expatriate?

Yes, the IRS can determine after expatriation that the status applied as of the expatriation date if the 2025 filing record shows a failed statutory test. A missing or incorrect certification can create that result even when net worth is below $2 million.

The following 3 issues are common reasons the IRS may question the status reported:

• Late or missing federal returns from the 5-year certification period.
• An incorrect expatriation statement or compliance certification.
• Immigration, treaty, and tax filings that show inconsistent expatriation dates.

Keep the following 3 record groups so the dates and certification can be supported later:

• Proof that required returns and the expatriation statement were filed.
• Green card surrender, residency, travel, and treaty-position records.
• IRS account and return transcripts for the 5 years before expatriation.

A required expatriation statement that is missing, incomplete, or incorrect can carry a $10,000 penalty for the year, absent reasonable cause. That penalty is separate from any tax produced by section 877A.

How to give up your green card

Giving up a green card is an immigration act first, but the tax date can control whether an 8-of-15-year LTR enters section 877A. A give-up green card exit tax review should happen before Form I-407 is submitted, because the abandonment date can become the tax expatriation date.

The following 5 steps cover the core process:

1. Decide whether permanent abandonment fits your immigration and tax position.
2. Complete Form I-407 to record voluntary abandonment of lawful permanent resident status.
3. Keep a signed copy and proof of delivery or government acceptance.
4. Update your federal tax residency records using the actual termination date.
5. Prepare the 2025 final return and expatriation filings if the LTR rules apply.

The safest sequence is to confirm tax status before fixing the Form I-407 submission date.

 

As of August 25, 2026, the following 3 submission routes cover the current Form I-407 process:

• By US mail: USCIS Eastern Forms Center, Attn: I-407 Unit, P.O. Box 567, Williston, VT 05495.
• By courier: USCIS Eastern Forms Center, Attn: I-407 Unit, 124 Leroy Road, Williston, VT 05495.
• At a US port of entry; other in-person acceptance is limited to exceptional cases.

USCIS lists the current Form I-407 instructions as edition 09/25/24, and State Department guidance lists no fee. Check the filing instructions again on the submission date because addresses and editions can change.

The following 4 documents should stay in your permanent file:

• A copy of the signed Form I-407.
• Proof of mailing, delivery, or in-person acceptance.
• A copy of the surrendered Form I-551, if available.
• Tax records that support the final US residency and expatriation dates.

See the step-by-step Form I-407 abandonment instructions before sending the form.

What if you’re not a long-term green card holder?

If you have fewer than 8 counted LPR tax years in the 15-year lookback, section 877A generally does not apply when you abandon the green card. You can still have a 2025 final federal return, information returns, and post-residency US-source income reporting.

The key split is under 8 counted years versus 8 or more counted years in the 15-year period.

 

Based on our client scenario at TFX: A client abandoned LPR status in July 2025 after 7 counted tax years. No Section 877A mark-to-market tax applied, but a final-year US return was still needed for the resident and nonresident portions of the year.

Form 1040-NR rules for nonresident aliens become relevant after US residency ends when filing thresholds or US-source income rules require a return.

Abandonment can also leave FBAR, Form 8938, gift-tax, or other information-return duties for the portion of 2025 in which you were still a US person. The exact forms depend on accounts, assets, transfers, and income.

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What is the exit tax, and how is it calculated?

For 2025, section 877A uses a mark-to-market rule for most property: treat it as sold at fair market value on the day before expatriation. Net gain otherwise included is reduced by $890,000, while 4 special asset categories follow separate rules instead of the standard deemed-sale treatment.

A US green card exit tax calculation does not use one flat percentage. There is no single green card exit tax rate because the recognized deemed gain can retain different tax character, while deferred compensation, tax-deferred accounts, and nongrantor trusts follow special rules.

The following 4 steps show the core mark-to-market calculation:

1. Determine each covered asset’s fair market value on the day before expatriation.
2. Subtract adjusted tax basis to find unrealized gain or loss.
3. Apply the section 877A gain-and-loss rules across the mark-to-market property.
4. Reduce net gain otherwise includible by the 2025 exclusion amount of $890,000.

For 2025, the $890,000 exclusion reduces aggregate net gain otherwise included; it is not a separate exclusion for every asset.

 

Based on our client scenario at TFX: An LTR had $700,000 of unrealized stock gain and $400,000 of unrealized real-estate gain. The $1.1 million net gain less the $890,000 2025 exclusion left $210,000 before applying the relevant tax character and rates.

For an exit tax US green card case, basis and valuation records drive the result. Our capital gains and losses guide for expats explains how gain starts with sale value and adjusted basis.

The mark-to-market calculation does not apply to every asset in the same way. The following 4 categories need separate review:

• Eligible deferred compensation items.
• Ineligible deferred compensation items.
• Specified tax-deferred accounts.
• Interests in nongrantor trusts.

 

 

The expatriation tax is a federal income-tax regime, not a fixed departure fee. If a 2025 asset is subject to the special deferred-compensation rules, Form W-8CE can be due as early as 30 days after expatriation or before the first post-expatriation distribution.

Need a 2025 mark-to-market estimate before filing? Estimate your tax exposure.

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Do any US states have an exit tax?

US states generally do not impose a separate federal-style expatriation tax under IRC 877A. For a 2025 move, a state can still tax resident-period income and state-source income after departure, so domicile, part-year returns, and the date residency ends still matter.

State tax rules for Americans abroad explain why ending federal residency does not automatically end a state filing connection.

So, what states have an exit tax in the IRC 877A sense? No state applies the federal mark-to-market expatriation regime as its own tax, but state-specific departure-year, source-income, property, and transfer rules can still create tax.

The following 3 situations can keep a state return relevant after a move:

• You were a state resident for part of 2025 and need a part-year return.
• You kept state-source wages, business income, rental income, or property sales.
• Your former state still treats you as domiciled because the factual residency break was incomplete.

Review the state filing rules that can follow expats abroad, including part-year status and the state’s 2025 filing deadline, before treating departure as the end of all state tax duties.

Unsure which 2025 expatriation filings apply? Get general guidance on your next step.

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IRS forms you might need when expatriating

For green card exit tax IRS reporting, a 2025 LTR may need an expatriation statement, a final Form 1040 or Form 1040-NR, and related information returns. The return due in 2026 depends on residency status, income, foreign accounts, and the exact expatriation date.

A 2025 expatriation filing can involve both the final income tax return and a separate expatriation information statement.

 

Our dual-status return guide explains how a resident-to-nonresident year can require different reporting for the 2 parts of the year.

The following 3 “do not miss” items matter in the expatriation-year file:

• Attach the initial expatriation statement to the 2025 income tax return when a return is required.
• Follow the 2025 instructions for sending the original statement to the IRS address in Austin, Texas.
• Recheck FBAR, Form 8938, and other international forms for the period you were still a US person.

 

Can green card holders avoid or lower the exit tax?

The best way to reduce Section 877A risk is to act before the tax facts are fixed: count the 8-of-15 years, cure the prior 5 years of compliance, and model assets before expatriation. Lowering net worth alone does not solve a failed tax-liability or certification test.

The following 4 planning buckets deserve review before Form I-407 or another tax-residency termination event:

• LTR timing: Confirm whether expatriating before the 8th counted tax year is still possible and legally appropriate.
• Compliance: Fix missing or incorrect federal filings before making the 5-year certification.
• Asset timing: Review basis, unrealized gains, losses, and transactions before the expatriation date.
• Retirement items: Identify deferred compensation and tax-deferred accounts that follow special section 877A rules.

Year-end tax planning strategies can help organize 2025 income, gains, and records, but expatriation decisions need a separate section 877A review.

The following 3 actions can reduce risk because they address a statutory test or the taxable asset calculation:

• Expatriate before LTR status is reached, when the facts and immigration decision allow it.
• Restore 5-year federal compliance before the certification date.
• Model legitimate asset transactions with their full income, gift, basis, and timing consequences.

The following 2 approaches do not solve the whole test by themselves:

• Dropping net worth below $2 million while still failing the $206,000 liability test.
• Dropping net worth below $2 million while unable to certify 5 prior compliant years.

Warning: Gifts or transfers before expatriation can create separate gift-tax, basis, reporting, or later section 2801 consequences. A transfer should be modeled as its own tax event, not treated as a mechanical way to escape the net-worth test.

For covered gifts or bequests received on or after January 1, 2025, final Section 2801 regulations apply to US citizens and US residents determined under the estate and gift tax domicile rules, as well as certain trusts. A recipient subject to Section 2801 generally pays tax at 40% on net covered gifts and covered bequests after the Section 2801(c) amount. That amount is $19,000 for calendar years 2025 and 2026. An individual US citizen or resident, domestic trust, or electing foreign trust generally does not file Form 708 for a calendar year when total covered gifts and covered bequests do not exceed that amount.

For covered gifts or bequests received in 2025, Form 708 is generally due June 15, 2027. This is a recipient-side rule, so it does not replace the expatriate’s own 2025 income-tax and expatriation filings.

You abandoned your green card. Here’s what happens next

After abandonment, US tax treatment changes from the date LPR status terminates under the federal rules. For 2025, you may have a dual-status year, remaining expatriation filings, and later US-source income taxed under nonresident rules rather than one automatic 30% tax on everything.

The give-up green card tax result starts with the exact termination date. Income before and after that date can fall under different resident and nonresident rules.

The following 4 stages show the usual post-abandonment sequence:

1. Immediately: Keep the surrender receipt and records fixing the date LPR status ended.
2. Residency change: Determine whether 2025 becomes a dual-status tax year.
3. Remaining filings: File the final federal return, expatriation statement if required, and any international forms.
4. IRS review: Keep proof for the 5-year certification, residency history, valuations, and filing dates.

The giving up green card tax consequences after residency ends depend on the income type. US-source FDAP income can face 30% statutory withholding unless a Code or treaty rule lowers it, while effectively connected income and real-property transactions use different rules.

Filing as a nonresident after US residency ends explains why Form 1040-NR treatment depends on the type and source of income.

The tax implications of giving up green card status also include record retention. The following 3 items should be checked after abandonment:

• Keep the Form I-407 or other proof of termination and the final residency timeline.
• Confirm whether the final year is resident, nonresident, or dual-status for income-tax filing.
• Confirm whether the expatriation statement and any FBAR or Form 8938 filing is still due.

Make your green card renunciation smooth

A clean expatriation file starts before the surrender date: count 15 tax years, reconcile 5 compliance years, and value relevant assets as of the correct date. Organized records reduce mismatched dates, missing forms, and delays when the 2025 return is prepared in 2026.

Three workstreams should be complete before the final expatriation filing is signed.

 

The following 4 final checks make the handoff to a tax preparer faster:

• Put immigration and tax dates on 1 timeline.
• Gather all 5 prior federal returns and IRS transcripts.
• Create an asset list with fair market value, basis, and debt.
• Flag pensions, deferred compensation, trusts, and large gifts separately.

TFX can help prepare the US tax filings and expatriation calculations after the facts are organized. The immigration decision itself may require separate immigration or legal advice.