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

Holding a green card gives you lawful permanent resident status, which means you can live and work in the United States long term. But it also makes you a US tax resident – responsible for reporting and paying US tax on your worldwide income.

At some point, you might start thinking about giving it up. Maybe you're relocating for work, don’t want to be dealing with US tax rules anymore, or just ready to move on. Whatever the reason, letting your green card go isn’t as easy as letting it expire. There are real legal and tax consequences, including the possibility of being hit with an exit tax, even retroactively.

This guide is for you if you're a green card holder planning, or simply considering, how to officially end your US tax obligations when giving up residency.

This article is brought to you by Taxes for Expats (TFX) – a top-rated tax firm for US citizens and green card holders at home and overseas. If you’re looking for expert help with expatriation taxes, we’re here for you. Book a free intro consultation, and we’ll review your case and walk you through your next steps.

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

Under US tax law, you’re considered a long-term resident (LTR) if you’ve held a green card for at least 8 of the last 15 tax years. This definition matters because LTRs may be subject to the exit tax if they give up their green card.

The 8-year count is based on tax years, not calendar years. Each year counts even if you held the card for even one day. Physical presence in the US doesn’t matter – you’re considered a resident for tax purposes as long as you held a valid green card during that year.

Tax treaty election:

If a tax treaty between the US and the country where you reside treats you as a non-resident for US tax purposes, that year you make this election won’t count toward the eight-year threshold. This may allow you to be considered a nonresident at the time you give up your green card – and avoid being subject to the exit tax. Tax treaties with Canada, France, or Germany include this option.

To claim your nonresident status, you must file Form 8833. Without that form, the Internal Revenue Service (IRS) still counts the year toward the 8.

What people often get wrong:

• Letting your green card expire does not end your US tax residency.
• Living abroad for years doesn’t change your tax status.
• You must formally relinquish your green card through Form I-407 and inform the IRS.

If you’re giving up your green card and are classified as a long-term resident, you may also be treated as a covered expatriate. This is a status that triggers the green card exit tax (expatriation tax) – we explain it below in detail.

Are you a covered expatriate?

Covered expatriate rules apply to both green card holders and US citizens who meet the long-term resident test. The tax impact is the same: you're taxed on unrealized gains as if you sold all your assets the day before expatriation.

You’re considered a covered expatriate if any of the following apply:

• Net worth is $2 million or more on your expatriation date.
• Your average annual US tax liability exceeds $201,000 (2024 threshold) over the past 5 years.
• You fail to certify full tax compliance for the past five years on Form 8854, Initial and Annual Expatriation Statement.

If you don’t file Form 8854, you’re automatically treated as a covered expatriate, even if your income or assets are modest.

There’re a few exceptions: dual citizens at birth who reside in their non-US country, and certain minors who expatriate before age 18 and meet specific criteria.

Can the IRS retroactively classify you as a covered expatriate?

Yes. If you fail to file Form 8854 or don’t certify 5 years of tax compliance, the IRS will automatically treat you as a covered expatriate, regardless of your net worth or tax history. This status applies from your expatriation date, even if the mistake is discovered years later.

How to give up your green card

To officially abandon your green card, you must file Form I-407 with US Citizenship and Immigration Services (USCIS). This form documents your voluntary decision to give up lawful permanent resident status.

Long-term residents must also file Form 8854, and possibly pay green card exit tax depending on your net worth and tax history. Be sure you're also up to date with potential FBAR or FATCA forms. FBAR is filed with the FinCEN, not the IRS.

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

If you are not a long-term green card holder (you’ve held a green card for less than 8 years of the last 15 tax years) you only need to file three years of tax returns to give up your green card (instead of five).

Not sure where you stand? We’ll help you determine your status and guide you through next steps – book free consultation.

What is the exit tax and how is it calculated?

The exit tax, under Internal Revenue Cide (IRC) 877A, applies to covered expatriates and works like a departure capital gains tax. You’re treated as if you sold all your worldwide assets at fair market value the day before you give up your green card.

How it works:

• Deemed sale: Unrealized gains are taxed even if you haven’t sold anything.
• Exclusion: The first $866,000 of gain (2024) is tax-free.
• Special rules apply to IRAs, pensions, deferred compensation, and trusts.

Assets subject to exit tax include US and foreign real estate, investment accounts and mutual funds, private business interests, retirement savings, some trust and deferred income arrangements such as pension plans, 401(k) plans, or stock options.

IRS forms you might need when expatriating

Filing Form I-407 alone isn’t enough. You must file the proper tax forms to fully exit the US system and avoid long-term issues.

Here are the key ones you might need:

• Form 8854 – to confirm tax compliance and calculate any exit tax owed.
• Form 1040-NR – to be used by non-residents who still earn US income after expatriation.
• Form W-8CE – to prevent accidental and irrevocable conversion of US assets from an eligible deferred compensation item into an ineligible deferred compensation item.
• Form 8833 – to claim tax residency in another country under a tax treaty.

Pro tip. Only use Form 8833 before you reach LTR status if you’re trying to reduce your countable years. After that, using it can create unintended tax consequences.

Can green card holders avoid or lower the exit tax?

Yes, but only with careful tax planning. Here are a few proven strategies for green card holders:

1. Expatriate before reaching LTR status (8 of 15 years). Filing Form I-407 early keeps you out of the exit tax rules.
2. Reduce your net worth below $2 million through gifts, charitable donations, or strategic asset transfers.
3. Lower your average tax liability by managing income over a 5-year period.

These strategies require coordination with tax and immigration professionals.

You abandoned your green card, here’s what happens next

Unfortunately, even giving up your green card doesn’t mean all US tax ties are severed.

If you hold assets like real estate or investments in the US, you may still be subject to estate and gift taxes. If you continue to earn income from US sources, you’ll likely need to file a non-resident tax return and could be subject to a 30% non-resident alien withholding tax.

Your change in status may also affect family members, especially if they remain US residents or citizens. These impacts can surface years later, so it’s important to plan beyond the year you expatriate.

Make your green card renouncement smooth

If you’re unsure whether you qualify as a covered expatriate or how the exit tax applies to you, don’t leave it to guesswork.

A qualified expat tax advisor can walk you through your options, help you stay compliant, and reduce unnecessary tax risk. Whether you're planning to renounce your green card now or just preparing for the future, we’ll help you make informed decisions.

At Taxes for Expats, we’ll review your situation and help you leave the US tax system with confidence.