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US exit tax explained: 2026 expatriation tax rules
The US expatriation tax – commonly called the exit tax – is a federal tax on the unrealized gains of US citizens and long-term green card holders who give up their status.
Under IRC Section 877A, the IRS treats most of your worldwide assets as if they were sold at fair market value on the day before you expatriate.
Not everyone owes an exit tax. The tax applies only to individuals who meet the IRS definition of a "covered expatriate" – roughly, those whose income, net worth, or compliance history exceeds certain thresholds. If you fall below every threshold, you can renounce without a mark-to-market charge.
For tax year 2025 – the year currently being filed – the mark-to-market exclusion is $890,000. It rises to $910,000 for tax year 2026.
Gains below the applicable amount are not taxed. The three covered-expatriate tests, the exclusion amount, and the filing requirements are all indexed for inflation, so the numbers change annually.
What is the US exit tax?
The US exit tax is an income tax assessed under Section 877A of the Internal Revenue Code. It applies when a covered expatriate gives up US citizenship or ends long-term resident status.
The IRS generally treats covered property as sold at fair market value on the day before expatriation. This is the mark-to-market rule. Any gain above the exclusion amount – $890,000 for tax year 2025, $910,000 for tax year 2026 – is taxed as if you had actually sold the assets.
Covered property includes stocks, bonds, real estate, business interests, and most other worldwide assets the expatriate owns. The mark-to-market rule does not apply to every asset type.
Three categories receive separate treatment:
- Eligible deferred compensation – employer pensions, nonqualified deferred compensation plans, and similar arrangements under Section 877A(d). Subject to 30% withholding on distributions rather than mark-to-market.
- Specified tax-deferred accounts – IRAs, Roth IRAs, 401(k)s, HSAs, and other accounts under Section 877A(e). Treated as distributed in full on the day before expatriation.
- Interests in nongrantor trusts – taxed at distribution under a separate regime.
The distinction between "deferred compensation" and "tax-deferred accounts" matters. They follow completely different rules, which we cover below.
Key definitions to know:
- Fair market value is the price a willing buyer would pay a willing seller, with both having reasonable knowledge of the facts.
- Cost basis is your original investment in an asset, adjusted for improvements, depreciation, and other factors.
- Unrealized gain is the difference between fair market value and cost basis on assets you have not yet sold.
See our TFX guide to covered expatriate status for a deeper breakdown of who qualifies and why it matters.
Who pays the US exit tax?
The exit tax rules for US citizens apply specifically to individuals whom the IRS classifies as covered expatriates.
Two groups can trigger the exit tax:
- US citizens who renounce citizenship or formally relinquish nationality
- Long-term residents – green card holders who held lawful permanent resident status in at least eight of the 15 tax years ending with the year of expatriation
Simply moving abroad does not trigger the exit tax. You must take a formal legal step – renunciation, relinquishment, or administrative abandonment of the green card – and you must meet at least one of the covered expatriate thresholds.
If you do not meet any of the three covered-expatriate tests described in the next section, you owe no exit tax.
You still need to file Form 8854 to certify that you are not covered, but the mark-to-market charge does not apply.
Who are covered expatriates?
The IRS applies three tests. Meeting any one of them makes you a covered expatriate:
The three covered-expatriate tests for tax year 2025 and tax year 2026:
| Test | Tax year 2025 | Tax year 2026 |
|---|---|---|
| Average annual net income tax liability (five preceding years) | $206,000 | $211,000 |
| Net worth on the date of expatriation | $2,000,000 | $2,000,000 |
| Failure to certify five-year federal tax compliance on Form 8854 | Automatic covered status | Automatic covered status |
The income tax test uses an average: add your net income tax liability for each of the five tax years ending before the expatriation date and divide by five. If the result exceeds $206,000 for 2025 or $211,000 for 2026, you meet the test.
The net worth test counts worldwide assets at fair market value on the date of expatriation. This includes real estate, investments, retirement accounts, business interests, life insurance cash value, and beneficial interests in trusts. It is a snapshot – only the value on that single day matters.
The compliance test is the one most people overlook. If you cannot certify on Form 8854 that you have met all federal tax obligations for the five years before expatriation, you are automatically treated as a covered expatriate.
This applies even if your income and net worth fall well below the other thresholds.
What about green card holders?
The green card exit tax rules mirror the rules for US citizens, with one key distinction: you must be a long-term resident for the exit tax to apply. The IRS defines a long-term resident as someone who held a green card in at least eight of the 15 tax years ending with the year of expatriation.
Not every year as a green card holder necessarily counts. The IRS considers only full years in which you met the green card test for US tax residency purposes.
Years when treaty residency was claimed in another country may not count – though that itself can raise complications worth reviewing with a tax professional.
Ending immigration status does not automatically end US tax residency. A green card holder who abandons the card must file Form I-407 with USCIS, and the IRS expects Form 8854 for the year of status change.
Until both steps are completed, the IRS may continue to treat you as a US tax resident.
A comparison table helps clarify the difference between citizens and long-term residents:
Citizens face the exit tax immediately upon renunciation; long-term residents must first meet the 8-of-15-year threshold.
| US citizen | Long-term resident (green card) | |
|---|---|---|
| Triggering event | Renunciation or relinquishment | Green card abandonment or revocation |
| Duration requirement | None | At least 8 of the prior 15 tax years |
| Covered-expatriate tests | All three apply | All three apply |
| Mark-to-market exclusion | $890,000 for 2025, $910,000 for 2026 | $890,000 for 2025, $910,000 for 2026 |
| Form 8854 required | Yes | Yes |
The 8-of-15-year threshold has several nuances – our green card exit tax guide breaks them down.
The process of surrendering a green card has its own tax steps, covered in our green card abandonment guide.
Exceptions: US exit tax for dual citizens at birth and minors
The US exit tax exemptions under Section 877A can spare certain dual citizens and minors from covered-expatriate status, even if they otherwise meet the income or net worth thresholds.
The born-dual-citizen exception has four conditions.
All four must be met:
- You became a US citizen at birth and simultaneously a citizen of another country
- You remain a citizen and tax resident of that other country at the time of expatriation
- You were a US tax resident for no more than 10 of the 15 tax years ending with the year of expatriation
- You file all required federal returns and certify compliance on Form 8854
The minor exception is narrower. It applies to individuals who:
- Became US citizens at birth
- Expatriate before age 18½
- Were US tax residents for no more than 10 years
These exceptions prevent covered-expatriate status entirely. If you qualify, the mark-to-market charge does not apply, no matter how large your net worth.
Whether age-based exceptions apply requires careful analysis. A dual citizen who lived in the US for 12 of the past 15 years will not qualify, even if they held another citizenship from birth.
Treaty benefits are not the same as physical absence – the 10-year residency question turns on actual US tax residency.
The IRS still requires Form 8854 to certify that the exception applies.
See our guide to nationals vs. citizens of the United States at birth for the distinction between these categories and why it matters for expatriation.
How much is the US exit tax?
The US exit tax rate is not a flat percentage. The tax equals the income tax on net gains that exceed the exclusion threshold, calculated at the applicable capital gains and ordinary income rates in effect for the year of expatriation.
For tax year 2025, the mark-to-market exclusion is $890,000 per Rev. Proc. 2024-40. For tax year 2026, it rises to $910,000 per Rev. Proc. 2025-32.
The exclusion is a single amount applied against total net mark-to-market gain – it is not a per-asset exclusion. A person can be a covered expatriate with a $5 million portfolio and owe nothing if their total unrealized gain is below the exclusion – $890,000 for 2025 or $910,000 for 2026.
The exclusion – $890,000 for 2025, $910,000 for 2026 – is applied once against total net gain, not separately for each asset.
| Asset | FMV | Cost basis | Unrealized gain |
|---|---|---|---|
| Stock portfolio | $2,000,000 | $1,400,000 | $600,000 |
| Real estate (abroad) | $800,000 | $650,000 | $150,000 |
| Business interest | $500,000 | $400,000 | $100,000 |
| Total | $3,300,000 | $2,450,000 | $850,000 |
In this example, total unrealized gain is $850,000 – below both the $890,000 exclusion for 2025 and the $910,000 exclusion for 2026. No exit tax is owed despite a $3.3 million asset base.
The expatriation tax rate for gains above the exclusion depends on the character of the gain.
Long-term capital gains are taxed at the applicable rate – generally 0%, 15%, or 20% depending on income – plus the 3.8% net investment income tax if applicable.
Short-term gains and ordinary income are taxed at ordinary rates.
A high net worth alone does not determine the tax bill. What matters is cost basis versus fair market value. A person with a $10 million estate built on appreciated stock faces a much larger exit tax than someone with the same net worth in cash and recently purchased property.
Exit tax rules for IRAs, 401(k)s, pensions, and HSAs
Retirement accounts do not follow the standard mark-to-market rule. Section 877A splits them into two categories with very different consequences.
Specified tax deferred accounts – IRAs, 401(k)s, Roth IRAs, HSAs
Under Section 877A(e), these accounts are treated as if they were distributed in full on the day before expatriation. The entire balance is included in income for that year.
No mark-to-market exclusion applies – the exclusion amount does not reduce the deemed distribution. The full account value is taxable.
There is one upside: the 10% early withdrawal penalty under Section 72(t) does not apply to this deemed distribution.
The tax rate depends on the account type. Traditional IRA and 401(k) distributions are taxed as ordinary income. Roth IRA distributions may have a partial tax-free component if the account meets the five-year holding requirement, but the earnings portion is generally taxable.
Eligible deferred compensation – employer pensions, nonqualified plans
Under Section 877A(d), these arrangements are not deemed distributed. Instead, distributions are subject to 30% withholding when they are actually paid out.
The withholding applies to the taxable portion of each distribution. The plan administrator or paying agent is responsible for withholding, and the covered expatriate must provide Form W-8CE to the payer.
Specified tax deferred accounts vs. eligible deferred compensation – the rules are fundamentally different.
| Specified tax deferred accounts | Eligible deferred compensation | |
|---|---|---|
| Examples | IRA, 401(k), Roth IRA, HSA | Employer pension, nonqualified deferred comp |
| IRC section | 877A(e) | 877A(d) |
| Timing | Deemed distributed day before expatriation | Taxed when actually distributed |
| Tax treatment | Full balance included in income | 30% withholding on distributions |
| Exclusion applies? | No | No |
| Early withdrawal penalty? | No (waived) | N/A |
Step-by-step exit tax calculation
The exit tax rate calculation follows a structured process. Here is how the IRS expects it to work for the mark-to-market component:
1. List all covered property and its fair market value on the day before expatriation.
Include stocks, bonds, mutual funds, real estate, business interests, and any other property subject to mark-to-market treatment. Exclude eligible deferred compensation and specified tax-deferred accounts – those follow separate rules.
2. Subtract the cost basis for each asset.
The result is your unrealized gain or loss per asset. Losses on one asset can offset gains on another.
3. Calculate total net gain across all assets.
Add up the individual gains and losses. If the total is negative, no mark-to-market tax is owed.
4. Apply the exclusion for your expatriation year.
Subtract $890,000 for 2025 or $910,000 for 2026 from the net gain.
5. Tax the remaining gain at applicable rates.
Long-term capital gains are taxed at the long-term rate – 0%, 15%, or 20% based on income. Short-term gains and ordinary income assets are taxed at ordinary rates. Add the 3.8% net investment income tax where it applies.
6. Add in the deemed distribution from specified tax-deferred accounts.
IRA, 401(k), Roth IRA, and HSA balances are included in income at their full value. This is taxed at ordinary income rates. No exclusion applies.
7. Account for eligible deferred compensation separately.
This is not part of the mark-to-market calculation. Withholding at 30% applies to future distributions.
Short examples based on TFX client scenarios
Based on TFX client scenarios, here are three examples illustrating different expat exit tax outcomes for expatriations in tax year 2025:
Example 1: "Just below the exclusion"
A US citizen with a $2.5 million portfolio expatriates. Cost basis is $1.7 million. Total unrealized gain: $800,000.
The gain falls below the $890,000 exclusion for 2025. Exit tax owed: $0. The expatriate still files Form 8854.
Example 2: "Retirement account complication"
A covered expatriate has $600,000 in unrealized gains on investments – below the exclusion – plus a $400,000 traditional IRA. The investment gains produce no mark-to-market tax.
The IRA is treated as distributed in full – $400,000 is added to income and taxed at ordinary rates. The mark-to-market exclusion does not apply to the IRA balance.
Example 3: "Above the exclusion with mixed assets"
A covered expatriate has $1,800,000 in total unrealized gains across stocks, real estate, and a business interest. After the $890,000 exclusion for 2025, $910,000 is taxable.
The long-term capital gain portion is taxed at 20% plus 3.8% NIIT. A separate $250,000 traditional IRA adds ordinary income. The total exit tax bill exceeds $250,000.
Side-by-side comparison of the three scenarios:
| Example 1 | Example 2 | Example 3 | |
|---|---|---|---|
| Mark-to-market gain | $800,000 | $600,000 | $1,800,000 |
| Exclusion applied | $890,000 | $890,000 | $890,000 |
| Taxable gain | $0 | $0 | $910,000 |
| IRA deemed distribution | None | $400,000 | $250,000 |
| Approximate exit tax | $0 | ~$100,000 | $250,000+ |
US exit tax forms: Form 8854, W-8CE, 1040-NR, and final return
The federal exit tax involves several IRS forms, each with its own purpose and deadline.
Form 8854 – Initial and Annual Expatriation Statement
Form 8854 is the central expatriation form. It serves two purposes:
- Initial filing – due with your final dual-status or expatriation-year tax return. It certifies your covered-expatriate status – or confirms you are not covered – reports the mark-to-market calculation, and documents your net worth.
- Annual filing – required for each subsequent year in which you have certain items of US-source income, eligible deferred compensation, or specified tax deferred accounts.
Form 8854 is due by the applicable income tax return deadline, generally April 15. For calendar-year filers expatriating in the 2025 tax year, Form 8854 is generally due April 15, 2026. The form attaches to Form 1040 or Form 1040-NR depending on the filer's status.
Form W-8CE
Form W-8CE is required for covered expatriates who have eligible deferred compensation or interests in nongrantor trusts.
The filing deadline is the earlier of 30 days after the expatriation date or the day before the first distribution from the account. Missing this deadline does not eliminate the 30% withholding obligation, but it can create complications with plan administrators.
Form 1040-NR and final return
After expatriation, a former citizen or long-term resident generally files Form 1040-NR for any year in which they have US-source income.
The final dual-status return for the year of expatriation may require both Form 1040 – for the period as a citizen or resident – and Form 1040-NR for the remainder of the year.
Filing timeline for a covered expatriate:
| Form | Purpose | Due date |
|---|---|---|
| Form 8854 (initial) | Report expatriation, mark-to-market calculation | With expatriation-year tax return (generally April 15) |
| Form W-8CE | Notify payers of deferred compensation | 30 days after expatriation or day before first distribution |
| Form 1040 / 1040-NR | Dual-status return for year of expatriation | April 15 of following year |
| Form 8854 (annual) | Report ongoing deferred comp and trust distributions | With each subsequent 1040-NR |
The penalty for failure to file Form 8854 is $10,000 per year.
What happens if you miss the filing deadline?
Missing the Form 8854 or Form W-8CE deadline creates real consequences. The $10,000 penalty for a late or missing Form 8854 applies per year – and the IRS does assess it.
Beyond the penalty, failing to certify five-year compliance on Form 8854 can trigger covered-expatriate status by itself. A person who would not otherwise be covered can become covered purely through a filing failure.
If you are already past a deadline, the path forward depends on the circumstances.
For minor delays, filing as soon as possible with a reasonable cause statement may reduce or eliminate penalties.
For more significant gaps, the IRS Relief Procedures for Certain Former Citizens may apply.
An "immediate actions" checklist for missed deadlines:
- Gather all unfiled returns and forms – Form 8854, any missing 1040s or 1040-NRs, FBARs
- Determine whether you meet the covered-expatriate thresholds based on the year of expatriation
- Check eligibility for the IRS Relief Procedures – your net tax liability for the year of expatriation and the five years before it, combined, must total $25,000 or less
- File as soon as possible with reasonable cause documentation
See our TFX guide to the IRS Relief Procedures for certain former citizens for the full eligibility criteria and filing steps.
Is there a US exit tax calculator?
The IRS does not provide an official exit tax calculator. The mark-to-market calculation requires property-by-property valuations, adjusted basis tracking, and awareness of which assets fall under the separate deferred compensation and retirement account rules.
An exit tax calculator can estimate the result, but it cannot replicate the full analysis. Here is what a calculator can and cannot handle:
What it can do:
- Estimate mark-to-market gain on standard assets – stocks, bonds, real estate
- Apply the exclusion for the expatriation year – $890,000 for 2025 or $910,000 for 2026
- Approximate the tax at applicable capital gains rates
- Provide a rough total for planning purposes
What it cannot do:
- Handle specified tax deferred accounts – IRAs, 401(k)s – correctly; these follow a separate deemed-distribution rule
- Evaluate eligible deferred compensation with the 30% withholding calculation
- Address interests in nongrantor trusts
- Account for cost basis adjustments, foreign tax credits, or Section 2801 gift/bequest tax implications
- Verify filing compliance history for the certification test
For a complete exit tax analysis, the preparation includes a full asset inventory, cost basis documentation for every asset, retirement account valuations, and an assessment of filing compliance over the prior five years.
Our TFX expatriation services page offers professional help with the full calculation.
Covered expatriate? Don't forget Form W-8CE
Form W-8CE is required for covered expatriates who have eligible deferred compensation or an interest in a nongrantor trust. The form tells the payer that the recipient is a covered expatriate and that distributions are subject to 30% withholding.
The deadline is the earlier of 30 days after the date of expatriation or the day before the first distribution from the account. This deadline is separate from the Form 8854 deadline.
Why it matters: without Form W-8CE on file, the plan administrator may not know to apply the 30% withholding. This can create a withholding shortfall that the expatriate must reconcile on their tax return, potentially with penalties and interest.
Covered expatriates with multiple deferred compensation arrangements need to evaluate which category each account falls into.
A pension and a nonqualified plan are typically eligible deferred compensation – W-8CE required for each. A 401(k) rollover sitting in an IRA is a specified tax-deferred account – deemed distributed, no W-8CE needed.
Do I still need to file US taxes after paying the exit tax?
The tax exit from the US does not end all US filing obligations. After expatriation, you may still owe US tax on certain types of US-source income.
Annual Form 8854 filing is generally required for covered expatriates with deferred compensation or interests in nongrantor trusts. The obligation continues as long as you receive distributions from these sources.
Common post-expatriation US tax obligations include:
- US-source rental income, dividends, interest, and royalties – generally subject to 30% withholding or reduced treaty rates
- Gains from the sale of US real property interests – FIRPTA rules apply
- Income effectively connected with a US trade or business
- Distributions from eligible deferred compensation – subject to 30% withholding
- Distributions from specified tax-deferred accounts, if not fully taxed at expatriation
A post-exit filing checklist:
- File Form 1040-NR for any year with US-source income
- File annual Form 8854 as required
- Monitor deferred compensation and trust distributions for withholding accuracy
- Review applicable tax treaty provisions that may reduce withholding rates
See our guide to US tax forms for expats for a complete overview of the forms that may still apply after expatriation.
If you are behind on US tax returns
Unfiled or inaccurate returns can directly affect your expatriation outcome.
The five-year compliance certification on Form 8854 is the mechanism: if you cannot certify that you have met all federal tax obligations for the five years before expatriation, you become a covered expatriate automatically.
This means that addressing filing gaps before expatriation is not optional – it is part of the process.
Options for catching up
If you are behind on US tax filings, you have several ways to get current before expatriation:
- Streamlined Filing Compliance Procedures – the IRS Streamlined Procedures allow qualifying US taxpayers residing outside the US to come into compliance without penalties. You must certify that your failure to file was non-willful. This pathway covers up to three years of delinquent tax returns and six years of FBARs.
- Delinquent return filing – if you do not qualify for the Streamlined Procedures, filing delinquent returns directly with a reasonable cause statement is the fallback approach. Penalties may apply, but filing is still better than leaving the gap open.
- Amended returns – if you filed but the returns were inaccurate, amended returns may be necessary before you can certify compliance.
The key point: resolve filing issues before you expatriate. Once you renounce without five-year compliance, you are a covered expatriate regardless of your income or net worth.
Our TFX guide to filing back taxes covers the process of catching up on multiple years.
How to avoid the US exit tax: proven strategies
Exit tax avoidance strategies fall into several categories. Some reduce the likelihood of covered-expatriate status. Others reduce the taxable gain if you are covered. All require advance planning.
Reduce your net worth below $2 million
Gifting assets to US-person family members before expatriation can bring your net worth below the threshold. Be aware that gifts above the annual exclusion – $19,000 per recipient for 2026 – require a gift tax return, and large gifts may use your lifetime estate tax exemption.
Reduce unrealized gains before expatriation
Selling appreciated assets while you are still a US person converts unrealized gain into realized gain – taxed at regular capital gains rates rather than the exit tax. You control the timing, and you can spread sales across multiple tax years.
Convert traditional retirement accounts to Roth
A Roth conversion before expatriation triggers income tax now, but it reduces the deemed-distribution income at expatriation. Since the converted balance has already been taxed, only subsequent earnings would be taxable upon deemed distribution.
Ensure five-year compliance certification
This is the most commonly overlooked strategy. If your filing history is clean and your income and net worth fall below the thresholds, you are not a covered expatriate. Many people who could avoid the exit tax fail to do so simply because of incomplete prior filings.
Time your expatriation
The exit tax is calculated on the day before expatriation. If your portfolio has temporarily declined in value – a market downturn, a drop in real estate prices – that may be a strategic moment to expatriate. The exclusion is more likely to cover your reduced gains.
Consider the expatriation to avoid tax label
The IRS and Congress view aggressive tax-motivated expatriation critically. Under prior law – Section 877 – the IRS could apply an "expatriation to avoid tax" presumption.
Section 877A's mechanical tests largely replaced that subjective standard, but public disclosure requirements remain. Former citizens who renounce are published quarterly in the Federal Register, and the intent behind expatriation may become relevant if the IRS challenges specific transactions.
Myths about the US exit tax
Common misconceptions lead to poor planning decisions. Here are the most frequent ones:
"Everyone who renounces pays an exit tax." False. The exit tax applies only to covered expatriates. A dual citizen at birth with modest assets who meets the exemption criteria pays nothing.
"A low-asset-value estate means no filing." False. Even non-covered expatriates must file Form 8854. The form certifies your status. Skipping it can result in a $10,000 penalty and covered-expatriate treatment by default.
"Covered-expatriate status depends on the reason you're leaving." Mostly false. Under Section 877A, the tests are mechanical – income, net worth, and compliance. The IRS does not generally ask why you expatriated when applying the three tests.
"Moving to a no-tax country eliminates the exit tax." False. The exit tax is a US federal tax. Where you move has no bearing on whether you are a covered expatriate or how much you owe.
"I can defer the exit tax indefinitely." Partially true, but limited. Section 877A(b) allows a deferral election with adequate security – a bond or irrevocable letter of credit. Interest accrues on the deferred amount. This is not avoidance – it is a timing tool.
Each of these myths traces back to a factual foundation. The exit tax rules changed significantly in 2008, and older information – sometimes from the Section 877 era – still circulates.
Special assets cheat sheet: rules to watch
Not all assets follow the default mark-to-market rule. This cheat sheet identifies the category and specific treatment for each.
Each asset class has its own expatriation tax rule – using the wrong one is the most common planning error.
| Asset type | IRC section | Treatment | Exclusion applies? | Key watch-out |
|---|---|---|---|---|
| Stocks, bonds, ETFs | 877A(a) | Mark-to-market | Yes – $890,000 for 2025, $910,000 for 2026 | Track lot-level cost basis |
| US real estate | 877A(a) | Mark-to-market | Yes | Appraisal needed at expatriation date |
| Foreign real estate | 877A(a) | Mark-to-market | Yes | Foreign currency conversion |
| Traditional IRA / 401(k) | 877A(e) | Deemed distribution | No | Full balance taxable as ordinary income |
| Roth IRA | 877A(e) | Deemed distribution | No | Earnings taxable; contributions may be tax-free |
| HSA | 877A(e) | Deemed distribution | No | Full balance taxable |
| Employer pension | 877A(d) | 30% withholding on distributions | No | File W-8CE with payer |
| Nonqualified deferred comp | 877A(d) | 30% withholding on distributions | No | File W-8CE with payer |
| Nongrantor trust interest | 877A(f) | Separate regime at distribution | No | Complex trust analysis required |
| Crypto / digital assets | 877A(a) | Mark-to-market | Yes | Valuation must use a recognized exchange |
| Business interest | 877A(a) | Mark-to-market | Yes | May need formal valuation |
Exit tax planning timeline
Planning for expatriation involves steps that span 12 to 24 months or more. Rushing the process leads to unnecessary tax exposure and compliance gaps.
12–24 months before expatriation:
- Complete an asset inventory with current fair market values
- Identify which assets are mark-to-market, deferred compensation, or specified tax-deferred accounts
- Run a preliminary exit tax calculation using the current year's exclusion
- Address any filing gaps – file delinquent returns, amend inaccurate returns
- Begin the retirement account review: consider Roth conversions or partial distributions
6 months before:
- Update asset valuations – they should be as close to the expatriation date as possible
- Confirm five-year compliance is achievable
- File any outstanding FBARs or foreign financial account reports
- Review whether the filing timeline allows a full clearance before the expatriation date
30 days before:
- Finalize cost basis records for every asset
- Prepare Form 8854
- Prepare Form W-8CE for any eligible deferred compensation arrangements
- Confirm CLN appointment with the US consulate or embassy
After expatriation:
- File the dual-status return for the expatriation year
- Submit Form W-8CE to all relevant payers within the 30-day deadline
- File annual Form 8854 for each subsequent year with qualifying income or distributions
- Coordinate with financial institutions on updated withholding
See our TFX tax planning session page for help building your personalized timeline.
Renouncing US citizenship? Here's what else to consider
The exit tax renunciation rules are only one piece of the expatriation process. Several practical and legal steps run alongside the tax analysis.
- Certificate of Loss of Nationality – CLN: To formally renounce, you must appear at a US consulate or embassy abroad and take an oath of renunciation. The State Department charges a $450 administrative fee. Processing times vary by consulate – some locations have backlogs of several months.
- The State Department's renunciation page lists appointment procedures, required documents, and current wait times by consulate.
- Coordination with immigration status: If you hold a green card and plan to abandon it, you must file Form I-407 with USCIS. Giving up US citizenship does not affect the citizenship of your spouse or children – but it does affect your ability to sponsor family members for immigration in the future.
- Section 2801 – the covered-expatriate gift and bequest tax: If you are a covered expatriate, US persons who receive gifts or inheritances from you may owe a tax of 40% on amounts exceeding the annual exclusion – $19,000 per recipient for 2026. This tax is reported on Form 708, which was first required for transfers made in tax year 2025 – with a due date of June 15, 2027.
- Ongoing US tax obligations: Renunciation does not eliminate all US tax filing. You may still owe tax on US-source income, real property gains, and certain other items.
- Banking and financial access: Some US financial institutions close accounts held by non-US persons. Planning for account transfers or closures should begin before expatriation.
Our TFX guide to renouncing US citizenship covers the full process from oath to CLN.
The relinquish vs. renounce guide explains when each path applies.
Make your exit smooth – talk to a tax professional
Expatriation is one of the most consequential tax decisions a US person can make. The combination of mark-to-market calculations, retirement account rules, deferred compensation withholding, and ongoing filing obligations makes professional guidance essential.
TFX has helped clients across 190+ countries complete their expatriation with clarity and confidence.
Our team handles the full scope: covered-expatriate analysis, Form 8854 preparation, mark-to-market calculations, filing procedures for delinquent returns, and post-expatriation filing.
Frequently asked questions on the exit tax in the United States
The American exit tax is the federal income tax imposed under IRC Section 877A on the unrealized gains of covered expatriates – US citizens and long-term green card holders who formally give up their status.
It applies only to those who meet the covered-expatriate thresholds for income, net worth, or filing compliance.
There is no single flat rate. The exit tax equals the income tax on net gains exceeding the exclusion – $890,000 for 2025 or $910,000 for 2026 – calculated at the applicable long-term capital gains rates – 0%, 15%, or 20% – plus the 3.8% net investment income tax where applicable.
Ordinary income items – such as deemed distributions from IRAs – are taxed at ordinary rates.
Yes. If you do not meet any of the three covered-expatriate tests – average net income tax liability under $206,000 for 2025 or $211,000 for 2026, net worth under $2 million, and five-year filing compliance certified – you can relinquish citizenship without owing the exit tax. You still must file Form 8854.
The same covered-expatriate tests apply to both groups. The key difference is that green card holders must be long-term residents – holding the card in at least eight of the 15 years before expatriation – for the rules to apply at all. Citizens face no duration requirement.
Retirement accounts follow separate rules. IRAs, 401(k)s, and HSAs are treated as fully distributed on the day before expatriation and taxed at ordinary income rates – the mark-to-market exclusion does not apply. Employer pensions and nonqualified deferred compensation are subject to 30% withholding on actual distributions instead.
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