Thinking of Renouncing US Citizenship? Here’s How the Exit Tax Works
- What Is the US Exit Tax?
- Who Is a “US Person” for Exit Tax Purposes?
- Are You a Covered Expatriate?
- How the Exit Tax Is Calculated (Deemed Sale)
- Can You Avoid Paying the US Exit Tax?
- Exit Taxes Around the World
- What If I’m Behind on My US Tax Returns?
- Do You Need Help with Your Expat Taxes?
- FAQs About the US Exit Tax
You’re thinking about renouncing your U.S. citizenship or giving up a long-term Green Card. Big decision. We’re here to make the tax side clear, calm, and manageable.
- The U.S. exit tax (also called the expatriation tax or U.S. departure tax) applies only to covered expatriates—certain citizens and long-term residents who meet specific net worth, average tax liability, or compliance tests.
- If you’re covered, the IRS treats your worldwide assets as sold the day before expatriation (a “deemed sale”). You pay U.S. capital gains tax on the net gain above an inflation-adjusted exclusion ($890,000 for 2025).
Key Takeaways
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The exit tax targets covered expatriates—not everyone who leaves the U.S. tax system.
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You’re “covered” if any one is true:
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Net worth ≥ $2,000,000 on the expatriation date.
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Average annual net income tax liability for the prior 5 years exceeds ~$206,000 (2025).
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Form 8854 compliance test: you cannot certify full U.S. tax compliance for the last 5 years.
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The IRS deems you sold your worldwide assets the day before you expatriate and taxes gains above $890,000 (2025) at applicable capital gains rates.
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Retirement plans and foreign pensions have special treatment (deemed distributions or elections).
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Smart, legal planning can reduce or avoid the exit tax. If you’re behind on filings, fix that first.
What Is the US Exit Tax?
The exit tax, also known as expatriation tax, U.S. departure tax, etc., is a final tax on certain people who renounce U.S. citizenship or terminate long-term U.S. residency. It prevents high-net-worth individuals from leaving the U.S. tax net without paying tax on unrealized gains.
Who Is a “US Person” for Exit Tax Purposes?
- U.S. citizens, including dual citizens.
- Long-term residents (Green Card holders) who held a Green Card in 8 of the last 15 years (counted by presence in a calendar year, which can effectively be as little as ~6 years + 2 days depending on timing).
Some dual citizens from birth who meet residency and filing conditions may be exempt from covered expatriate status.
Are You a Covered Expatriate?
If any one of the following applies, you’re covered:
| Test | 2025 Threshold | What It Means |
|---|---|---|
| Net worth test | $2,000,000+ | Your worldwide net worth at expatriation (FMV) is at least $2M. |
| Tax liability test | ~$206,000 | Your average annual net income tax for the 5 years before expatriation exceeds the inflation-adjusted limit. |
| Compliance test | Fail = Covered | You cannot certify (on Form 8854) you complied with all U.S. tax obligations for the prior 5 years. |
Tip: If you’re close to a threshold, timing and documentation matter. Greenback can help you plan the cleanest path.
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How the Exit Tax Is Calculated (Deemed Sale)
If you’re a covered expatriate, the IRS essentially “pretends” you sold everything you own the day before you give up citizenship or long-term residency. That’s called a deemed sale. You then pay U.S. capital gains tax on the net gain above an exclusion (for 2025, $890,000 per person).
Quick definitions:
- Fair Market Value (FMV): What a willing buyer would pay today.
- Cost basis: What you paid for the asset (plus certain adjustments, like improvements on a home).
- Deemed sale: A pretend sale on paper. You don’t actually sell your assets, but the IRS calculates tax as if you did.
- Exclusion: A one-time amount that reduces your total gains ($890,000 in 2025).
The 60-second calculator
- List your assets (investments, real estate, business interests, crypto, collectibles, etc.).
- Find today’s value (FMV) for each.
- Subtract your basis to get each asset’s gain or loss.
- Net them together (losses reduce gains).
- Subtract the exclusion ($890,000 in 2025).
- Tax what’s left at capital gains rates (often 15%–20%; surcharges may apply).
Two important notes:
- The exclusion is per person and applies to your total net gain, not per asset.
- If your net gain is below the exclusion, you owe no exit-tax on the deemed sale.
Here are some examples:
Example A (below the exclusion → no tax)
- Total net gain after netting = $650,000
- Exclusion (2025) = $890,000
- $650,000 – $890,000 = $0 taxable → No exit-tax on the deemed sale.
Example B (above the exclusion → partial tax)
- Total net gain after netting = $1,300,000
- Exclusion (2025) = $890,000
- Taxable amount = $410,000
- Apply your long-term capital gains rate to $410,000 (often 15%–20%).
Example C (asset-by-asset, including losses)
Asset FMV Cost Basis Gain/Loss U.S. stock fund 900,000 400,000 +500,000 Rental property 750,000 500,000 +250,000 Startup shares 300,000 50,000 +250,000 Crypto 100,000 220,000 –120,000 Net total +880,000
- Net gain = $880,000
- Exclusion (2025) = $890,000
- $880,000 – $890,000 = $0 taxable → No exit-tax (your crypto loss helped!).
Retirement accounts & pensions (special rules)
These don’t use the simple “deemed sale” math:
- IRAs: Treated as if you withdrew the full balance the day before expatriation (taxable as income; no early-withdrawal penalty).
- 401(k)s and pensions: You may be able to elect either a 30% U.S. withholding on future payments or include a present value amount now. The better choice depends on your totals, timing, and treaty benefits.
- Foreign pensions: Rules vary by plan and country; treaties matter. We model these case-by-case.
- These are often the trickiest — treaties, local laws, and IRS rules overlap. Professional help is essential here.
Common misunderstandings (and quick fixes)
- “I owe tax on each asset separately.”
- Not quite. You net gains and losses first, then subtract the single exclusion.
- “The exclusion applies to each asset.”
- It applies once to your total net gain.
- “Losses don’t help.”
- They do. Real losses reduce your total gain before the exclusion.
Can You Avoid Paying the US Exit Tax?
Yes—sometimes. The exit tax rules are strict, but with the right planning before you renounce or give up residency, you may be able to reduce or even eliminate the tax. Once you’ve expatriated, it’s generally too late to change the outcome.
Net Worth Management
The IRS exit tax only applies if your net worth is $2 million or more on the date of expatriation. Legal strategies to manage this include:
- Gifting assets to a spouse or other family members to bring your individual net worth under $2M.
- Charitable giving or lifetime transfers that reduce your estate.
- Debt planning and asset valuations, where appropriate, to present a realistic (and compliant) picture of net worth.
Important: Only your individual net worth counts—spousal assets are not automatically combined.
Income Tax Liability Planning
If your average annual net income tax liability over the last five years is below ~$206,000 (2025 threshold), you’re not a covered expatriate. Options include:
- Smoothing income over several years to avoid spikes.
- Timing large transactions (like a business sale) to fall outside the five-year lookback window.
Timing Your Expatriation
When you expatriate can be just as important as whether you do:
- Green Card holders: Renounce before you reach the 8 of 15 years rule.
- Market-sensitive assets: Consider expatriating after a downturn, when asset values (and therefore gains) are lower.
- Exchange rates: Currency swings can raise or lower the dollar value of foreign assets.
Compliance First
Even if you’re well under the wealth and income thresholds, you’ll still be a covered expatriate if you can’t certify five years of full tax compliance on Form 8854.
- File all back tax returns and FBARs (foreign bank account reports).
- Use the Streamlined Filing Compliance Procedures if your lapses were non-willful.
- If willful, the Voluntary Disclosure Program may be the only option.
Using Foreign Tax Credits & Treaties
Foreign tax rules can sometimes offset U.S. liabilities:
- Foreign tax credits may reduce the tax you owe if you’ve already paid another country on the same gains.
- Tax treaties may protect certain pensions or assets from double taxation.
However, once you’ve expatriated, U.S. tax credits are much harder to use—so coordination must happen before you exit.
Exit Taxes Around the World
The U.S. isn’t the only country that imposes an “exit tax.” Many governments use a similar approach, often called a departure tax, to make sure residents pay tax on gains that built up while they lived there. The details vary widely, but here are some common examples:
| Country | What Triggers It | How It Works |
|---|---|---|
| United States | Renouncing citizenship or long-term Green Card status as a “covered expatriate” | IRS treats worldwide assets as sold at fair market value; first $890,000 (2025) in gains is exempt |
| Canada | Giving up Canadian residency | Deemed sale of most assets, though some types (like Canadian real estate) may be excluded |
| Germany | Moving abroad while holding significant shareholdings | “Virtual sale” rules tax unrealized gains on large corporate shareholdings |
| France | High-net-worth individuals who have lived in France long enough | Gains on certain assets taxed when residency is given up |
| Spain | Long-term residents with substantial shareholdings | Exit tax applies to unrealized capital gains if ownership and residency thresholds are met |
| Australia | Permanently leaving the country | Most assets treated as sold on the departure date (“deemed disposal”) |
A Note on U.S. State “Exit Taxes”
You may have heard about so-called “exit taxes” in states like California or New Jersey. These are not the same as the federal U.S. exit tax (expatriation tax).
At the state level, “exit taxes” usually mean:
- Withholding requirements on the sale of property by nonresidents, or
- Rules tied to changes in state residency status.
For example, California doesn’t impose a one-time exit tax, but it does aggressively enforce residency rules. If you’ve lived in California, make sure to also read our California Exit Tax Guide to understand how state residency could still affect you.
If you’re navigating both federal expatriation and state residency changes, it’s essential to address each separately—and we can help with both. Get started today.
What If I’m Behind on My US Tax Returns?
Every US citizen must file an annual tax return, no matter where they live. If you are behind on filings, you must catch up before renouncing or becoming a covered expatriate.
Fortunately, the IRS offers help. The two main options are the Streamlined Filing Compliance Procedures and the Voluntary Disclosure Program.
- Streamlined Filing Compliance Procedures: For non-willful errors. Using this method, you must file three years of delinquent tax returns and six years of FBARs, self-certifying that your failure to file was accidental. There are no penalties as long as the IRS has not already contacted you about your failure to file.
- Voluntary Disclosure Program: This program is for those who have intentionally refused to fulfill their tax obligations. If you disclose your refusal now, it may reduce your penalties, though likely not erase them as it would with non-willful failure.
Non-compliance triggers the exit tax, even if you’re under the net worth or income thresholds. If you’re behind on your taxes, act fast. You will lose your chance for amnesty if the IRS contacts you first.
Behind on Your U.S. Taxes? Fix It Before You Expatriate
Falling behind on tax filings can automatically make you a “covered expatriate” and trigger the exit tax—even if you don’t meet wealth or income thresholds. Our team can guide you through Streamlined Filing or Voluntary Disclosure so you can catch up penalty-free and move forward with confidence.
FAQs About the US Exit Tax
Who has to pay the US exit tax?
Only covered expatriates—those who meet any of the three tests (net worth, 5-year average tax liability, or compliance failure).
What is the US exit tax rate?
There isn’t a single “exit tax rate.” You pay capital gains tax on net gains above the exclusion. For many, that’s 15%–20% (plus any applicable surcharges).
How much is excluded in 2025?
$890,000 of gain (inflation-adjusted annually).
Does the exit tax apply to Green Card holders?
Yes, if you’re a long-term resident (8 of last 15 years) and you’re a covered expatriate.
Can I avoid the exit tax?
You may reduce or avoid it through timing, gifts, compliance, and careful planning. Every case is unique—model first, act second.
How much is the US exit tax?
The amount varies by asset value and gains. Capital gains rates (15–20%) apply to taxable amounts above the $866,000 exemption for 2024. (for the 2025 tax year, it is $890,000)
Does the exit tax apply to all expats?
No, it only covered expatriates who met the net worth, income, or compliance criteria. (See above.)
Will I owe back taxes?
You may. However, most expats can use the Foreign Tax Credit or the Foreign Earned Income Exclusion to reduce or eliminate their US tax bill. If you owe back taxes, interest will accrue until the balance is paid.
Can I return to the US after renouncing?
Yes, but you’ll need a visa. Immigration rules may also tighten for ex-citizens, so be prepared for complicating factors.
