While those who obtain a Green Card generally want to remain US citizens, there are occasional times where a Green Card holder may want to relinquish it. Sounds like a simple process, but there are situations where this can be a very costly decision. David McKeegan answers one Greenback customer’s question on how giving up a Green Card can have a negative financial impact.
Hi everybody. My name is David McKeegan. I’m with Greenback Expat Tax Services, and our question today is around the tax implications of giving up a Green Card.
As a Green Card holder, you will have been treated like a US citizen for tax purposes, and the same is true if you decide to give up your Green Card. Basically, you’ll face the same exit tax that a US citizen would face if they were renouncing their citizenship.
You only face this exit tax if you’re what we call a covered expat: how do you become a covered expat?
For a Green Card holder, if you’ve held a Green Card for 8 of the last 15 years prior to leaving the United States, you would be considered a covered expat. You could also be considered a covered expat if your net worth is over $2 million, your average annual tax liability was greater than $150,000 in 2013, $151,000 in 2012, $147,000 in 2011, and $145,000 in 2010 and 2009. That’s your tax liability, meaning you were paying tax over $155,000. Or, you’ve not been compliant with your US taxes for the last 5 years. If you meet any of those, then you’ll be considered a covered expat.
What’s it mean to be a covered expat? Basically, it means that all of your global assets will be treated as if they were sold on the day before you gave up your Green Card at fair market value. That could be a big tax burden for somebody, and there is a big exclusion that goes with it. The current exclusion is $668,000, so if you sell of these assets and the value that is over $668,000, then you’ll face a tax of 39.6% on those monies. If the total amount of your assets is less than $668,000, then you won’t face any tax at all.
As you would imagine, this can be a bit complicated and you want to make sure that if you’re going to face this exit tax, you going to knowing exactly what it is and why you’re going to be facing t, so, if you have any questions, feel free to reach out to us, and we’ll get back to you as soon as we can.
Thank you very much.
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