The US Exit Tax When You Give Up Citizenship or a Green Card

What the Exit Tax Is, and Why Status Matters More Than the Bill

When you give up US citizenship, or give up a green card you have held for many years, US law can treat you as if you sold everything you own the day before you leave, at its full market value, and it taxes the gain. The sale on paper is the exit tax. People ask me what the exempt amount for unrealized gains is in 2026, and the honest answer is that the first $910,000 of gain is excluded, one figure applied against your total gain rather than against each asset, and adjusted each year. For a lot of people the tax on the sale itself is therefore small or zero.

Here is the part that matters, and the part almost everyone gets wrong. The exit tax only reaches a "covered expatriate." Whether you are covered is a yes-or-no status, and that status, not the size of the sale, is what drives the real cost. You can owe zero on the deemed sale and still be covered, and being covered puts a 40% tax on everything you ever give your US children afterward. So the short version is that the goal of good planning is rarely to shrink the exit-tax bill. The goal is to keep you from being covered in the first place, because that is what protects your family.

Who Counts as a Covered Expatriate: the Three Tests

You are covered if any one of these is true on the day you expatriate. Just one is enough.

• The $2 million test. Your net worth is $2 million or more. The figure has not been raised since 2008, so it is not the "wealthy only" line people assume. A paid-off Florida home, a retirement account, and a brokerage account routinely add up past it.
• The income test. Your average annual US income tax over the last five years is more than $211,000 for 2026. The income test is indexed and catches high earners even without a big net worth.
• The compliance test, and it is the sleeper. You cannot certify, on Form 8854, that you filed everything correctly for the last five years. A single missed tax return, foreign-gift form, or foreign-company form in that window makes you covered no matter how little you own or earn. Someone with almost no assets can be covered purely by a paperwork gap. (The FBAR is technically a separate, non-tax filing that sits outside this certification, but fix it in the same pass, because it draws the same scrutiny.)

The lesson from the third test is the one to carry. Clean up any late filings before you expatriate, not after, because once you have expatriated it can be too late to certify. The cleanup is usually a streamlined filing, which we cover in our guide to the streamlined filing compliance procedures and our page on FBAR penalties and how to fix late FBARs; willful exposure runs instead through the Voluntary Disclosure Practice.

Is There an Exit Tax on Giving Up a US Green Card?

The question I get most about this is, "Is there an exit tax if I give up my green card?" Yes, if you held the card in at least 8 of the last 15 years. The law then treats you as a "long-term resident," and giving up that status runs the exact same three tests and the exact same exit tax as a citizen who renounces. Partial years count as full years, so the clock runs faster than people expect.

Two traps live here. First, "giving it up" is broader than filing the formal abandonment form. If you are past your 8-year mark and you claim to be a tax resident of another country under a tax treaty, that claim can itself count as expatriating, and trigger the exit tax, even though you did nothing at immigration. The same treaty move made before year 8 is a shield; made after, it is a trap. Second, and this is the reverse mistake, simply letting your card expire, or moving abroad, does not end your US tax duties. A green-card holder stays a US taxpayer on worldwide income until the status is formally ended or determined abandoned. Courts have enforced exactly that, and hundreds of thousands of people sit in that limbo, still taxed, still adding long-term-resident years. Before any green-card client moves or surrenders a card, we count the 8-of-15 clock first, because it decides everything.

Your IRA and Pension: Often the Biggest Hit

People brace for the deemed sale of their house or their stocks, but the $910,000 exclusion softens that. The number that ambushes them is retirement money.

The day before you expatriate, a traditional IRA and similar tax-deferred accounts (including 529 college plans, health savings accounts, and Coverdell accounts) are treated as fully cashed out. The entire balance becomes ordinary income in that one year, taxed at regular rates. No 10% early-withdrawal penalty applies, and no part of the $910,000 exclusion applies either, because the exclusion covers only the gain on the deemed sale of your other property and none of your retirement accounts. A $1.5 million traditional IRA turns into $1.5 million of income all at once. Being a Florida resident helps here, since Florida adds no state income tax on top, but the federal hit is real.

Employer pensions and deferred compensation follow their own rules. Some can keep deferring if you file a specific notice (Form W-8CE) with the payer in time and accept a flat 30% withholding on each future payment; miss the notice and the whole value can be taxed immediately. Interests in family trusts are not cashed out, but every later distribution to you is hit with 30% withholding. The moving parts are why a covered expatriate needs the numbers modeled before choosing a date, ideally with pre-expatriation moves like spreading retirement draws or Roth conversions across earlier years while you are still a citizen.

The 40% Tax on Gifts to Your US Family, Forever

The 40% tax on your family is the hidden half of expatriation, it is now in force, and it is the real reason covered status matters. Once you are a covered expatriate, any gift or inheritance you later leave to a US citizen or resident is taxed at 40% in that person's hands, on the amount above a $19,000 annual exclusion, and reported on a form called Form 708.

Read that again, because it inverts what people expect. The tax is paid by your US child or grandchild who receives the money, not by you. The tax has no end date, following you for the rest of your life and reaching your estate, wherever in the world the property sits. And it does not give the recipient a stepped-up basis, so your heir can pay 40% when they receive an asset and then capital-gains tax again when they sell it. A burden-of-proof twist comes with it. The law presumes the person you gave to owes the tax unless you authorized the IRS to confirm your status, so the paperwork that protects your family should be signed while you are alive and able to cooperate. Gifts to a US-citizen spouse, gifts to charity, and property already reported on your final US returns are exceptions. Everything else to your US family is exposed. So when covered status can be avoided, avoiding it does more for your children than any exit-tax planning could. If you are on the receiving end, or a parent or grandparent has already expatriated, the recipient-side playbook (Form 708, the June 15, 2027 first deadline, and the defenses) is in our guide to the Section 2801 forever tax.

How to Avoid Covered Status: the Real Planning

Because the entire regime, the exit tax and the 40% family tax alike, only fires from covered status, the whole game is to not be covered. There are three ways to do it, and all of them have to happen before the day you expatriate.

• Get your net worth under $2 million through lawful lifetime gifting, done while you are solvent and not to dodge a known creditor. Gifting under the line is a middle-market move, because for a genuinely large estate, giving away enough to clear the $2 million line can burn more than it saves, and the better plan is to accept covered status and focus on the recipient side.
• Lock down five clean compliance years so you can sign the Form 8854 certification. If you are behind, we fix the late filings first, usually through a streamlined program, so the certification is honest and signable.
• Fit a narrow exception. People who were citizens of both the US and another country at birth, and are taxed as residents of that country, or who relinquish before turning 18 and a half, can escape covered status even over $2 million. Both still require filing Form 8854 and certifying five clean years.

If you are going to be covered no matter what, the plan shifts to the family side, keeping annual gifts under the $19,000 exclusion, using the spouse and charity exceptions, and timing transfers with an eye on that 40% tax. Which path fits depends entirely on your numbers, and the whole thing is a before-you-leave exercise.

Renouncing in Practice: the CLN and the $450 Fee

Renouncing citizenship is a formal act, an oath taken before a US consular officer abroad. Renunciation is one kind of a broader category the law calls relinquishing, which covers several voluntary acts that give up citizenship. Once it is done, the State Department issues a Certificate of Loss of Nationality, and that certificate is the document that proves you are no longer a citizen.

Two practical points follow. The first is the fee. The consular processing fee was cut from $2,350 to $450, effective April 13, 2026, so a lot of the older guidance online overstates it. Second, and more important, the nationality step and the tax step are two different things. The IRS does not issue any "certificate of expatriation." Ending your citizenship at the consulate does not end your tax obligations by itself; you still file Form 8854 with your final US tax return to close out the tax side, and it is that filing, not the oath, that settles whether you were covered.

How We Work, and When We Co-Counsel

Expatriation is specialized work with a lot of moving pieces, so we are clear about where our role sits. The screening that tells you whether you would be covered, the 8-of-15 green-card count, the five-year compliance cleanup, and the family and estate planning on the recipient side are handled here. The deemed-sale modeling and the specialized federal forms (8854, W-8CE, and a recipient's Form 708) we co-counsel with an international tax advisor, and any Israeli or other foreign-country tax is handled by qualified foreign counsel. We tell you up front which pieces your matter needs.

Where this meets our Florida practice is the recipient side. When a US family here in Florida stands to inherit from someone who has expatriated, or a covered expatriate wants to protect US children from that 40% tax, that is estate planning, and it is what we do. Most of this runs by phone and video, which suits clients who are out of state or out of the country, including the many Americans living in Israel who reach this decision after years of foreign-account fatigue. The first and most valuable step is the screen, because it decides everything that follows. See the full international tax planning hub → The mirror image, planning before you become a US person, is pre-immigration tax planning.

Frequently Asked Questions

Common Situations

The oleh who renounces after years of fatigue. An American who made aliyah a decade ago is worn down by foreign-account reporting and wants to renounce. A quick screen shows his paid-off apartment and savings put him over the $2 million line, so he would be covered, which would tax his retirement account in one year and expose future gifts to his US-citizen daughter to the 40% tax. Because he came in early, there is room to plan the retirement draws and the gifting before he sets a date, rather than discovering it after.

The green-card holder who "let the card lapse." A professional who moved back home years ago assumed her expired green card ended everything. In fact she is still a US taxpayer, has quietly passed her eighth long-term-resident year, and a treaty claim her accountant filed may have triggered the exit tax without anyone noticing. Counting the 8-of-15 clock and reviewing the treaty position is the first thing that has to happen.

The US child on the receiving end. A Florida family learns that a parent abroad expatriated years ago and is a covered expatriate. Every gift and the eventual inheritance to the US children carries a 40% tax that they, not the parent, will owe, with no basis step-up. The planning now is to secure the parent's cooperation and records while they are living, use the annual exclusion and marital and charitable exceptions, and structure what can be structured.

Sources of Law

• Exit tax and covered-expatriate definition: 26 U.S.C. §877A (mark-to-market deemed sale; $910,000 exclusion for 2026 per Rev. Proc. 2025-32); §877(a)(2) (the $2,000,000 net-worth and average-income-tax tests, and the five-year certification); §877A(d) to (f) (deferred compensation, specified tax-deferred accounts, and trust interests). Forms 8854 and W-8CE. law.cornell.edu
• Long-term residents and green-card cessation: 26 U.S.C. §877(e); §7701(b)(6) (when lawful permanent residency ends, including the treaty-resident rule); Notice 2009-85. Green-card holder remains taxable until formal abandonment, and the failed five-year certification alone makes a covered expatriate: Topsnik v. Commissioner, 146 T.C. 1 (2016) (expatriation date set at the Form I-407 filing; the $1,373,374 installment note deemed sold the day before); Topsnik v. Commissioner, 143 T.C. 240 (2014) (worldwide taxation continues until the card is formally abandoned). Read in full from the official opinion text (retrieved 2026-09-03).
• The 40% tax on US recipients: 26 U.S.C. §2801 and the final regulations, T.D. 10027, 26 C.F.R. Part 28 (covered gifts and bequests received on or after January 1, 2025; 40% rate; $19,000 annual exclusion; Form 708; marital, charitable, and already-reported exceptions; no basis step-up). law.cornell.edu
• The renunciation fee and proof of loss of nationality: consular processing fee reduced to $450 effective April 13, 2026, Fed. Reg. 2026-04931; Certificate of Loss of Nationality (Form DS-4083). Immigration and Nationality Act §349.
• Constitutional status of the deemed-sale tax (awareness only): Moore v. United States, 602 U.S. 572 (2024) (upholding a realized-income tax and reserving taxes on unrealized appreciation). (retrieved 2026-07-16)

What the One Exit-Tax Case Shows About Leaving

What people are usually told about this was true before the statute changed. Before June 17, 2008, giving up citizenship or a long-held green card did not trigger a sale of anything. The old rule followed a former citizen's or resident's US-source income for ten years afterward, and a person who moved home and stopped filing mostly heard nothing more. Since that date the law treats a covered expatriate as having sold everything the day before leaving, and in the reported decisions I have found, the Tax Court has applied that rule to a real person once.

I see cases where a person believes he left years before the government says he did, and that one decision is the clearest example I have read. A German citizen received a green card in 1977, renewed it every ten years, and in 1986 started a gourmet foods company in California. In 2000 he sued the people he was in business with, and the suit settled in 2004 with the sale of his shares for $5,427,000, paid $1,600,000 down and then $42,500 a month for nine years. He said he had been living in Germany since 1999 (the German tax office had him registered as a nonresident, with no German return for 2010 and a room he used now and then, free of charge, in someone else's house in Freiburg), and his 2003 renewal still listed a mailing address in Hawaii, which is the detail I keep coming back to. In November 2010 he signed the immigration form that surrenders a green card and named the Philippines as his new home. He never filed the expatriation statement, Form 8854, and he could not have signed its certification, because he had not filed all of his US returns or paid all of his US tax for the five years before. On the day before he surrendered the card, the unpaid balance of his note was $1,373,374. The Tax Court held that he expatriated on the day he filed the form, that he had been a long-term resident for at least ten of the previous fifteen years, that the failed certification by itself made him a covered expatriate, and that the note was deemed sold the day before for its full $1,373,374, which put $1,183,986 of gain into his 2010 income at once. The IRS assessed $138,903 in tax for that one year, a $27,781 accuracy penalty and a $13,890 addition for filing late, collected part of it by seizing the payments as they arrived, and the fight over his residency and his returns ran through five different courts.

In reading that opinion, I have a few take-home points.

The first is the date. A green card ends for tax purposes on the day the abandonment form is filed, or on the day a treaty residence is claimed and reported to the IRS, and on no other day. He argued that he had become a German resident on December 31, 2009, and the court set the date at November 20, 2010, when the form was filed, which moved the deemed sale and eleven months of payments into a year he thought he had left behind. The practice pointer I take from it is that the expatriation date is chosen by a filing, so I have a client pick it on purpose, after the five years of returns are in and I have counted the long-term-resident years, rather than by whichever form happens to get signed first.

Second, the certification is the whole test for most people. The court never reached his net worth or his average tax bill, because the missing Form 8854 and the unfiled returns made him covered by themselves. Most green-card holders I talk to who have drifted out of the filing habit fail that test long before they reach $2 million. My practice pointer is to treat the five prior years as the first deliverable, and to file or amend them before the card is surrendered, since a certification I would ask a client to sign under penalty of perjury has to be true on the day it is signed.

Third, the deemed sale reaches paper, and a house or a brokerage account is only the obvious part. His installment note was property, valued at its unpaid principal and accrued interest, and the gain inside it came due in one year. A promissory note from a business sale, a deferred payment from a buyout, or a claim someone owes you sits in the same category. The practice pointer I give is to list every asset by its value on the day before the intended date, notes and claims included, because the $910,000 exclusion is applied against the total gain and not against each asset. When I run the screen, I ask for every note and claim by name.

Avoid the surrender signed on the way out of the country, before anyone has checked the returns, because the form fixes the date and the date fixes everything else. Had this man filed his five years of returns and paid what they showed before he signed the abandonment form, and then filed Form 8854 with the certification, he would not have been a covered expatriate at all, and the $1,183,986 of gain sitting in his note would not have been pulled into his 2010 income the day before he left. The screen that counts the years and checks the five returns is the part I do here, at a flat fee quoted at the consult, and the deemed-sale modeling and the Form 8854 itself are co-counseled with an international tax advisor.

The honest limit is that the opinion stands alone. No court has ruled on whether the deemed-sale tax is constitutional, the Supreme Court reserved that question in 2024, and every other expatriation matter I have found was settled on the forms and the statute rather than in a courtroom. When I say the rules on this page come from the statute and the IRS notice, that is the reason.

Kevin D. Klagge, Esq., admitted in Florida since 2012. Each case described above is a decision of a court rather than a matter handled by this firm. Past results do not guarantee a similar outcome.

Updated on September 3, 2026. Reviewed by Kevin D. Klagge, Esq., Fla. Bar No. 99502. Attorney Kevin Klagge represents families, businesses, and international clients in estate and tax planning, business structuring, and international law, with a focus on Florida legal tools. He litigates estate and business issues in court. This article is general information about US law, not legal or tax advice, and does not create an attorney-client relationship. Expatriation is specialized; the deemed-sale modeling and Forms 8854, W-8CE, and 708 are co-counseled with an international tax advisor, and foreign-country tax is handled by foreign counsel. Federal figures are adjusted periodically and may change. Your result depends on your specific facts.