Money

Expatriation Tax (Exit Tax): What US Citizens Should Know Before Renouncing

4 min read

In this guide
  1. Quick answer
  2. Who counts as a covered expatriate?
  3. When is citizenship treated as relinquished?
  4. What about green card holders?
  5. How does the exit tax work?
  6. What if you have unfiled returns?
  7. Common mistakes
  8. FAQ
    1. Does renouncing remove all US tax obligations?
    2. Can I defer the exit tax?
    3. Do I need professional advice?
  9. Key takeaways
  10. Related guides
  11. Sources

What is the expatriation tax? It is the set of US tax rules (IRC sections 877 and 877A) that apply to US citizens who renounce their citizenship and to long-term residents who end their US resident status for federal tax purposes. The IRS says a covered expatriate faces a deemed sale of their property, often called the exit tax, and must file Form 8854.

Quick answer

  • You are a covered expatriate (expatriating on or after June 17, 2008) if any one of three tests applies: the tax liability test, the net worth test or the compliance test.
  • The net worth test is $2 million or more on the expatriation date.
  • The IRS lists the tax liability test amount as $206,000 for 2025, $201,000 for 2024 and $190,000 for 2023.
  • Covered expatriates are treated as having sold all their property at fair market value the day before the expatriation date.
  • Form 8854 is required, and the IRS says a $10,000 penalty may be imposed for failing to file it when required.

Who counts as a covered expatriate?

Test What the IRS says
Tax liability test Average annual net income tax for the 5 years before expatriation exceeds an inflation-adjusted amount ($206,000 for 2025)
Net worth test Net worth of $2 million or more on the expatriation date
Compliance test You cannot certify on Form 8854 that you met all US federal tax obligations for the 5 preceding years

Different rules apply for earlier expatriation dates, so if you expatriated before June 17, 2008, read the IRS page for the thresholds that apply.

When is citizenship treated as relinquished?

The IRS says the earliest of four dates applies. One of them is the date a US consular officer approves a renunciation and the State Department issues a certificate of loss of nationality, subject to conditions on the IRS page.

What about green card holders?

For long-term residents, the IRS says residency ends if lawful permanent resident status is revoked or abandoned, or if you are treated as a resident of a treaty country, do not waive treaty benefits and notify the IRS on Forms 8833 and 8854. If you are a green card holder thinking about leaving, also read our guide to re-entry permits and the green card test for tax residency.

How does the exit tax work?

  1. All property is treated as sold at fair market value the day before the expatriation date.
  2. Resulting gains are recognised for that tax year. Losses are recognised as otherwise provided, but the wash sale rules do not apply.
  3. The deemed-sale gain is reduced by an exclusion amount that started at $600,000 and is inflation-adjusted. For 2025 the IRS lists it as $890,000. It cannot go below zero.
  4. You may elect to defer payment of the tax on deemed-sold property.

What if you have unfiled returns?

The IRS says expatriates should file all required returns even if they cannot pay in full, and a payment plan may be available. It also refers to September 2019 relief procedures for certain former citizens. See our guides to streamlined foreign offshore procedures and IRS payment plans.

Common mistakes

  • Not filing Form 8854. A $10,000 penalty may apply.
  • Using a wrong year’s threshold. The amounts are inflation-adjusted.
  • Ignoring the compliance test. Unfiled returns can make you a covered expatriate.
  • Assuming only citizens are affected. Long-term residents can be covered too.

FAQ

Does renouncing remove all US tax obligations?

No. Tax obligations up to the expatriation date remain, and the exit tax may apply.

Can I defer the exit tax?

The IRS says you may elect to defer payment of the tax attributable to deemed-sold property.

Do I need professional advice?

This is a complex area. Speak to a qualified tax professional before you act.

Key takeaways

  • Three tests decide covered expatriate status: tax liability, net worth and compliance.
  • Covered expatriates are treated as having sold their property the day before expatriation.
  • File Form 8854 on time.

Last updated: October 2026. This guide is general information, not tax or legal advice. Amounts are adjusted each year, so check the IRS and a qualified tax professional.

Sources

  • IRS: Expatriation Tax

Keep reading