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Connect on LinkedInA covered gift is a gift received by a U.S. citizen or U.S. resident from a covered expatriate. It can trigger a special U.S. tax on the recipient when the gift exceeds the annual exclusion amount.
Why it matters for U.S. expats
Covered gift rules can affect families after someone gives up U.S. citizenship or long-term green card status. If the former U.S. person is a covered expatriate, future gifts or inheritances to U.S. recipients can create U.S. tax for the person receiving the money or property, even though the giver is no longer a U.S. taxpayer.
Common questions
1. When does a gift from a former U.S. citizen become a covered gift?
A gift becomes a covered gift when it is received by a U.S. citizen or U.S. resident from someone who was a covered expatriate at the time of the gift.
2. Who pays tax on a covered gift?
The U.S. recipient pays the tax. This is different from regular U.S. gift tax, where the donor is usually responsible for filing and paying.
3. What is the tax rate on a covered gift?
The tax uses the highest U.S. estate and gift tax rate in effect when the gift is received.
4. Does the annual gift tax exclusion apply to covered gifts?
Yes. The covered gift tax applies only to the amount of covered gifts and covered bequests received during the year that exceeds the annual exclusion amount.
5. Are covered gifts from a covered expatriate spouse taxable?
A gift to a spouse can be excluded if it would qualify for the marital deduction under the normal gift or estate tax rules.
6. Are charitable gifts from covered expatriates taxable?
No, if the transfer would qualify for the charitable deduction under the normal gift or estate tax rules.
7. Do covered bequests follow the same rules as covered gifts?
Yes. A covered bequest from a covered expatriate can trigger the same Section 2801 tax for a U.S. citizen or U.S. resident recipient.
8. Do U.S. recipients pay covered gift tax on money from foreign parents?
Only if the foreign parent is a covered expatriate. If the parent is not a covered expatriate, the recipient may still need to report a large foreign gift on Form 3520, but that is a different rule.
9. Can foreign gift or estate tax reduce the U.S. tax on a covered gift?
Yes. The Section 2801 tax can be reduced by gift or estate tax paid to a foreign country on the same covered gift or bequest.
10. How can someone avoid creating covered gift issues before renouncing U.S. citizenship?
They should review covered expatriate status, five years of U.S. tax compliance, Form 8854, estate plans, trusts, and planned gifts before expatriating.
Related forms
- Form 8854: Initial and Annual Expatriation Statement
- Form 3520: Reporting foreign gifts and foreign trusts
- Form 709: U.S. Gift Tax Return
When to get help
Professional guidance is important when:
- You are planning to renounce U.S. citizenship or give up a long-term green card.
- You may be classified as a covered expatriate.
- You plan to give money or property to U.S. family members after expatriation.
- You are a U.S. citizen or U.S. resident receiving a gift or inheritance from a covered expatriate.
- You need to distinguish a covered gift from a regular foreign gift.
- You have foreign gift, estate, trust, or inheritance reporting issues.
- You need to coordinate Form 8854, Form 3520, estate planning, and U.S. tax exposure.
Bright!Tax can review the U.S. tax position before or after expatriation and identify the filing issues connected to covered gifts, foreign gifts, and Form 8854. Get started with Bright!Tax.
Related Bright!Tax guides
- U.S. exit tax: The cost of renouncing citizenship
- Renouncing U.S. citizenship: A guide for U.S. taxpayers abroad
Official sources
- IRS: Expatriation tax
- IRS: Instructions for Form 8854
- Cornell Legal Information Institute: 26 U.S. Code § 2801
- IRS: About Form 709
Reviewed by
Katelynn Minott, CPA & CEO
Last reviewed
July 2026