Exit Tax

Exit Tax

Katelynn Minott, CPA & CEO profile picture
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Exit tax is the U.S. expatriation tax that can apply when a U.S. citizen renounces citizenship or a long-term green card holder ends U.S. tax residency. It applies to covered expatriates and can treat certain assets as if they were sold the day before expatriation.

Why it matters for U.S. expats

Exit tax can turn renunciation or long-term green card abandonment into a major tax event. A covered expatriate may owe tax on unrealized gains, deferred compensation, retirement accounts, trust interests, or future gifts to U.S. recipients, so the planning needs to happen before citizenship or residency is formally given up.

Common questions

1. What triggers the U.S. exit tax?

The U.S. exit tax can apply when a U.S. citizen gives up citizenship or a long-term resident gives up green card status and is classified as a covered expatriate.

2. Who is a covered expatriate?

A covered expatriate is someone who expatriates and meets the net worth test, the average annual net income tax liability test, or fails to certify five years of U.S. tax compliance on Form 8854.

3. Does every U.S. citizen who renounces owe exit tax?

No. Renouncing U.S. citizenship does not automatically create exit tax. The exit tax rules apply when the person is a covered expatriate.

4. How is exit tax calculated?

For many assets, the IRS applies a mark-to-market rule. The covered expatriate is treated as if they sold their property for fair market value on the day before expatriation, and gain above the annual exclusion amount can be taxable.

5. What assets are included in exit tax?

Stocks, real estate, business interests, investment accounts, and other property can be included in the mark-to-market calculation. Deferred compensation, specified tax-deferred accounts, and nongrantor trust interests have separate expatriation tax rules.

6. Do long-term green card holders have to consider exit tax?

Yes. A long-term resident can be subject to exit tax after giving up U.S. lawful permanent resident status or being treated as a resident of another country under a tax treaty.

7. What is Form 8854 used for?

Form 8854 reports expatriation information to the IRS and is used to certify five years of U.S. tax compliance. Failing to file it correctly can cause someone to be treated as a covered expatriate.

8. Can tax compliance affect exit tax status?

Yes. Even someone below the net worth and tax liability thresholds can become a covered expatriate if they cannot certify five years of U.S. federal tax compliance.

9. Can exit tax payment be deferred?

Yes, in some cases. A covered expatriate may elect to defer payment of tax on specific property, but the election requires security and an irrevocable waiver of certain treaty rights.

10. Does exit tax affect future gifts or inheritances?

Yes. Gifts or bequests from a covered expatriate to U.S. citizens or U.S. residents can create covered gift or covered bequest tax issues for the recipient.

When to get help

Professional guidance is important when:

  • You are considering renouncing U.S. citizenship.
  • You are giving up a long-term green card.
  • Your net worth is close to or above $2 million.
  • You have not filed U.S. tax returns for the five years before expatriation.
  • You own foreign property, investments, business interests, pensions, or trusts.
  • You need to calculate unrealized gains before expatriation.
  • You want to understand how future gifts or inheritances to U.S. family members may be taxed.

Bright!Tax can review your covered expatriate risk, prepare prior-year filings if needed, and coordinate Form 8854 before or after expatriation. Get started with Bright!Tax.

Official sources

Reviewed by

Katelynn Minott, CPA & CEO

Last reviewed

July 2026

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