Ashford International Law P.C.

Most foreign nationals who apply for United States citizenship have held a green card for years and are already taxed as United States residents. For them, the oath of allegiance changes less in tax terms than is often assumed, and what it does change is permanent. Naturalization does not raise the federal estate tax exemption of a person who already lives in the United States with the intention of staying; that person already has the full basic exclusion amount of $15,000,000 for 2026.

What citizenship changes is the treatment of transfers to the new citizen by a spouse, the reach of the estate and gift tax treaties, the taxation of income after a later move abroad, the citizenship of minor children, and the cost of leaving the United States tax system again. This article sets out those consequences with the figures that apply in 2026.

Citizenship, residence and domicile

For estate and gift tax, a non-citizen is either domiciled in the United States, meaning living there with no definite present intention of leaving (Treas. Reg. § 20.0-1(b)(1)), or not. A domiciled non-citizen is taxed on the worldwide estate and receives the same exclusion as a citizen. A non-citizen who is not domiciled is taxed only on United States assets and, absent a treaty, receives a credit of $13,000, which shelters $60,000 (IRC § 2102(b)). The frequent comparison between $60,000 and the citizen’s exemption is therefore accurate only for non-citizens whose domicile is abroad.

For income tax, a green card holder is a resident alien and is taxed on worldwide income whatever his or her domicile (IRC § 7701(b)). A citizen is taxed on worldwide income and on the worldwide estate by reason of citizenship alone, wherever he or she lives. The tests are discussed in more detail in the article on US persons for transfer tax purposes and on the page Estate Planning for Non-US Citizens.

Table 1. The three positions compared (2026)

Question	Non-citizen living abroad	Green card holder domiciled in the United States	United States citizen
Estate tax base	United States assets only	Worldwide estate	Worldwide estate, wherever the citizen lives
Estate tax exemption	$60,000, or a pro rata share of the full exclusion under some treaties	$15,000,000	$15,000,000
Gift tax base	United States real estate and tangible property located in the United States; no lifetime exclusion	All gifts worldwide; $15,000,000 lifetime exclusion	All gifts worldwide; $15,000,000 lifetime exclusion
Property received from a spouse	Marital deduction only through a QDOT or treaty relief; gifts sheltered up to $194,000 a year	Marital deduction only through a QDOT or treaty relief; gifts sheltered up to $194,000 a year	Unlimited marital deduction
Portability of a deceased spouse’s unused exclusion	Cannot be elected for the non-citizen’s own estate; usable as a survivor only under a treaty	Available	Available
Treaty rules on domicile	Apply	Apply; a treaty can treat the holder as domiciled abroad	Overridden by the saving clause
Income tax	United States source income and business income only	Worldwide income	Worldwide income
After a move abroad	No change	Worldwide income until the green card is formally given up, unless a treaty treats the holder as resident abroad	Worldwide income for life, until citizenship is given up
Exit tax on leaving	None	Only for long-term residents (eight of the last fifteen years) who are covered expatriates	Every citizen who renounces and is a covered expatriate
Minor children with green cards	Not applicable	Remain permanent residents	Become citizens automatically on the parent’s naturalization, if under 18 and in that parent’s custody

What naturalization changes for estate and gift tax

The unlimited marital deduction depends on the citizenship of the spouse who receives the property, not of the spouse who transfers it (IRC §§ 2056(d)(1), 2523(i)). A husband’s naturalization therefore improves his wife’s estate plan, not his own. Where the receiving spouse is not a citizen, property passing at death qualifies for the deduction only if it passes to a qualified domestic trust (QDOT) with at least one United States trustee; estate tax is then collected when principal is distributed or when the surviving spouse dies (IRC §§ 2056(d)(2), 2056A). Lifetime gifts to a non-citizen spouse are sheltered only up to an annual exclusion of $194,000 in 2026. Larger gifts use up the donor’s lifetime exclusion.

Naturalization after the first death can still help. The marital deduction is allowed without a QDOT if the surviving spouse becomes a citizen before the estate tax return is filed and was a United States resident at all times between the death and naturalization (IRC § 2056(d)(4)). A surviving spouse who naturalizes later, while a QDOT is already in place, can bring the QDOT tax to an end under the conditions of IRC § 2056A(b)(12).

Joint ownership follows the same line. Between spouses where the survivor is a citizen, half of jointly held property is included in the estate of the first spouse to die, whoever paid for it (IRC § 2040(b)). Where the surviving spouse is not a citizen, that rule does not apply, and the whole property is included in the first estate except to the extent that the survivor can prove his or her own contribution (IRC §§ 2040(a), 2056(d)(1)(B)). The page Asset Planning Using Joint Titles covers these rules.

Portability, meaning the surviving spouse’s use of the deceased spouse’s unused exclusion amount, is not a privilege of citizenship. The executor of a decedent who was a citizen or resident can elect it, and a surviving spouse who is a citizen or resident can use it. The executor of a non-citizen who was not a resident cannot elect it (Treas. Reg. § 20.2010-2(a)(5)), and a non-citizen surviving spouse who is not a resident cannot use it except to the extent a treaty allows (Treas. Reg. § 20.2010-3(e)). Where a QDOT holds the marital share, the amount becomes available to the survivor when the QDOT tax is finally determined or, if the survivor naturalizes and IRC § 2056A(b)(12) applies, on naturalization (Treas. Reg. § 20.2010-3(c)).

Where the treaties stop helping

Several of the estate and gift tax conventions protect a person who moves to the other country from being treated as domiciled there for a number of years. Under the German convention, a German national who is not a United States citizen, who is domiciled in both countries under their domestic rules and who has been domiciled in the United States for no more than ten years in total is treated as domiciled only in Germany (Art. 4(3)). The conventions with France and the United Kingdom contain rules of the same kind with different periods. A person protected in this way pays United States estate tax only on the assets the convention allocates to the United States, chiefly real estate and the business property of a permanent establishment.

These rules apply only to a person who is not a citizen of the other country, so naturalization ends them on the day of the oath. The conventions also reserve to the United States the right to tax the estates and gifts of its citizens as if the convention did not exist (German convention Art. 11(1); French convention Art. 1(4)).

Some benefits survive the saving clause. The German and French conventions allow a marital deduction, up to an amount equal to the applicable exclusion amount, for property passing to a spouse who is not a citizen, subject to conditions and to an irrevocable election that gives up the QDOT route (German convention Art. 10(6); French convention Art. 11(3)). A naturalized citizen can still use that relief for a non-citizen spouse, but the convention can no longer confine United States estate tax to United States assets. The firm’s guide on QDOT and other transfers to a non-citizen spouse under the IRC rules and the tax treaties sets out the treaty conditions.

The income tax conventions work the same way. A green card holder who is also resident in a treaty country can in principle claim treaty residence there and be taxed in the United States largely as a nonresident (Treas. Reg. § 301.7701(b)-7), although a long-term resident who does so is treated as having ended permanent residence, which is an expatriation that can trigger the exit tax (IRC §§ 7701(b)(6), 877A(g)(2)). A citizen has no such option, because the saving clause preserves United States taxation of citizens, subject to listed exceptions (German convention Art. 1(4); French convention Art. 29(2)).

Income tax and reporting

For a green card holder living in the United States, naturalization changes little for income tax. Worldwide income, the foreign tax credit, the report of foreign bank accounts (FBAR, FinCEN Form 114, for aggregate balances above $10,000), Form 8938, the rules on passive foreign investment companies (PFICs) for foreign investment funds, and the reporting of foreign trusts and foreign gifts on Forms 3520 and 3520-A already apply. The difference appears when the person leaves.

A green card holder who moves abroad remains a United States income tax resident until the status is formally given up, usually with USCIS Form I-407. A citizen who moves abroad remains subject to United States income tax on worldwide income for life, however slight the remaining connection, with double taxation relieved mainly by the foreign tax credit.

A citizen living abroad may exclude foreign earned income of up to $132,900 in 2026, plus a housing amount (IRC § 911); investment income, pensions and gains are outside the exclusion. Foreign pensions, foreign life insurance policies and foreign investment funds, often well suited to the country of residence, remain subject to United States rules that frequently treat them less favorably. The page Tax Planning with non-US Assets addresses these holdings, and the reporting obligations are set out on the Tax Compliance page.

State income and estate taxes follow residence and domicile, not citizenship. Naturalization does not change them.

Planning before the oath

A green card holder whose domicile remains abroad, or who is treated as domiciled abroad under a treaty, pays United States gift tax only on gifts of United States real estate and tangible property located there; gifts of shares, bonds and foreign assets are outside the tax (IRC §§ 2501(a)(2), 2511(a)). After naturalization every gift is taxable, wherever the property is located, so gifts of foreign assets to children or to a trust are best completed before the oath. A green card holder is already a United States person for income tax, so a foreign trust with United States beneficiaries that he or she funds is treated as owned by him or her (IRC § 679), which needs separate review. The page Gift Planning covers the gift tax rules in more detail.

Where one spouse is a citizen and the other is not, the non-citizen spouse’s naturalization decides whether large transfers to that spouse are free of tax. Such transfers can wait for the oath, with QDOT provisions kept in wills and revocable trusts in the meantime.

Children under 18 who hold green cards and live in the United States in the legal and physical custody of the naturalizing parent become citizens automatically when that parent naturalizes (INA § 320, 8 U.S.C. § 1431), and everything described here then applies to them for life. Children later born abroad to a citizen parent who meets the physical presence requirements are citizens from birth (INA § 301(g)).

A green card holder who, counting the year of surrender, has held the card in fewer than eight of the last fifteen taxable years can still give it up without any exit tax; a citizen cannot. Where a return to the home country is realistic, the exit tax calculation belongs before naturalization.

The naturalization application, Form N-400, asks whether the applicant owes overdue taxes and whether, since becoming a permanent resident, he or she has claimed to be a nonresident on a tax return or has not filed because of a claimed nonresident status. A treaty residence position taken on an earlier return, or a gap in foreign account reporting, should therefore be reviewed and, where necessary, corrected before the application is filed.

The home country

Since June 27, 2024, a German who acquires another citizenship keeps German citizenship, without the retention permit (Beibehaltungsgenehmigung) formerly required. This has a tax consequence. A German national who has left Germany remains subject to German inheritance and gift tax on all transfers for five years after the move (§ 2 Abs. 1 Nr. 1 Buchst. b ErbStG), and an heir or donee domiciled in Germany is taxed in any event, a right the convention reserves to Germany. Under the former rule, the loss of German citizenship ended the five-year period early. Where a German who has naturalized in the United States dies within that period, German tax can arise alongside United States tax, and the convention’s domicile and credit rules decide how the overlap is resolved.

French nationality is not lost on naturalization abroad. French succession and gift tax depends on the domicile of the deceased or donor and of the recipient, not on nationality; an heir or donee who is domiciled in France when the property is received, and has been domiciled there for at least six of the preceding ten years, is taxed on everything received (art. 750 ter CGI).

Other countries take different positions. Austria withdraws citizenship on the voluntary acquisition of a foreign one unless retention has been approved beforehand (§§ 27, 28 StbG), and the Netherlands in principle does the same, subject to exceptions. Switzerland, Italy and the United Kingdom permit dual citizenship.

Leaving later: expatriation and the exit tax

A citizen leaves the United States tax system only by renouncing citizenship before a consular officer or by another expatriating act. For tax purposes, a renunciation takes effect on the day it is made, provided it is later confirmed by a Certificate of Loss of Nationality (IRC § 877A(g)(4)). The State Department fee was reduced in 2026 from $2,350 to $450, and the former citizen files Form 8854.

The exit tax applies to covered expatriates: persons with a net worth of $2,000,000 or more, persons whose average annual net income tax for the five preceding years exceeds $211,000 (2026), and persons who cannot certify five years of tax compliance (IRC §§ 877(a)(2), 877A(g)(1)). All property is treated as sold on the day before expatriation, and gain above $910,000 (2026) is taxed (IRC § 877A(a)). Deferred compensation, individual retirement accounts and interests in non-grantor trusts follow separate rules. The exception for persons who were dual citizens at birth and have been United States residents for no more than ten of the last fifteen taxable years is, by its terms, not available to a naturalized citizen (IRC § 877A(g)(1)(B)(i)).

For a green card holder, the exit tax applies only to a long-term resident, meaning a person who held the card in at least eight of the fifteen taxable years ending with the year in which the status ends (IRC §§ 877(e)(2), 877A(g)(5)).

The cost does not end with the expatriate. A United States citizen or resident who later receives a gift or inheritance from a covered expatriate pays tax at 40 percent on the amount above the annual exclusion of $19,000 (IRC § 2801). Final regulations were issued in January 2025, and the tax is reported on Form 708, whose instructions are dated December 2025. For a family whose children or grandchildren live in the United States, the burden falls on them.

Treaty relief for the exit tax is narrow. The German income tax convention allows an election under which Germany treats the property as acquired at the value used for the deemed sale, but only where the deemed sale is the consequence of ending United States residence (Art. 13(6)); a citizen who renounces after years in Germany cannot use it. The firm’s advisor guide on the section 877A exit tax is listed on the Articles and Guides page.

Table 2. Figures for 2026

Item	Amount
Basic exclusion amount for citizens and domiciliaries (IRC § 2010(c))	$15,000,000
Estate tax exemption for non-citizens not domiciled in the United States, absent a treaty (IRC § 2102(b))	$60,000 (credit of $13,000)
Top estate, gift and section 2801 tax rate (IRC § 2001(c))	40 percent
Annual gift tax exclusion per recipient (IRC § 2503(b))	$19,000
Annual exclusion for gifts to a non-citizen spouse (IRC § 2523(i))	$194,000
Foreign earned income exclusion (IRC § 911)	$132,900
Report of foreign bank accounts (FBAR)	Aggregate balances above $10,000
Reporting of gifts and bequests from foreign individuals on Form 3520	More than $100,000 in a year
Covered expatriate: net worth test	$2,000,000
Covered expatriate: average annual net income tax test	More than $211,000
Exit tax exclusion for deemed gains (IRC § 877A(a)(3))	$910,000
State Department renunciation fee	$450

Practical steps before naturalizing

1. Establish the current position: domicile, the number of years the green card has been held, and whether a treaty currently treats the person as domiciled in the home country.
2. Where foreign domicile or a treaty currently confines United States gift tax to United States assets, consider completing gifts of foreign assets before the oath.
3. Identify which spouse’s citizenship matters for the estate plan. If assets are to pass to a non-citizen spouse, keep QDOT provisions in place until that spouse naturalizes.
4. Review foreign funds, pensions, life insurance policies and trusts, including those of minor children who will become citizens with the parent, since their United States tax treatment will apply for life, including after a move abroad.
5. Correct any gaps in past returns and foreign account reports, and review any treaty residence position taken on a return, before filing Form N-400.
6. Confirm whether the home country allows dual citizenship, obtain any retention approval in advance, and note the home country’s continuing inheritance tax reach.
7. Where a return abroad is possible, calculate the exit tax that renunciation would trigger, and compare it with the position of a green card holder who has not yet become a long-term resident.
8. After naturalization, update wills, revocable trusts and beneficiary designations, and keep the Certificate of Naturalization with the estate planning documents, since the executor may need to prove the date of citizenship.

The firm advises foreign nationals and their families on the estate, gift and income tax consequences of naturalization and of a later return abroad, including the coordination of United States plans with German and French law. Related questions are covered in the firm’s webinars.

The articles are intended for information purposes only. They should not be construed as legal advice. For a comprehensive evaluation of your individual situation please contact us at (202) 790-2500 or at info@internationalestatelaw.com for an Initial Consultation Package.

This article describes general principles and is not legal or tax advice. The result in a particular case depends on its facts, on the date of the transfer and on the law of the jurisdiction concerned. The figures given are those applicable in 2026.