Giving Up U.S. Citizenship or a Green Card
A U.S. citizen abroad is considering renunciation, or a green card holder who has returned home wants to give the card up. For those above the thresholds the exit tax treats all property as sold on the day before, and gifts and bequests to U.S. family members afterwards are taxed at 40 percent in the recipient’s hands. The firm’s attorneys determine whether the tests are met, plan the timing and prepare the filings.
Law stated as of October 2026
In brief.
- The exit tax applies to a covered expatriate: a citizen who relinquishes citizenship, or a green card holder who held the card in eight of the last fifteen years, and who has a net worth of USD 2,000,000 or more, an average annual net income tax above USD 211,000 for 2026, or who cannot certify five years of tax compliance (sections 877(a)(2), 877(e) and 877A(g)).
- A covered expatriate is treated as having sold all property on the day before the expatriation date; the gain above USD 910,000 for 2026 is taxed (section 877A(a)). IRAs are treated as distributed in full; deferred compensation and interests in trusts have rules of their own.
- U.S. citizens and residents who later receive gifts or bequests from a covered expatriate pay a tax of 40 percent on them, above USD 19,000 a year (section 2801).
- Two exceptions remove the net worth and income tests: dual citizens from birth who live and are taxed in the other country, and persons who relinquish before age 18 1/2, each with no more than ten years of U.S. residence (section 877A(g)(1)(B)).
- For a green card holder, claiming treaty residence at home ends the status for tax purposes and counts as expatriation (section 7701(b)(6)); the date is chosen with care.
What is happening
Expatriation has a date: for a citizen the day of renunciation before a consular officer, confirmed by the certificate of loss of nationality, and for a long-term resident the day the green card is abandoned on Form I-407, revoked, or displaced by a treaty claim of residence abroad (section 877A(g)(3), (4); section 7701(b)(6)). A long-term resident is a person who held the card in at least eight of the fifteen taxable years ending with the year of expatriation, years as a treaty resident of the other country not counting (section 877(e)(2)). An expatriate is a covered expatriate if, on that date, net worth is USD 2,000,000 or more, the average annual net income tax of the five preceding years exceeds USD 211,000 for 2026 (Rev. Proc. 2025-32), or the person cannot certify under penalty of perjury five years of compliance with U.S. tax obligations; the certification is made on Form 8854 (section 877(a)(2)). Dual citizens from birth who live and are taxed in their other country, and minors who relinquish before 18 1/2, escape the first two tests if they have not been U.S. residents for more than ten of the last fifteen years (section 877A(g)(1)(B)).
A covered expatriate is treated as having sold all property at fair market value on the day before the expatriation date, the gain being taxed in that year after an exclusion of USD 910,000 for 2026 (section 877A(a)); property held when the person first became a U.S. resident is valued at not less than its value on that day, so that gains accrued before arrival are left out (section 877A(h)(2)). Individual retirement accounts and similar accounts are treated as distributed in full on that day, without the early distribution penalty (section 877A(e)); deferred compensation and interests in trusts that are not grantor trusts are not deemed sold but are withheld upon at 30 percent as payments are made (section 877A(d), (f)). Payment of the tax on the deemed sale can be deferred against security, with interest, until the asset is sold. Afterwards the person is a nonresident alien: taxed on U.S.-source income, and at death only on U.S.-situs property. The family bears the second part: a U.S. citizen or resident who receives a gift or a bequest from a covered expatriate pays a tax of 40 percent on the value above USD 19,000 a year, reduced by any foreign gift or estate tax paid, reported on Form 708 (section 2801; Treas. Reg. part 28).
| Test or rule | Figure or position (2026) |
|---|---|
| Net worth test | USD 2,000,000 or more on the expatriation date (not indexed) |
| Tax liability test | Average annual net income tax of the five preceding years above USD 211,000 |
| Certification test | Five years of compliance certified on Form 8854; failure alone makes a covered expatriate |
| Long-term resident | Green card in at least 8 of the 15 taxable years ending with the year of expatriation |
| Deemed sale exclusion | USD 910,000 of net gain excluded; the rest taxed in the year of expatriation |
| Retirement accounts | IRAs treated as distributed in full the day before; qualified plans withheld upon at 30 percent as paid |
| Tax on U.S. recipients (section 2801) | 40 percent on gifts and bequests from a covered expatriate above USD 19,000 a year; Form 708 |
| After expatriation | Nonresident alien: U.S.-source income and U.S.-situs estate only |
What has to happen, in order
- Establish the status and the years
Citizen or long-term resident; the years with the card, the years as a treaty resident, the dual citizenship from birth.
- Compute the three tests
The balance sheet at fair market value, the five years of net income tax, and the compliance record; the gaps in past filings that would fail the certification.
- Plan before the date
Gifts before expatriation within the exclusion, the position of each retirement account and plan, the trusts, and the step-up for property held at arrival.
- Choose and document the date
The consular appointment, the Form I-407, or the treaty claim; the certificate of loss of nationality for a citizen.
- Settle the home country side
Residence, the treaty position and the taxation at home of the deemed sale and of the U.S. accounts afterwards.
- File
Form 8854 with the final return, the dual-status Form 1040 and 1040-NR for the year, the election to defer where wanted, and the Forms W-8BEN at the institutions.
- Plan the family’s side
Gifts and bequests to U.S. family members after the date: the exclusion, the section 2801 tax and Form 708, and the use of a trust where it helps.
How the firm helps
The firm’s attorneys determine whether the exit tax applies, plan the timing and the transactions around it, prepare the filings and advise the U.S. family members on the tax that follows them.
- The written determination: long-term resident status, the three tests and the figures.
- The plan before the expatriation date: gifts, retirement accounts, trusts and the valuation of property held at arrival.
- Form 8854, the final returns and the deferral election, prepared in the firm’s federal tax practice.
- The treaty position and the coordination with the adviser at home.
- The section 2801 planning and Form 708 for U.S. children and spouses who will receive gifts or bequests.
What documents to prepare for the initial consultation
- Passports, the green card and the dates of its issue, and any Form I-407 already filed
- A record of the years lived in the United States and of treaty positions taken on past returns
- The last five U.S. income tax returns, with the foreign account reports and Forms 8938
- A statement of all assets and debts at current values, in the United States and abroad
- Statements of retirement accounts, pensions and deferred compensation
- Trust deeds, foundation statutes and documents of any company owned
- Purchase records showing the cost of property, and its value on the day of first U.S. residence
- Existing wills and planned gifts to family members in the United States
- The citizenship of the spouse and the children, and where they live
Copies are sufficient. The firm sets up a secure portal for the documents and reviews them before the consultation.
The income tax conventions decide the residence of the first year and, for a green card holder, make the treaty claim itself the act of expatriation; they do not remove the exit tax. The estate and gift tax conventions reserve to the United States the taxation of former citizens and long-term residents for ten years where tax avoidance was a principal purpose, and their relation to the section 2801 tax is not settled.
Describe the situation in a few lines
Citizen or green card holder, how long, where the person lives now and roughly what the estate holds: that is enough for the firm to say whether the tests are met and what it would propose.
