Do I have to pay exit tax if I renounce my citizenship?

Do I Have to Pay Exit Tax If I Renounce My Citizenship?

If you are a U.S. citizen or a long-term Green Card holder and you are considering renouncing your US citizenship, it is crucial to understand the exit tax implications. One of the most significant consequences of renunciation is the U.S. Exit Tax, a final tax on your worldwide assets.

What is the U.S. Exit Tax?

The Exit Tax (also known as the Expatriation Tax) is triggered when you renounce U.S. citizenship or surrender your Green Card after long-term residency.

It is calculated as if you sold all your worldwide assets the day before your renunciation at their fair market value. This includes:

• Investments (stocks, ETFs, crypto)
• Real estate
• Business ownership
• Pensions and retirement plans
• Foreign assets

For 2025, you may exclude up to $890,000 in unrealized gains (adjusted annually for inflation). Gains above that threshold are subject to capital gains tax (typically 15%–23.8%).

Who Needs to Pay the Exit Tax?

You are a “covered expatriate” if you meet any one of these three tests:

• Net worth test: Total net worth of $2 million or more on the date of expatriation
• Tax liability test: Average annual U.S. income tax liability for the last five years exceeds $206,000 (2025)
• Compliance test: You failed to certify compliance with U.S. tax obligations for the past five years by signing Form 8854

Tip: Dual citizens at birth may be exempt if they meet specific IRS criteria.

You can renounce without being a covered expatriate — but you must still complete Form 8854 correctly.

Exit Tax for Green Card Holders

You don’t have to be a citizen to owe the exit tax.

Green Card holders are subject to the same rules if they are considered long-term residents, meaning they held a Green Card for 8 out of the last 15 years.

To relinquish properly, Green Card holders must:

• File Form I-407
• File a final U.S. tax return
• Complete Form 8854
• Possibly file Form 8833 (if treaty benefits are claimed)

How Much Is the Exit Tax in the U.S.?

The tax is calculated by applying the capital gains tax rates (15%–20% plus 3.8% NIIT if applicable) on your net unrealized gains, after subtracting the $890,000 exclusion (2025).

Example Scenarios:

• Scenario 1: A dual citizen with $1.2M in unrealized gains pays tax on $310,000
• Scenario 2: A U.S.-born entrepreneur with $3.5M in net worth is taxed as a covered expatriate and pays tax on all gains over $890,000
• Scenario 3: A Green Card holder with pensions and real estate may trigger special tax treatment under deferred compensation rules

What Forms Do I Need to File?

The core form is Form 8854. You must:

• Certify 5 years of tax compliance
• Disclose assets and liabilities
• Calculate the deemed gain and applicable tax

Other relevant forms may include:

• Form W-8CE: Sent to payers of deferred compensation
• Form 4079: Used for citizenship relinquishment determinations
• Form 1040: Final U.S. income tax return
• Form 1040-NR: If receiving U.S.-source income post-renunciation
• Form I-407: For abandoning your Green Card

Penalty for not filing Form 8854: $10,000

Are There Legal Ways to Reduce or Avoid the Exit Tax?

Yes — here are legal strategies:

• Plan Early: Structure or reduce assets ahead of time
• Gift Assets to a Non-U.S. Spouse or Charity
• Time Asset Sales Wisely
• Utilize Dual Citizenship Exemptions
• Work with a U.S. expat tax professional

What Happens After You Renounce?

You are no longer subject to worldwide U.S. taxation, but:

• You may owe tax on U.S.-source income (e.g. rental income, dividends)
• FIRPTA applies to U.S. real estate
• Social Security benefits may be reduced
• You will appear on the Federal Register “renunciants” list
• Visa waiver may no longer apply (visa may be required)
• Reentry to the U.S. is possible, but subject to Reed Amendment risks

Do You Still Have to Pay Taxes After Renunciation?

Yes, but only on:

• U.S.-source income (subject to 30% withholding)
• Sales of U.S. property (subject to FIRPTA)
• Distributions from pensions or IRAs (special rules apply)

If you have no U.S. ties, your tax obligations end after your final filing — but Form 8854 must still be submitted.

How is the Exit Tax calculated for individuals renouncing US citizenship or long-term residency?

What is the US Exit Tax?

The Exit Tax, also referred to as the Expatriation Tax, applies to individuals who meet certain criteria when they decide to renounce US citizenship or surrender a Green Card.

The tax is calculated based on the unrealized gains on ALL your worldwide assets, including your:

• Home
• Investments
• Deferred compensation (such as pensions)

Who Needs to Pay the Exit Tax?

You are subject to the tax if you meet any of the following criteria:

1.Net Worth Over $2 Million

• If your total net worth exceeds $2 million, the Exit Tax will apply when you renounce citizenship.

2. Non-Compliance with US Tax Obligations

• Even if your net worth is below $2 million, the Exit Tax applies if you have not complied with your US tax obligations for the last five years.

3. Dual Citizens

• If you are a dual citizen at birth and meet specific requirements, you may be exempt from the $2 million threshold.
• However, you must still satisfy the five-year tax compliance test to avoid the tax.

Are Green Card holders subject to the US Exit Tax upon relinquishing their residency?

Exit Tax for Green Card Holders

The Exit Tax does not only apply to US citizens. Green Card holders who meet the following criteria may also be subject to the tax:

• You have held a Green Card for 8 out of the last 15 years.
• You are classified as a “long-term resident” under US tax law.

If you meet these conditions and decide to surrender your Green Card, the Exit Tax may be triggered. This situation can cause many Green Card holders to feel “stuck”—they cannot afford to surrender their status due to the significant tax burden.

How is the Exit Tax calculated for individuals renouncing US citizenship or long-term residency?

How Much is the Exit Tax in the USA?

The Exit Tax is calculated as if you sold all your worldwide assets at fair market value on the day before you renounce your citizenship or residency. This includes:

• Capital gains taxes on your assets.
• Taxes on deferred compensation plans (pensions, stock options).

If your assets have appreciated significantly, the US Exit Tax can be substantial.

What are the essential considerations regarding the Exit Tax when renouncing US citizenship?

1. Tax Compliance:

• Before you renounce, ensure you have filed tax returns for the past five years to meet the compliance test.

2. Form 8854:

• You must file Form 8854 with the IRS to officially declare your expatriation and calculate your Exit Tax.

3. Cost of Renouncing US Citizenship:

• The renunciation fee is currently $2,350. This fee is separate from any tax you owe.

4. Future Tax Obligations:

• Many wonder: “If I renounce my US citizenship, do I still have to pay taxes?”
• Generally, once you renounce and pay any applicable Exit Tax, you are no longer subject to US taxes on future income, unless you have US-source income.

Are there strategies to legally avoid or minimize the US Exit Tax?

How to Avoid the US Exit Tax

Avoiding the Exit Tax entirely can be challenging, but certain strategies can reduce your tax liability:

1. Plan Ahead: Evaluate your assets and potential unrealized gains before renouncing.

2. Dual Citizenship: If you are a dual citizen at birth and meet the IRS requirements, you may qualify for an exemption.

3. Professional Tax Advice: Consult a professional who specializes in expatriation tax and renunciation of US citizenship to explore your options.

What are the Consequences of Renouncing US Citizenship?

Renouncing your US citizenship is a significant step with long-term implications, including:

• Visa Requirements: You may need a visa to visit or work in the US.
• Loss of Benefits: You may lose access to certain US benefits, such as Social Security.
• Public Disclosure: Your name will appear on a public list of individuals who renounced their citizenship.

Important: While renunciation frees you from future tax obligations, you must still file a final US tax return and pay any applicable Exit Tax.

Do You Need Help with the Exit Tax or Renouncing US Citizenship?

Understanding the US Exit Tax and the process of renouncing US citizenship can be complex. Americans Overseas can help you:

• Navigate the renunciation process.
• Understand the tax implications, including the Exit Tax.
• Ensure compliance with all IRS requirements.

Contact us today for professional assistance tailored to your situation.

Need more information about the American exit tax?

We, the founders of Americans Overseas, were born in the Netherlands and obtained our American nationality through our (American) mother.

When we heard about the US tax system for the first time around 2013, we were in total disbelief (it can’t be true!), anger (how can they do this?), fear (am I going to get fined or pick up other problems?), and panic (what should I do?). It is (unfortunately) true that there is an additional American tax levy. But there’s no information from the local government, and when approached, the consulate referred us to the IRS, and the IRS was impenetrable.

That’s why we started this initiative to help people from all over the world by providing proper information about the US tax system to avoid unnecessary panic and offering help free of obligation and free of charge. If needed, we have a network of affordable professionals (accountants) who can help you with your exit tax obligations.

Contact us for more information

• What you need to know about the US exit tax
• I am considering renouncing my US citizenship
• IRS Expatriation tax