For some people, holding onto U.S. citizenship or a green card comes with more challenges than benefits. Maybe you’ve built your life abroad and don’t plan to return, or maybe the U.S. tax system has become too complex and costly to manage from overseas. Whatever the reason, renouncing citizenship or giving up permanent residency isn’t as simple as turning in paperwork—you may face what’s known as the exit tax.
Many of our clients have dealt with the exit tax, and it’s one of the lesser talked about topics in the tax industry.
Who Has to Pay the Exit Tax?
The exit tax applies to certain individuals whom the IRS classifies as “covered expatriates“. This includes:
- U.S. Citizens who give up citizenship
- Long-term green card holders (people who held green cards for at least 8 years)
You’re considered covered if any one of these applies:
- Your net worth is $2 million or more on the date of expatriation
- Your average annual tax iability for the past 5 years is above a set threshold (around $200,000)
- You aren’t up to date on your US tax filings for the past 5 years
How the Exit Tax Works
The U.S. treats you as if you sold all of your worldwide assets the day before you renounced. The exit tax is essentially one final accounting procedure to review what you owned and if it needs to be taxed upon your exit.
- Any unrealized gains (growth on investments, property, stock, etc) are taxed as though you sold them.
- The IRS does allow for exemptions – about $866,000 in 2025. Gains under that amount aren’t taxed, but everything above it is.
What Gets Taxed?
Now we’ll go over what most people want to know, and that’s what considered taxable. The exit tax can refer to a wide range of assets, including:
- Real estate (domestic or foreign)
- Stocks, mutual funds, and business interests
- Retirement accounts (401(k)s, IRAs, pensions) Although these have special rules
- Certain trusts and deferred compensation
The treatment isn’t always the same across all assets – so it’s important to decipher the differences.
Are There Any Exceptions?
Yes, not everyone falls into the exit tax if they abandon their U.S. citizenship. Some common exceptions include:
- Dual citizens at birth who meet residency tests
- Minors who expatriate before age 18 and a half, as long as they help U.S. status for less than 10 years.
- People with a net worth under the $2 million mark and who’ve kept up with U.S. tax compliance.
The Green Card Twist & Preparation
Many long-term residents don’t realize that surrendering a green card can trigger the same rules as giving up citizenship. If you’ve had your green card for at least 8 of the last 15 years, you may still face the exit tax.
If you’re choosing to expatriate, it’s crucial to understand that the move is permanent, and any tax consequences can be intense. There are a few steps recommended before making the leap:
- Get a valuation of your assets to know where you stand
- Review tax planning strategies
- Make sure you’re compliant with the past 5 years of U.S. tax returns
- Speak with a tax advisor to further understand any possible complications
Be Sure Before the Switch
Giving up U.S. citizenship or a green card is more than a lifestyle decision, it comes with a financial change for many. Understanding the possible tax and lifestyle consequences of terminating your citizenship can help you be prepared ahead of time.
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