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The US Expatriation Tax is a federal taxation system that impacts US citizens who renounce their citizenship and selected long-term residents who give up their US residency. This guide outlines the US exit tax, rules and principles about covered expatriates, mark-to-market non-resident tax implementation under Section 877A, green card exit taxes, exceptions for dual citizenship, Form 8854 and significant tax considerations before expatriation.
Moving abroad does not automatically trigger the US expatriation tax. The rules generally become relevant when an individual formally expatriates and must then be evaluated under the covered-expatriate rules.
This guide explains who may be subject to the US exit tax, how the deemed-sale rules work, how different types of assets are treated, which exceptions may apply, and what individuals should consider before relinquishing US citizenship or terminating long-term US residency. It is intended to provide a clear overview of the rules and the factors that can affect an individual’s potential expatriation tax exposure.
What Is the US Expatriation Tax?
The US expatriation tax is a federal tax regime under Internal Revenue Code Section 877A that can apply to certain US citizens who relinquish their citizenship and certain long-term residents who terminate their US residency.
It is usually referred to as the exit tax USA since it speeds up the taxation of unrealized profits for a covered expatriate upon exiting the US tax regime.
Usually, the rule involves the mark-to-market principle. In essence, it implies that the property owned by a covered expatriate will be deemed disposed of for its fair market value before their departure. The ensuing gain or loss is calculated according to the provisions of Section 877A.
The tax does not simply apply to everyone who moves abroad. First of all, one needs to expatriate in accordance with US tax rules, after which the covered expatriate criteria will be employed to apply Section 877A.
US Expatriation Tax : Key Figures 2026
The most important figures for someone considering expatriation in 2026 are:
| 2026 rule | Amount |
| Net-worth test | $2 million or more |
| Average annual net income tax liability test | More than $211,000 |
| Section 877A net unrealized gain exclusion | $910,000 |
These amounts should not be confused with a flat exit-tax rate.
The $2 million figure is a covered-expatriate test based on net worth on the expatriation date.
The $211,000 figure relates to average annual US net income tax liability for the five tax years preceding expatriation.
The $910,000 figure is the 2026 exclusion used to reduce the amount of net gain otherwise includible under the mark-to-market rules.
These inflation-adjusted numbers may fluctuate yearly and, therefore, it is necessary for anyone thinking of leaving the country to check the appropriate figures for their specific year of emigration.
Source: 26 CFR 601.602: Tax Forms and Instructions
What Does It Mean to Expatriate?
Expatriation is not the same as simply moving to a different country. For a citizen of the United States, expatriation involves giving up citizenship according to existing procedures.
For those who are lawful permanent residents for an extended period of time, expatriation consists of ending residency in the United States for good.
A person who leaves the US and relocates to Canada, the UK, France, or Germany, while retaining US citizenship has not automatically expatriated. US citizens usually continue to be subject to tax obligations in the US and have to report to US authorities.
Green Card Exit Tax: When Does It Apply?
The US expatriation rules can also apply to certain former green card holders. As per the US federal tax law and IRS Form 8854 provisions, a long-term resident (LTR) is basically an individual who has been a lawful permanent resident of the US for at least 8 years out of the last 15 tax years before the year in which such individual stops being treated as a lawful permanent resident.
There can be some exclusions in the above-mentioned calculation, provided that the taxpayer was considered a resident in a foreign country based on an applicable tax treaty and did not choose to waive the right to claim treaty benefits.
Therefore, giving up a green card does not automatically mean that the US exit tax applies. The first question is whether the individual is a long-term resident under the applicable rules. The next question is whether the individual is a covered expatriate.
Who Is Subject to the Exit Tax?
The exit tax USA generally focuses on covered expatriates.
For expatriations occurring in 2026, an individual can generally fall within the covered-expatriate definition if any one of the following tests is met:
- The individual has net worth of $2 million or more on the expatriation date.
- The individual’s average annual US net income tax liability for the five tax years before expatriation is more than $211,000.
- The individual cannot certify on Form 8854 that they complied with all applicable US federal tax obligations for the five years preceding expatriation.
Meeting one of these tests can be enough. You do not have to meet all three.
Net Worth Test
You generally meet the net-worth test if your worldwide net worth is $2 million or more on the date of expatriation.
The calculation considers worldwide assets and liabilities. Depending on the individual, this can include:
- Investment accounts
- Publicly traded securities
- Real estate
- Business interests
- Retirement interests
- Personal property
- Trust interests
- Other assets and liabilities
Liquidity is not the determining factor. Someone can have substantial wealth tied up in a private company or real estate and still meet the $2 million test.
Valuing privately held businesses, trusts, real estate, and other difficult-to-value assets can therefore become an important part of expatriation planning.
Tax Liability Test — $211,000 for 2026
The second test looks at the individual’s average annual net income tax liability for the five tax years ending before expatriation.
For 2026, the applicable inflation-adjusted threshold is $211,000.
This is a tax-liability test, not simply an income test. In other words, having income above a particular amount does not by itself mean the test is met. The calculation is based on the individual’s average annual net income tax liability under the applicable rules.
Because this amount is adjusted for inflation, the threshold should be checked for the specific year in which expatriation occurs.
Certification Test – Five Years of Tax Compliance
The third test concerns tax compliance.
An individual can be treated as a covered expatriate if they fail to certify on Form 8854 that they complied with all applicable US federal tax obligations for the five tax years preceding expatriation.
This includes more than simply filing income tax returns. Depending on the taxpayer’s circumstances, compliance can involve income tax, employment tax, gift tax, information returns, foreign-asset reporting, payment of tax, and other federal obligations.
This test is particularly important because an individual can potentially become a covered expatriate through the certification test even if they do not meet the $2 million net-worth test or the $211,000 tax-liability test.
How Much Is the US Exit Tax Rate?
There is no single flat USA exit tax rate.
The amount depends on the individual’s assets, adjusted tax basis, fair market value, gains and losses, and the applicable Section 877A treatment.
For property subject to the mark-to-market regime, the general concept is:
Fair market value on the day before expatriation − adjusted tax basis = deemed gain or loss
The applicable gains and losses are then considered under the Section 877A rules, including the annual exclusion amount.
Exit Tax Calculation: Simple 2026 Example
Suppose a covered expatriate has property subject to the mark-to-market rules with:
- Fair market value: $3,000,000
- Adjusted tax basis: $1,800,000
- Net unrealized gain: $1,200,000
The simplified deemed gain would be:
$3,000,000 − $1,800,000 = $1,200,000
For 2026, the Section 877A exclusion amount is $910,000.
A simplified illustration would therefore leave:
$1,200,000 − $910,000 = $290,000
of gain after applying the exclusion, before considering the detailed Section 877A rules and the actual character and tax treatment of the gains and losses.
This is an illustration, not a calculation of the individual’s final tax bill. The actual tax can depend on the nature of the assets, applicable expatriation tax rates, losses, valuation, and other rules.
How the US Exit Tax Works
Deemed Sale of Worldwide Assets
The mark-to-market regime generally treats property held by a covered expatriate as sold for its fair market value on the day before the expatriation date.
This can include assets such as:
- Stocks and securities
- Investment property
- Real estate
- Business interests
- Other capital assets
The important point is that an actual sale does not have to occur. The tax system can recognize the unrealized appreciation through the deemed-sale mechanism.
$910,000 Net Unrealized Gain Exclusion for 2026
The exclusion relies on Section 877A to be adjusted according to inflation and lessens the amount of net gain that is otherwise included under the rules of mark-to-market.
The amount of exclusion for tax years beginning 2026 is $910,000. However, this does not mean that all covered expatriates qualify for a tax credit of $910,000.
It reduces the amount of net gain otherwise subject to the applicable mark-to-market inclusion.
Deferred Compensation and Retirement Accounts
Not every asset is treated identically.
Section 877A contains separate rules for certain:
- Deferred compensation items
- Specified tax-deferred accounts
- Interests in nongrantor trusts
Some items can be subject to different inclusion or withholding rules rather than the standard mark-to-market treatment.
For this reason, someone with pensions, retirement accounts, stock compensation, deferred compensation, or trust interests should not assume that all assets are simply subject to the same deemed-sale calculation.
Key Exceptions to the US Expatriation Tax
Certain dual citizens and minors can qualify for an exception from covered-expatriate status under specific conditions.
Importantly, these exceptions do not simply eliminate every expatriation requirement. The individual must still satisfy the applicable certification requirements.
US Citizenship Exit Tax for Dual Citizens
A person who was a US citizen and a citizen of another country from birth may qualify for the special dual-citizen exception if both of the following apply:
- On the expatriation date, the person continues to be a citizen of, and is taxed as a resident of, the other country.
- The person was a US resident for 10 years or fewer during the 15-tax-year period ending with the tax year of expatriation.
A qualifying dual citizen generally will not be treated as a covered expatriate solely because of the net-worth or tax-liability tests.
However, the individual still needs to satisfy the required five-year tax-compliance certification. Failure to certify can still result in covered-expatriate status.
Certain Minors
A special exception can apply when an individual expatriates before reaching age 18½ and was a US resident for 10 tax years or fewer before expatriation.
Like the dual-citizen exception, this provision has specific conditions and does not remove the requirement to certify prior tax compliance.
Form 8854 and US Expatriation Tax
Form 8854, Initial and Annual Expatriation Statement, is a central part of the expatriation process.
An individual who relinquishes US citizenship or terminates long-term residency generally uses Form 8854 to provide information to the IRS and certify compliance with US federal tax obligations for the five tax years preceding expatriation.
The form can involve information about:
- The expatriation date
- Citizenship and residency status
- Net worth
- Tax compliance
- Property subject to Section 877A
- Deferred compensation
- Nongrantor trusts
- Other expatriation-related information
An initial Form 8854 is generally filed for the year in which the individual expatriates, even if the individual is not a covered expatriate.
Additional annual Form 8854 filing requirements can apply in certain circumstances after expatriation, including situations involving deferred tax, eligible deferred compensation, or an interest in a nongrantor trust.
Because Form 8854 includes a certification under penalties of perjury, it should be completed carefully and consistently with the individual’s US tax filings and reporting history.
Planning Strategies Before Expatriation
Expatriation planning should begin well before the actual expatriation date.
Review Net Worth and Asset Structure
Start by calculating worldwide net worth and identifying assets that may require valuation.
Particular attention may be needed for:
- Private businesses
- Real estate
- Investment portfolios
- Trust interests
- Retirement assets
- Deferred compensation
- Stock options and other equity compensation
Asset transfers or sales should not be undertaken simply to fall below the $2 million threshold without first considering their separate US tax and legal consequences.
Confirm Five Years of Tax Compliance
Review the five tax years preceding expatriation for:
- Federal income tax returns
- Foreign account reporting
- Foreign asset information returns
- Gift tax filings
- Other information returns
- Tax payments
- Applicable interest and penalties
The certification test makes historical compliance an important part of the expatriation decision.
Reviewing your previous tax filings is an important part of expatriation planning. Professional US tax return preparation services can help ensure historical returns and supporting documentation are properly reviewed before expatriation.
Review Unrealized Gains
Identify assets with significant appreciation and calculate:
- Fair market value
- Adjusted tax basis
- Unrealized gain or loss
- Potential tax character
- Applicable Section 877A treatment
This helps establish whether the mark-to-market regime could create a significant tax liability.
Review Retirement and Deferred Compensation
Retirement accounts and deferred compensation may be subject to rules that differ from the standard mark-to-market treatment.
Review these assets before expatriation rather than assuming they will receive the same treatment as a normal brokerage account or investment property.
Consider Timing
The expatriation date can affect the applicable inflation-adjusted thresholds and exclusion amount.
For example, the covered-expatriate tax-liability threshold and Section 877A exclusion amount are adjusted over time. Therefore, someone considering expatriation should use the figures applicable to the actual year of expatriation rather than relying on an older article or calculator.
Work With a US Expatriate Tax Specialist
The interaction between citizenship, green-card status, worldwide assets, tax basis, foreign reporting, Section 877A, and Form 8854 can be complicated.
A qualified US international tax professional can help determine whether an individual is a covered expatriate, identify assets affected by the exit-tax rules, and review compliance before expatriation.
Individuals with complex financial records may also benefit from outsourced accounting and tax support to organize financial information, maintain accurate records, and prepare for compliance reviews.
Common US Expatriation Tax Mistakes
Assuming Moving Abroad Triggers the Exit Tax
Simply moving to another country does not automatically create a Section 877A exit-tax liability.
The expatriation and covered-expatriate rules must be considered separately.
Assuming the $2 Million Test Is the Only Test
A person can potentially be a covered expatriate because of the $211,000 tax-liability test or failure to satisfy the five-year certification test, even if their net worth is below $2 million.
Treating the Exit Tax as a Flat Tax
There is no universal exit-tax rate. The amount depends on the assets and the applicable tax treatment.
Ignoring Green Card History
Before deciding to abandon their green card, green-card holders should examine whether they satisfy the long-term resident requirement of 8 of the last 15 years to avoid expatriation tax consequences.
Leaving Form 8854 Until the Last Minute
Form 8854 is more than an administrative formality because it is used to certify compliance with US federal tax obligations and report information related to expatriation.
Need Help Understanding Your US Expatriation Tax Obligations?
The US exit tax rules can involve complex calculations, asset valuations, historical tax compliance, and reporting requirements.
Final Thoughts
For individuals renouncing their US citizenship or giving up long-term US residency, the US expatriation tax could represent a significant tax event at the federal level. Consequently, it is important to ascertain whether you fit within the group of covered expatriates while understanding how Section 877A affects your assets.
In terms of important numbers to note for 2026, the $2 million threshold for net worth, the $211,000 threshold for average annual net income tax liability, and the $910,000 net unrealized gain exclusion are the most crucial figures.
Given that the applicability of the regulations depends on one’s individual situation, meaning global assets, taxation history, and type of expatriation, planning should take place before one expatriates rather than after.
Frequently Asked Questions
1. What is the US expatriation tax?
The US expatriation tax is an exit tax levied on some people who renounce their US citizenship or terminate long-term residency, which can impose tax on unrealized gains in assets globally.
2. How to avoid US expatriation tax?
You cannot simply avoid the tax by moving abroad. Whether Section 877A applies depends on your expatriation status, covered-expatriate tests, tax compliance, and applicable exceptions. Professional advice before expatriation can help determine whether you are subject to the rules.
3. Is there an exit tax to leave the US?
Yes, some covered expatriates can be subject to the federal USA exit tax when they relinquish citizenship or terminate long-term residency. Simply moving outside the United States does not automatically trigger the tax.
4. Do I still have to pay taxes if I move out of the USA?
In many cases, yes. US citizens generally remain subject to US tax and reporting requirements while living abroad. The rules are different after formal expatriation, but some filing and tax obligations can continue depending on the individual’s circumstances.
5. Do any US states have their own exit tax?
The expatriation tax discussed in this guide is a federal tax under IRC Section 877A. It should not be confused with state-level taxes, wealth taxes, or proposed departure-tax measures. State tax consequences depend on the individual’s former state of residence and circumstances and should be reviewed separately.
6. What is the US exit tax rate in 2026?
There is no single flat US exit tax rate. The tax is generally calculated based on the applicable Section 877A rules, including the deemed sale of certain assets, the character of the resulting gains, applicable tax rates, and the $910,000 exclusion amount for 2026.
7. What is the US exit tax threshold?
There are multiple covered-expatriate thresholds. For 2026, the key figures are $2 million or more in net worth and more than $211,000 in average annual net income tax liability for the five tax years preceding expatriation. Failure to certify five years of federal tax compliance can also result in covered-expatriate status.
8. Is there a green card exit tax?
A former green card holder can be subject to the expatriation tax rules if they are a long-term resident, generally meaning they were a lawful permanent resident for at least 8 of the previous 15 tax years, subject to applicable treaty and other rules. They must then be evaluated under the covered-expatriate rules.
9. Do dual citizens have to pay the US exit tax?
Some dual citizens can qualify for a specific exception. A person who was a US citizen and citizen of another country from birth may qualify if they continue to be a citizen and tax resident of that other country and were a US resident for no more than 10 of the previous 15 tax years. The required tax-compliance certification still applies.
10. What is Form 8854?
Form 8854 is the IRS’s Initial and Annual Expatriation Statement. It is used to report information related to expatriation and to certify compliance with US federal tax obligations for the five tax years preceding expatriation. Certain individuals may also have annual Form 8854 filing obligations after expatriation.
