Key takeaways
- The US exit tax (section 877A) treats a covered expatriate's property as sold the day before expatriation, taxing the net gain above an exclusion of $910,000 for 2026.
- You are a covered expatriate if any one test applies: average annual income tax above $211,000 (2026), net worth of $2 million or more, or failure to certify five years of tax compliance.
- Green card holders are covered by the same rules once they have been lawful permanent residents in at least 8 of the last 15 taxable years.
- Everyone who expatriates files Form 8854, and a missing or incorrect form carries a $10,000 penalty unless there is reasonable cause.
- You can defer payment with security and a treaty waiver, IRAs are treated as distributed, and gifts from a covered expatriate can be taxed to US recipients under section 2801.
What is the US exit tax, and who has to pay it?
The exit tax is a deemed-sale rule: if you give up US citizenship or end long-term green card residency and you are a "covered expatriate", the IRS treats nearly all your property as sold the day before. In the IRS's words, "all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date" (IRS: expatriation tax, last reviewed October 4, 2026). The rule is in section 877A of the Internal Revenue Code and applies to people who expatriated after June 16, 2008 (Instructions for Form 8854).
Two groups can be affected:
- US citizens who relinquish citizenship. The expatriation date is the earliest of four events: renunciation before a US diplomatic or consular officer, a statement of voluntary relinquishment given to the State Department, the State Department's issuance of a certificate of loss of nationality, or a court cancelling a naturalized citizen's certificate. The first three need State Department approval (IRS: expatriation tax).
- Long-term residents who end their US residency. A long-term resident is a lawful permanent resident in at least 8 taxable years during the 15-year period ending with the year residency ends. A year does not count if you are treated as a resident of a foreign country under a tax treaty and do not waive the treaty benefits (26 U.S.C. § 877(e)). For a green card holder, the expatriation date is the date you cease to be a lawful permanent resident (26 U.S.C. § 877A(g)).
Being in one of these groups does not by itself mean you owe the tax. The deemed sale applies only to a covered expatriate, defined in the next section. Everyone who expatriates, covered or not, must file Form 8854 (IRS: expatriation tax). Renouncing does not reset your past: the rules look back five years at your tax compliance.
Am I a covered expatriate? The three tests
You are a covered expatriate if any one of three tests applies on your expatriation date. The statute sets the tests in 26 U.S.C. § 877(a)(2) and the IRS explains them in the Instructions for Form 8854.
| Test | Rule | Amount |
|---|---|---|
| Tax liability | Your average annual net income tax for the 5 tax years ending before the expatriation date is more than the threshold | $211,000 for 2026 (Rev. Proc. 2025-32, § 4.37); $206,000 for 2025. The statute's base figure is $124,000, indexed for inflation after 2004 |
| Net worth | Your net worth on the expatriation date is $2 million or more | $2,000,000 |
| Certification | You fail to certify under penalties of perjury that you complied with all US federal tax obligations for the 5 preceding tax years | Not a dollar test |
The certification test is the one people overlook. If you do not certify compliance on Form 8854, you are a covered expatriate even if your income and wealth are well below the thresholds (Instructions for Form 8854). The form asks directly: "Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years?" (Form 8854).
Two exceptions remove the tax-liability and net-worth tests, but not the certification test (26 U.S.C. § 877(c)):
- Dual citizens from birth. You became a US citizen at birth and also a citizen of another country, you are still a citizen of, and taxed as a resident of, that country on your expatriation date, and you were a US resident for no more than 10 years in the 15-tax-year period ending with the year you expatriated.
- Certain minors. You expatriated before age 18½ and were a US resident for no more than 10 tax years before expatriating.
The IRS instructions state both conditions in these terms; read section 877(c) and the instructions for the full conditions before relying on either exception. The thresholds are indexed, so use the figure for the year you expatriate, not an older year's.
How the deemed sale is calculated
A covered expatriate is taxed as if every item of property were sold at fair market value on the day before the expatriation date, with a large exclusion on the total gain. The IRS describes the mechanics on its expatriation tax page and the statute is 26 U.S.C. § 877A(a).
- Gain is recognized in the year of expatriation. Loss is recognized to the extent it would otherwise be allowed, but the wash sale rules do not apply.
- Exclusion. The net gain from the deemed sale is reduced by $600,000, adjusted for inflation after 2008, but not below zero. The inflation-adjusted amount is $910,000 for 2026 (Rev. Proc. 2025-32, § 4.38) and was $890,000 for 2025 (Instructions for Form 8854).
- Later transactions are adjusted. Gains and losses on a later actual sale are adjusted for the amounts already taken into account, without applying the exclusion again.
- Which property. The IRS rule covers "all property" of the covered expatriate, worldwide. Several categories are handled by separate rules rather than the deemed sale: deferred compensation items, specified tax deferred accounts such as IRAs, and interests in nongrantor trusts (see the next section).
The deemed sale produces tax on gains you have not realized and may have no cash to pay. That is why the law offers a deferral election, described next.
Deferral, retirement accounts and trusts
Three sets of rules soften or redirect the deemed sale: an election to defer payment, special treatment for retirement and other tax-deferred accounts, and rules for trusts. The details below follow the Instructions for Form 8854 (reviewed April 30, 2026) and 26 U.S.C. § 877A.
Deferral election. You can postpone payment of the tax on a property-by-property basis, with interest. The conditions are:
- you provide adequate security, such as a bond;
- you irrevocably waive any treaty right that would prevent assessment or collection of the tax;
- you appoint a US person as your limited agent for IRS communications about the agreement.
The deferral does not remove the filing obligation: anyone who deferred tax must file Form 8854 every year (Parts I and III).
Specified tax deferred accounts. The IRS list includes individual retirement plans (other than certain plans under sections 408(k) and 408(p)), qualified tuition programs, qualified ABLE programs, Coverdell education savings accounts, health savings accounts and Archer medical savings accounts. These are not part of the deemed sale. Instead, you are treated as receiving a distribution of your entire interest in the account on the day before expatriation, and you include that amount on your Form 1040 or 1040-SR for the year that includes your expatriation date. The instructions do not mention a 10% additional tax. (How this applies to a specific account, and how employer plans such as 401(k) plans are classified, should be confirmed with a professional.)
Eligible deferred compensation items. A deferred compensation item is "eligible" when the payor is a US person (or a non-US person electing US-person treatment), you notify the payor on Form W-8CE, and you irrevocably waive treaty withholding reductions on Form 8854. Eligible items are subject to withholding when paid, and you must file Form 8854 annually.
Nongrantor trusts. You are a beneficiary of a nongrantor trust if you can receive its income or principal, can use its funds for your benefit, or could be paid if the trust terminated. Unless you elect to value your interest under section 877A, you cannot claim a treaty reduction on trust distributions, and distributions are otherwise subject to 30% withholding. Beneficiaries of nongrantor trusts must also file Form 8854 annually.
Gifts and inheritances: the section 2801 tax
A covered expatriate's gifts and bequests to US citizens and residents can be taxed in the recipient's hands. Section 2801 imposes a tax on US citizens and residents who receive gifts or bequests from covered expatriates (Instructions for Form 8854). The statute's key points (26 U.S.C. § 2801):
- Who pays. The US recipient, not the expatriate.
- Rate. The highest rate in the estate and gift tax table in section 2001(c) at the time of receipt, applied to the value received.
- Annual exclusion. The tax applies only to the extent covered gifts and bequests received in the calendar year exceed the annual exclusion amount, which is $19,000 for 2026 (Rev. Proc. 2025-32, § 4.42).
- What is excluded. Property reported on a timely filed gift or estate tax return, and property that would qualify for the spousal or charitable deduction if the transferor were a US person.
- Which expatriations. The rules apply to transfers from people whose expatriation date is on or after June 17, 2008.
If you give a gift to a US citizen or resident after you expatriate, the IRS says you are presumed to be a covered expatriate for section 2801 purposes unless you authorize disclosure of your relevant tax return information to the recipient (Instructions for Form 8854). If you plan to leave assets to US family members, raise this with an adviser before you expatriate.
Form 8854, deadlines and what it costs to renounce
Everyone who expatriates must file Form 8854, whether or not they are a covered expatriate, and a missed or incorrect filing can cost $10,000. The rules below come from the Instructions for Form 8854 (reviewed April 30, 2026) and the form itself.
- Initial filing. In the year you expatriate, you file Parts I and II. Attach the form to your income tax return for the year that includes the expatriation date (Form 1040, 1040-SR or 1040-NR), and file the return by its due date. Whether you use a resident or nonresident return for that year depends on your status; the instructions point to the Form 1040-NR instructions.
- If you are not required to file a return, send the form by the date a Form 1040-NR would have been due, including extensions.
- Where to mail it. Internal Revenue Service, 3651 S IH35, MS 4301 AUSC, Austin, TX 78741. The instructions give only a mailing address and do not describe electronic filing.
- The certification. Part II asks whether you certify, under penalties of perjury, that you have complied with all tax obligations for the 5 preceding tax years. If you do not certify, you are subject to the section 877A tax regardless of the thresholds.
- Annual filing afterwards (Parts I and III) if you deferred tax, have an eligible deferred compensation item, or are a beneficiary of a nongrantor trust.
- Penalty. If you fail to file, or file with missing or incorrect information, you owe a $10,000 penalty for that year unless you show reasonable cause and no willful neglect.
The State Department fee. Formal renunciation happens before a US diplomatic or consular officer. The fee for administrative processing of a Certificate of Loss of Nationality was $2,350 from 2014 (Federal Register, 2015). A State Department final rule published on March 13, 2026 (91 FR 12296) reduced it to $450, applicable as of April 13, 2026, and a correcting amendment followed in April 2026 (final rule, correction). (Confirm the current fee and the appointment process on travel.state.gov, which we could not open when preparing this guide.)
If you are not compliant for the last five years, fix that first, because the certification test depends on it. The IRS Streamlined Filing Compliance Procedures are one route for non-willful filers (IRS).
Worked examples
The four people below are hypothetical. They use the 2026 figures verified above and assume that neither the dual-citizen nor the minor exception applies.
| Person | Net worth | Average annual income tax, last 5 years | Certifies 5 years of compliance | Covered expatriate? |
|---|---|---|---|---|
| A | $2,400,000 | $35,000 | Yes | Yes: net worth is $2 million or more |
| B | $1,600,000 | $230,000 | Yes | Yes: average tax is above $211,000 |
| C | $1,200,000 | $40,000 | Yes | No: no test applies. Still files Form 8854 |
| D | $900,000 | $20,000 | No: has not filed for three years | Yes: the certification test applies |
Person D is the one the headlines miss. Their wealth and income are modest, but because they cannot certify five years of compliance, they are a covered expatriate and are subject to the deemed sale.
How the deemed sale then works for Person A. Suppose A's brokerage account, a business interest and other property have a combined net unrealized gain of $1,500,000 on the day before expatriation. The 2026 exclusion is $910,000, so the net gain subject to tax is $1,500,000 − $910,000 = $590,000. If the combined net gain were $910,000 or less, the exclusion would cover all of it. The tax on the $590,000 depends on the character of each asset and the rates that apply in that year; that calculation is for a tax professional. A also has the option to defer the tax on some assets with security, interest and a treaty waiver.
Mistakes people make
Each item below follows from a rule the IRS or the statute sets out.
- Assuming the exit tax only hits the very wealthy. The certification test can make a person with modest income and assets a covered expatriate (Instructions for Form 8854).
- Letting past filings lapse before expatriating. The certification covers the 5 preceding tax years, under penalties of perjury.
- Using last year's numbers. The tax-liability threshold rose from $206,000 (2025) to $211,000 (2026) and the exclusion from $890,000 to $910,000 (Rev. Proc. 2025-32).
- Not filing Form 8854. Everyone who expatriates files it. A missing or incorrect form carries a $10,000 penalty unless there is reasonable cause.
- Forgetting the annual filing afterwards. Deferral, an eligible deferred compensation item or a nongrantor trust interest all trigger annual Form 8854 filings.
- Treating an IRA as untouched. A specified tax deferred account is treated as fully distributed on the day before expatriation, and the amount goes on your return for that year.
- Electing to defer without planning for the conditions. Deferral requires adequate security, an irrevocable treaty waiver and a US agent, and interest accrues.
- Assuming a green card holder is exempt. A lawful permanent resident in at least 8 of the last 15 taxable years is a long-term resident (26 U.S.C. § 877(e)).
- Ignoring section 2801. Gifts and bequests from a covered expatriate to US family members can be taxed to the recipients above the annual exclusion.
- Not checking which event fixes the expatriation date. It is the earliest of several events, and it determines the tax year and the dollar thresholds that apply.
Frequently asked questions
Does the exit tax apply to green card holders?
Yes, if you are a long-term resident (a lawful permanent resident in at least 8 of the last 15 taxable years) who ends US residency and you are a covered expatriate (26 U.S.C. § 877(e); IRS).
What is the exit tax exclusion for 2026?
$910,000. The net gain from the deemed sale is reduced by that amount, but not below zero (Rev. Proc. 2025-32, § 4.38).
My net worth is under $2 million. Am I safe?
Not automatically. You are also a covered expatriate if your average annual net income tax for the last five years exceeds the threshold ($211,000 for 2026), or if you do not certify five years of tax compliance on Form 8854.
Do I need to file Form 8854 if I am not a covered expatriate?
Yes. Anyone who expatriated or ended long-term residency files it, and a failure to file or an incorrect filing carries a $10,000 penalty unless there is reasonable cause (IRS).
Can I pay the exit tax later?
You can elect to defer payment property by property, with interest, if you provide adequate security, waive treaty rights that would bar collection, and appoint a US agent. Deferral requires annual Form 8854 filings (Instructions for Form 8854).
What happens to my IRA?
It is not part of the deemed sale. You are treated as receiving a distribution of your entire interest on the day before expatriation, and you include it on your return for the year of expatriation (Instructions for Form 8854). Ask a professional how this applies to your specific account.
When to hire a professional
Get advice before you set an expatriation date, because the date, the thresholds and the certification all depend on what you do beforehand. This is general guidance, not from the IRS.
- A tax attorney or CPA experienced in expatriation to test whether you are a covered expatriate, model the deemed sale, decide on the deferral election, and prepare Form 8854.
- An immigration lawyer if you hold a green card. The IRS treats long-term residency as ending when lawful permanent resident status is revoked, judicially or administratively found abandoned, or, in some cases, when a treaty makes you a foreign resident (IRS), so how you end the status matters.
- An estate planner if you have US family members who will receive gifts or inheritances (section 2801).
- A local adviser in the country you are moving to, because that country's tax rules on arrival are separate from the US rules.
If you are behind on filings, fixing that first is part of the process, because the certification test looks back five years.
Sources
All pages were opened and read on October 8, 2026. "Page date" is the "last reviewed or updated" date the IRS shows. Primary sources only; no secondary source supports a claim in this guide.
| Source | Used for | Page date |
|---|---|---|
| IRS: Expatriation tax | Covered expatriates, deemed sale, expatriation date, Form 8854, penalty | Oct 4, 2026 |
| IRS: Instructions for Form 8854 | Tests, exceptions, deferral, accounts, trusts, section 2801, filing | Apr 30, 2026 |
| IRS: Form 8854 | Certification question | Tax year 2025 form |
| IRS: Rev. Proc. 2025-32 | 2026 amounts: $211,000, $910,000, $19,000 | Release date not shown |
| 26 U.S.C. § 877, Cornell Legal Information Institute | Three tests, exceptions, long-term resident | Not shown |
| 26 U.S.C. § 877A, Cornell Legal Information Institute | Deemed sale, exclusion, deferral, definitions | Not shown |
| 26 U.S.C. § 2801, Cornell Legal Information Institute | Tax on covered gifts and bequests | Not shown |
| Federal Register: final rule on the Certificate of Loss of Nationality fee | Fee reduced to $450 (published Mar 13, 2026) | Mar 2026 |
| Federal Register: correction | Applicable as of Apr 13, 2026 | Apr 2026 |
| Federal Register, Aug 25, 2015 | Earlier $2,350 fee | Aug 2015 |
| IRS: Streamlined Filing Compliance Procedures | Route for non-willful filers | Jul 11, 2026 |
Not retrieved: the State Department's renunciation page on travel.state.gov returned an error when we tried to open it. The Cornell Legal Information Institute is a secondary host of the statutes; check the official U.S. Code before publishing.
A note on scope: this guide is general information, not tax or legal advice. Whether you are a covered expatriate, what the deemed sale is worth in your case, and whether to defer payment are questions that depend on your own facts and on rates that can change by the year you expatriate. Get advice from a tax attorney or a CPA experienced with expatriation before you set an expatriation date or sign Form 8854.