In 2026, walking away from US citizenship got cheaper and more popular in the same breath. On March 13, 2026, the State Department published a Federal Register notice slashing the renunciation fee from $2,350 to $450 — an roughly 81% cut that takes effect April 13, 2026. For the tens of thousands of Americans in Canada who have considered handing back their blue passport, that headline reads like a green light. But the $450 fee is the cheapest part of leaving. The expensive part is the US exit tax under IRC Section 877A — a one-time, mark-to-market "deemed sale" of everything you own that can produce a six-figure bill on assets you never sold, plus a 40% transfer tax that can follow your US-resident children for the rest of their lives. This is the definitive 2026 guide to what renouncing actually costs, written specifically for US citizens and green card holders living in Canada.
Quick Answer: The US Exit Tax at a Glance (2026)
The US exit tax (expatriation tax) only applies if you are a "covered expatriate." You become a covered expatriate if you meet any one of three tests on your expatriation date:
- Net worth test: worldwide net worth of $2,000,000 or more (not inflation-indexed — fixed since 2008).
- Income-tax test: average annual net income tax liability over the 5 years before expatriation exceeds $211,000 for a 2026 expatriation.
- Compliance test: you fail to certify on Form 8854 that you have complied with all US federal tax obligations for the 5 prior years.
If you are a covered expatriate, your worldwide assets are treated as sold at fair market value the day before you expatriate. The first $910,000 of net unrealized gain is excluded for 2026; gain above that is taxed at capital-gains rates. The $450 State Department fee is separate from and is not the exit tax. Most people who renounce are not covered expatriates and owe $0 of exit tax — but they must still file Form 8854.
2026 Exit Tax Figures at a Glance
Every number below is set in stone for a 2026 expatriation. The income-tax test and the gain exclusion are adjusted annually for inflation under Revenue Procedure 2025-32; the $2,000,000 net worth test is not indexed, which quietly pulls more Canadians over the line each year as portfolios and Toronto/Vancouver home equity grow.
| Item |
2025 |
2026 |
Indexed? |
| Net worth test (covered expatriate) |
$2,000,000 |
$2,000,000 |
No (fixed since 2008) |
| 5-yr avg annual net income tax test |
$206,000 |
$211,000 |
Yes |
| Mark-to-market gain exclusion |
$890,000 |
$910,000 |
Yes |
| State Dept renunciation fee (CLN) |
$2,350 |
$450 |
No (effective Apr 13, 2026) |
| Section 2801 annual exclusion |
$19,000 |
$19,000 |
Yes |
| Section 2801 transfer-tax rate |
40% |
40% |
No |
| Form 8854 failure-to-file penalty |
$10,000 |
$10,000 |
No |
Sources: IRS.gov Expatriation Tax page (net worth test, $10,000 penalty); IRS Revenue Procedure 2025-32 ($211,000 income-tax test and $910,000 gain exclusion for 2026); US Department of State Federal Register notice published March 13, 2026 ($450 fee effective April 13, 2026); IRC 2801 final regulations and IRS Form 708 (released January 2026).
What Is the US Exit Tax (Expatriation Tax)?
The US exit tax is a one-time tax triggered when certain people permanently sever their US tax citizenship. It lives in Internal Revenue Code Section 877A, which has governed every expatriation on or after June 17, 2008. (The older IRC 877 alternative-tax regime still applies to people who expatriated before that date, but for anyone renouncing today, 877A is the only regime that matters.)
The core mechanic is a mark-to-market deemed sale. On the day before your expatriation date, the IRS pretends you sold every asset you own — stocks, your Canadian home, your business, crypto, rental property, partnership interests — at its fair market value. It then taxes the net built-in gain as if you had actually cashed out. You receive no cash from this phantom sale, but the tax is real and due with your final return.
Crucially, the exit tax does not apply to everyone who renounces. It applies only to a covered expatriate. If you do not meet any of the three covered-expatriate tests, there is no mark-to-market tax, no Section 2801 exposure for your heirs, and your only cost is the $450 consular fee plus the cost of getting your final tax filings right. This distinction — covered versus non-covered — is the single most important concept on this page, and it is the one most casual articles blur.
Two more terms to lock in. Expatriation means either (a) a US citizen formally renouncing or relinquishing nationality, or (b) a long-term green card holder abandoning lawful permanent resident status. The expatriation date is the day your citizenship or LPR status legally ends — for citizens, generally the date you take the oath of renunciation at a consulate, which is later memorialized on your Certificate of Loss of Nationality (CLN).
Who Actually Pays the Exit Tax? The 3 Covered-Expatriate Tests
You are a covered expatriate if you trip any one of the following three wires. You do not need to hit all three — one is enough. This is why so many people are caught off guard: they pass the income test easily but blow through the net worth test because of a paid-off house and an RRSP.
| Test |
2026 Threshold |
What it actually measures |
| 1. Net worth |
≥ $2,000,000 |
Worldwide assets minus liabilities on the expatriation date. Includes Canadian home equity, RRSP/RRIF, pensions (present value), TFSA, RESP, business interests. NOT inflation-indexed. |
| 2. Income-tax liability |
> $211,000 (avg) |
Your average annual net US income tax for the 5 tax years ending before expatriation. This is tax owed after credits — not income. Many Canada-resident filers owe near $0 to the IRS thanks to the foreign tax credit, so they pass this test easily. |
| 3. Compliance certification |
Pass/fail |
You must certify under penalty of perjury on Form 8854 that you filed and paid everything for the prior 5 years. Cannot certify? You are automatically covered — regardless of how little you are worth. |
The compliance test (#3) is the great equalizer and the one that ensnares accidental Americans in Canada — people born in the US who left as children, never filed a 1040, and assume they can quietly hand back a passport. If you cannot truthfully certify five clean years on Form 8854, you are a covered expatriate even if you own nothing. That is why getting compliant first — usually through the IRS Streamlined Foreign Offshore Procedures — is non-negotiable before you set foot in a consulate. We walk dual citizens through exactly this sequence in our companion guide on the 2026 renunciation surge.
One vital clarification on the income-tax test: it measures your net income tax liability, not your income. A Canadian-American earning CAD 250,000 a year who pays Ontario and federal Canadian tax at a 45%+ effective rate will typically zero out their US tax with the foreign tax credit and never come close to $211,000 of US tax. High earners in Canada usually fail the income test (good) but are far more likely to be caught by the net worth test.
The Renunciation Fee Just Dropped to $450 — And Why That Is Not the Exit Tax
On March 13, 2026, the State Department published a Federal Register notice cutting the fee for issuing a Certificate of Loss of Nationality from $2,350 to $450, effective April 13, 2026. That is roughly an 81% reduction and a return to the pre-2014 level — the fee was $450 back in 2010 before being raised to $2,350 in 2014. For more than a decade, the United States charged the highest renunciation fee in the developed world; overnight, it became one of the cheaper administrative steps in an expatriate's exit.
Predictably, the cut is fueling a surge in renunciation appointments at US consulates in Toronto, Vancouver, Calgary, Montreal, and Ottawa. But here is the trap the fee cut creates: it lowers the visible cost of leaving while doing nothing about the cost that actually matters. The $450 is a consular fee paid to the State Department for the paperwork. The exit tax is an IRS liability under a completely separate part of federal law (IRC 877A). They are not the same, they are not administered by the same agency, and paying one has zero effect on the other.
Put bluntly: a covered expatriate with $1.5 million of built-in gain above the exclusion could pay the $450 fee and still owe well over $100,000 to the IRS. Treating the $450 as "the price of renouncing" is the single most expensive misconception in this whole topic. The fee got cheaper; the tax did not move.
How the Mark-to-Market "Deemed Sale" Works (With a Worked Example)
If you are a covered expatriate, IRC 877A(a) treats your property as sold for its fair market value the day before your expatriation date. The net unrealized gain — total deemed gains minus total deemed losses across all assets — is then reduced by the $910,000 exclusion (2026) under IRC 877A(a)(3). Whatever remains is taxed at the rates that would apply to a real sale (long-term capital gains rates of 0/15/20%, plus the 3.8% net investment income tax where applicable; ordinary income rates for assets like depreciation recapture).
A few mechanics that matter:
- Basis step-up for green card holders / dual residents: Assets you owned on the date you first became a US resident generally get a basis step-up to their value on that date, so only post-arrival gain is captured.
- The exclusion is allocated: The $910,000 is spread proportionally across your gain assets, not applied to one asset of your choosing.
- You can elect to defer: 877A(b) lets you elect to defer the tax on a per-asset basis (with interest and adequate security, and a waiver of treaty benefits) until the asset is actually sold — rarely used but occasionally valuable for illiquid holdings.
- Retirement and trust assets are carved out: Deferred compensation, specified tax-deferred accounts, and interests in nongrantor trusts are NOT in the mark-to-market pool — they have their own rules, covered below.
Here is a realistic worked example for a US-Canadian dual citizen renouncing in 2026.
| Asset |
FMV (deemed sale price) |
Cost basis |
Built-in gain |
| Toronto home (principal residence) |
$1,400,000 |
$650,000 |
$750,000 |
| Non-registered investment portfolio |
$900,000 |
$450,000 |
$450,000 |
| Private company shares |
$600,000 |
$100,000 |
$500,000 |
| TFSA (counts toward net worth + gain) |
$120,000 |
$80,000 |
$40,000 |
| Total net unrealized gain |
— |
— |
$1,740,000 |
The math:
- Net unrealized gain: $1,740,000
- Less 2026 exclusion: −$910,000
- Taxable deemed gain: $830,000
- Federal long-term capital gains at 20% (top bracket): ~$166,000, plus 3.8% NIIT where it applies, before any state exposure.
That is roughly $166,000 owed to the IRS on assets this person never sold — on top of the $450 fee. Note two Canada-specific landmines baked into the example: the principal residence contributes $750,000 of gain even though it is exempt from Canadian capital gains tax under Canada's principal residence exemption, and the TFSA is fully in scope (the IRS does not honor its tax-free status). Both are routine reasons Canadians blow past the net worth test and rack up deemed gain they never expected.
Get Your Free 15-Minute Exit-Tax Review
Before you book a consulate appointment, find out whether you are even a covered expatriate — most people are not, and the difference is six figures. We will run your net worth and 5-year tax picture and tell you exactly where you stand, in plain numbers. No sales pitch, no jargon.
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Exit Tax on Retirement & Deferred Accounts: IRAs, 401(k)s, Pensions, Roth, and Form W-8CE
Retirement accounts are deliberately pulled out of the mark-to-market pool and handed three different sets of rules. Getting these wrong — especially the 30-day Form W-8CE deadline — can convert a deferred, manageable tax into an immediate, full-balance tax bill. Here is the map.
| Account type |
IRC rule |
How a covered expatriate is taxed |
| Eligible deferred comp (most 401(k)s, employer pensions where payor is US and you file W-8CE) |
877A(c), 877A(d)(1) |
Not taxed at exit. Each future distribution is hit with a flat 30% withholding, with treaty benefits waived. No deemed distribution today. |
| Ineligible deferred comp (no W-8CE filed, or non-US payor) |
877A(d)(2) |
Deemed received the day before expatriation — present value taxed now as ordinary income. |
| Specified tax-deferred accounts (Traditional & Roth IRA, HSA, Coverdell, 529, ABLE) |
877A(e) |
Deemed fully distributed the day before expatriation. Entire balance taxed in one year (Roth gains lose their tax-free status). No early-withdrawal penalty applies to the deemed distribution. |
| Interest in a nongrantor trust |
877A(f) |
Not deemed distributed. Each future taxable distribution suffers 30% withholding, treaty benefits waived. |
The Form W-8CE 30-day trap. To get the favorable "eligible deferred compensation" treatment (30% on each payout instead of a full deemed distribution today), a covered expatriate must deliver Form W-8CE to the plan payor within 30 days of the expatriation date. Miss that window and the account can flip to "ineligible," triggering an immediate, present-value, full-balance inclusion. This is one of the most common, and most expensive, post-renunciation mistakes — people walk out of the consulate, feel done, and forget the clock is already running.
The Roth IRA reality check. A Roth IRA built over decades to deliver tax-free retirement income is treated as fully distributed the day before expatriation for a covered expatriate. The growth that would have been tax-free forever becomes taxable in a single year. There is no carve-out for "qualified" Roth distributions in the 877A(e) deemed-distribution rule. (For a non-covered expatriate, none of this applies — another reason avoiding covered status is the whole ballgame.)
Nongrantor Trusts and the 30% Withholding Rule
If a covered expatriate is a beneficiary of a nongrantor trust, the trust interest is not swept into the mark-to-market sale and is not deemed distributed at exit. Instead, under IRC 877A(f), the trustee must withhold 30% of the taxable portion of every direct or indirect distribution to the covered expatriate, and the covered expatriate is treated as having waived any treaty rate that would otherwise reduce that withholding. If property is distributed in kind, the trust is treated as having sold it at FMV, so a built-in gain can be realized at the trust level on the way out the door.
For Canadian-American families this matters in two directions: a US-resident parent who set up a trust with US-person beneficiaries, and a Canadian-resident covered expatriate who is a beneficiary of a US trust. Both scenarios need to be modeled before expatriating, because the 30% haircut is permanent and treaty relief is off the table.
The Section 2801 Transfer Tax (40%) and the New Form 708: How Renouncing Can Tax Your US-Resident Kids
This is the trap almost every other article forgets, and in January 2026 it got teeth: the IRS finally released Form 708, the return that operationalizes IRC Section 2801. Section 2801 imposes a transfer tax at the highest federal estate/gift rate — 40% — on "covered gifts and bequests" a covered expatriate makes to a US citizen or US resident, at any time after expatriation, potentially for the rest of the expatriate's life and at death.
The mechanics that catch families off guard:
- The US recipient pays, not the expatriate. Your US-citizen child in Boston or US-green-card grandchild is the one who files Form 708 and writes the check.
- It applies indefinitely. There is no sunset. A gift you make to a US person 15 years after renouncing is still a covered gift.
- Only the annual exclusion shields it. For 2025 and 2026 that exclusion is $19,000 per recipient; value above that is taxed at 40%.
- Form 708 is new. Released January 2026, effective for transfers received on or after January 1, 2025, and due by the 15th day of the 18th month after the calendar year of receipt.
- Spousal/charitable relief exists. Transfers to a US-citizen spouse (marital deduction) and to qualifying charities are generally exempt.
Concrete impact: if you renounce as a covered expatriate and later give your US-resident daughter $500,000 toward a house, she owes roughly ($500,000 − $19,000) × 40% = $192,400 in Section 2801 tax on Form 708. That is a permanent, intergenerational cost of your covered status, landing on her. It is the strongest possible argument for either staying below covered-expatriate status or completing major family transfers before you expatriate, while you are still a US person and ordinary gift/estate rules (with their multimillion-dollar lifetime exemption) apply.
Exit Tax for Green Card Holders: The 8-of-15-Years Long-Term Resident Rule and Form I-407
The exit tax is not just a citizenship issue. Under IRC 7701(b)(6), a green card holder becomes a "long-term resident" (LTR) — and therefore exposed to 877A — if they held lawful permanent resident status in at least 8 of the last 15 tax years before giving up the card. A part-year counts as a full year for this test, so the 8-year clock arrives faster than people expect.
An LTR who abandons the green card by filing Form I-407 (Record of Abandonment of LPR Status) is treated as expatriating and runs the same three covered-expatriate tests as a citizen. A green card holder who has been a resident fewer than 8 of 15 years generally is not an LTR and escapes 877A entirely — which is why timing the surrender of a card can be worth tens of thousands of dollars. A subtle treaty wrinkle: if an LTR claims to be a treaty resident of another country (e.g., Canada) and files Form 8833 to be taxed as a nonresident, that election itself can be treated as an expatriating act. Green card holders moving back to Canada should plan the surrender deliberately, not casually let the card lapse.
Exceptions That Get You Out of Covered-Expatriate Status
There are two narrow exceptions that can spare you from covered-expatriate status even if you exceed the net worth or income tests. Both are widely misunderstood, and both still require you to certify 5 years of tax compliance on Form 8854. Neither is a free pass.
1. Dual-Citizen-at-Birth Exception (IRC 877A(g)(1)(B))
If you became a US citizen and a citizen of another country at birth, still hold that other citizenship, are taxed as a resident of that other country, and have been a US resident for no more than 10 of the prior 15 tax years, you are not treated as a covered expatriate even if your net worth tops $2 million or your average tax tops $211,000. This is a lifeline for many Canadian-Americans who were born dual (e.g., born in the US to Canadian parents, or born in Canada to a US parent and acquired both citizenships at birth) and have lived their lives in Canada.
The limits people miss: the exception only relieves you from the net worth and income tests — it does nothing for the compliance test. You must still certify 5 years of clean US filings on Form 8854. An accidental American who never filed cannot use this exception to avoid covered status; they will fail test #3 regardless. And you must have been dual at birth — naturalizing as a Canadian later does not qualify.
2. Minor / Under-18½ Exception
A person who expatriates before age 18½ and who was a US resident for no more than 10 tax years before the expatriation date is also exempt from the net worth and income tests. Like the dual-citizen exception, it does not waive the 5-year compliance certification (though a minor's filing history is usually simple). This narrow window occasionally helps families of teenage accidental Americans act before adulthood locks in a heavier compliance burden.
US-Canada Cross-Border: The Exit Tax vs the Canadian Departure Tax
Here is where Canadian readers get tangled, because "exit tax" means two completely different things on the two sides of the border, and they can both fire — or only one can fire — depending on what you actually do.
|
US Exit Tax (IRC 877A) |
Canadian Departure Tax (ITA s.128.1) |
| What triggers it |
Renouncing US citizenship / abandoning a long-term green card |
Ceasing to be a resident of Canada |
| Timing |
Day before the expatriation date |
Date you become a non-resident of Canada |
| Who it applies to |
Covered expatriates only |
Any departing Canadian resident (no net worth test) |
| Principal residence |
Full gain feeds the deemed sale |
Exempt under the principal residence exemption |
| RRSP/RRIF |
Treated under deferred-account rules, not mark-to-market |
Excluded from departure tax |
The clarification competitors muddle: most US-Canadian dual citizens renounce US citizenship while continuing to live in Canada. In that case the Canadian departure tax does not fire at all — you have not ceased Canadian residency. Only the US exit tax is in play (and only if you are covered). The double deemed-sale problem arises in the opposite, less common case: someone leaving Canada and shedding US status around the same time, so both s.128.1 and 877A trigger on overlapping assets. If that is you, sequencing and the treaty matter enormously. We cover the Canadian side in depth in our Canadian citizenship tax traps guide.
What Happens to Your RRSP, TFSA, RESP, and Canadian Home When You Renounce
Account by account, here is how your Canadian holdings behave on a US expatriation. This is the table most Canadians actually need.
| Canadian asset |
Counts toward $2M net worth? |
US exit-tax treatment (if covered) |
| RRSP / RRIF |
Yes (present value) |
Treaty-deferred for US income tax under Article XVIII(7); handled under the deferred-account rules of 877A rather than the deemed sale — a covered expatriate may face a deemed-distribution/withholding outcome, so model it. |
| TFSA |
Yes |
Not treaty-protected; already US-taxable annually for US persons and possibly a foreign trust (Form 3520/3520-A). Its built-in gain feeds the mark-to-market sale. |
| RESP |
Yes |
IRS treats it as a foreign trust (3520/3520-A); growth is US-taxable to the US-person subscriber; not treaty-protected; in scope for the deemed sale. |
| Principal residence |
Yes (full equity) |
Full built-in gain is in the deemed sale (the US allows only the $250k/$500k Section 121 exclusion, not Canada's unlimited principal residence exemption). |
| Canadian pension (DB/DC) |
Yes (present value) |
Generally deferred compensation under 877A(c)/(d) — future payments to a covered expatriate can suffer withholding; not in the deemed sale. |
The headline takeaways for Canadians: your TFSA and RESP are not your friends here — they are unprotected by the treaty, count toward the $2M test, and feed deemed gain. Your RRSP keeps its treaty income-tax deferral but its present value still pushes your net worth up. And your paid-off home, the proudest line on most Canadian balance sheets, is frequently the single asset that tips someone over $2 million and into covered status.
Using the US-Canada Tax Treaty to Avoid Double Deemed-Sale Tax
When both the US exit tax and the Canadian departure tax can apply to the same assets, the treaty is your main relief valve. Two articles do the heavy lifting:
- Article XIII(7) — coordinating the deemed sale. Where one country deems a disposition (e.g., Canada's s.128.1 on departure) but the other does not yet recognize the gain, XIII(7) lets you elect to be treated as having sold and reacquired the property for the other country too, aligning the timing so the same gain is taxed in both countries in the same year. That alignment is what makes the foreign tax credit actually work — mismatched timing is how credits get stranded.
- Article XVIII(7) — RRSP/RRIF deferral. Preserves US tax deferral on RRSP/RRIF growth so the account is not currently taxed by the IRS, dovetailing with Canada's exclusion of registered plans from departure tax.
The strategic point: a covered expatriate who triggers US tax now under 877A but whose Canadian gain would only crystallize on a later actual sale (or never, for a principal residence) can end up paying US tax with no contemporaneous Canadian tax to credit against — the textbook stranded-credit problem. Planning the order of events (renounce while staying Canadian-resident? leave Canada first? make the XIII(7) election?) routinely changes the total tax by tens of thousands of dollars. This is not DIY territory.
The Forms You'll File: 8854, Dual-Status 1040/1040-NR, 8833, W-8CE, DS-4080/4081
Expatriation generates a thick stack of paper across two agencies. Here is the complete checklist with who files what and why.
| Form |
Purpose |
Filed by / when |
| Form 8854 |
Initial & Annual Expatriation Statement — certifies 5-year compliance, reports the deemed-sale calc and net worth |
The expatriate; attached to the final return, due by the return's due date (incl. extensions). $10,000 penalty for failure absent reasonable cause. |
| Form 1040 (dual-status) |
Final-year return for the period you were still a US citizen/resident |
The expatriate; for the year of expatriation |
| Form 1040-NR |
Nonresident return for the post-expatriation part of the year and any later US-source income |
The expatriate; year of expatriation and beyond as needed |
| Form 8833 |
Treaty-Based Return Position Disclosure (e.g., US-Canada treaty positions) |
The expatriate, where a treaty position is taken |
| Form W-8CE |
Notice of Expatriation and Waiver of Treaty Benefits to deferred-comp/IRA payors |
The expatriate; within 30 days of expatriation |
| Form 708 |
US Return of Tax on Covered Gifts/Bequests (IRC 2801, 40%) |
The US recipient, not the expatriate; released Jan 2026 |
| DS-4080 / DS-4081 |
Oath of Renunciation / Statement of Understanding of Consequences |
Signed at the consulate on the appointment day |
| Form I-407 |
Record of Abandonment of LPR Status (green card holders) |
Green card holders giving up the card |
| FinCEN 114 (FBAR) & Form 8938 |
Foreign account/asset reporting during the compliance lead-up |
The expatriate, for prior years to establish compliance |
How to Legally Avoid or Minimize the Exit Tax
For most people, the entire game is staying out of covered-expatriate status, because that single line determines whether you owe $0 or six figures, and whether Section 2801 ever touches your kids. Legitimate, well-trodden strategies include:
- Get fully compliant first. The fastest way to become covered is to fail the 5-year certification. Run the Streamlined Foreign Offshore Procedures (3 returns, 6 FBARs) before you go anywhere near a consulate. This is mandatory for nearly every accidental American.
- Manage net worth below $2M before the expatriation date. Lifetime gifting (while still a US person, using the multimillion-dollar lifetime gift/estate exemption), spousal transfers to a non-US-citizen spouse, and charitable giving can move the needle — but timing and gift-tax mechanics are technical.
- Use the dual-citizen-at-birth exception if you qualify — it defeats the net worth and income tests entirely (you still must certify compliance).
- Harvest losses and reset basis in the year of expatriation to shrink net unrealized gain against the $910,000 exclusion.
- Complete large family gifts BEFORE expatriating to sidestep the 40% Section 2801 tax that would otherwise land on US-resident recipients afterward.
- Sell appreciated assets while still a US resident in a low-rate window so the gain is taxed at ordinary capital-gains rates rather than swept into the deemed sale.
None of these are loopholes — they are the ordinary toolkit of pre-expatriation planning, and they have to be sequenced against both the US and Canadian rules at once. The wrong order can waste the entire benefit.
The Renunciation Process in Canada, Step by Step
Here is what actually renouncing looks like from a Canadian city in 2026.
- Get tax-compliant. Confirm (and if necessary repair) 5 clean years of US filings — Streamlined if you are behind. You cannot certify on Form 8854 what you have not filed.
- Model your covered-expatriate status. Tally worldwide net worth and 5-year average US tax. Decide whether and how to get below $2M, and whether an exception applies.
- Book a renunciation appointment at a US consulate (Toronto, Vancouver, Calgary, Montreal, Ottawa, Halifax, Quebec City). Wait times rose sharply after the fee cut.
- Attend the appointment. You sign DS-4081 (Statement of Understanding of Consequences), take the oath on DS-4080, and pay the $450 fee. This date is generally your expatriation date.
- Deliver Form W-8CE within 30 days to any deferred-comp/IRA payors if you are a covered expatriate — do not let this slip.
- Receive your CLN. The Certificate of Loss of Nationality is approved in Washington and mailed back, typically weeks to a few months later.
- File your final US return the following spring: dual-status 1040 + 1040-NR, with Form 8854 attached, plus 8833/treaty disclosures as needed. This is when any exit tax is actually paid.
Renunciation is irreversible. The CLN cannot be undone, and re-acquiring US citizenship later is, for most people, practically impossible. That permanence is exactly why the planning that precedes step 3 matters more than the appointment itself.
Should You Wait? Residence-Based Taxation (the LaHood Bill)
A recurring question in 2026: is Congress about to make all of this moot? The Residence-Based Taxation for Americans Abroad Act (LaHood/Young) would let qualifying Americans abroad elect to be taxed only on US-source income — effectively residence-based taxation for electors. The original bill (H.R. 10468) expired with the 118th Congress; an updated version is being finalized for the 119th Congress, with reintroduction expected before summer 2026 pending a Joint Committee on Taxation score.
Two important caveats before you delay an exit waiting for it. First, it is proposed, not law — treat it as a maybe. Notably, the One Big Beautiful Bill Act (signed July 4, 2025) did not change the 877A regime or move the US to residence-based taxation; citizenship-based taxation is still the law. Second, even if RBT passes, electing "nonresident" individuals would not be treated as expatriating under 877A — but the drafts contemplate a special mark-to-market departure tax on certain high-net-worth electors, so the wealthiest filers might not escape an exit-tax-style event anyway. Waiting could help a middle-net-worth accidental American; it is unlikely to rescue a $5M covered expatriate. We track this closely in our renunciation trend coverage.
Pro Tip
Order of operations is everything. Renouncing before you are tax-compliant creates covered-expatriate status out of thin air via the certification test. Making a big gift to your US kids after you renounce as a covered expatriate hands them a 40% Form 708 bill that the same gift made one day before expatriation would have avoided. The difference between a clean, $0-tax exit and a six-figure one is almost always sequencing — not the assets themselves. See exactly what a planned exit costs in our transparent cross-border pricing.
How Zenith Financial Advisors Helps US-Canada Clients Plan a Clean Exit
We do one thing: cross-border US-Canada tax. For clients weighing renunciation, that means we (1) model your covered-expatriate status across all three tests using your real Canadian balance sheet — home equity, RRSP, TFSA, RESP, pensions and all; (2) get you compliant through Streamlined if needed so you can truthfully certify Form 8854; (3) run the mark-to-market math against the $910,000 exclusion and the deferred-account rules; (4) sequence gifts, sales, and the renunciation date to keep you under $2M or use an exception where possible; (5) protect your US-resident family from the Section 2801 / Form 708 trap; and (6) prepare the entire final-year stack — dual-status 1040, 1040-NR, 8854, 8833, W-8CE. The whole point is to find out, before you book a consulate appointment, whether you owe $0 or $166,000 — because for most people, with the right planning, the answer is $0.
Thinking About Renouncing? Get the Numbers First.
A free 15-minute exit-tax review tells you whether you are a covered expatriate, what the deemed sale would cost, and whether a few months of planning can drop your exit tax to $0. We have guided hundreds of Americans and dual citizens in Canada through a clean, well-sequenced exit.
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Frequently Asked Questions
Does everyone who renounces US citizenship pay the exit tax?
No. The exit tax under IRC Section 877A only applies to covered expatriates. You become a covered expatriate if you meet any one of three tests on your expatriation date: worldwide net worth of $2,000,000 or more, average annual net US income tax over the prior five years above $211,000 (for a 2026 expatriation), or failure to certify five years of US tax compliance on Form 8854. Most people who renounce are not covered expatriates and owe $0 of exit tax, but everyone who renounces must still file Form 8854.
How much is the US exit tax in 2026?
There is no flat rate. If you are a covered expatriate, your worldwide assets are treated as sold at fair market value the day before expatriation. The first $910,000 of net unrealized gain is excluded for 2026, and gain above that is taxed at capital-gains rates (typically 15% or 20%, plus 3.8% net investment income tax where it applies). For example, $1,740,000 of net built-in gain minus the $910,000 exclusion leaves $830,000 taxable, producing roughly $166,000 of federal tax. If you are not a covered expatriate, the exit tax is $0.
What is the new $450 renunciation fee and when does it start?
On March 13, 2026, the US State Department published a Federal Register notice cutting the fee for issuing a Certificate of Loss of Nationality from $2,350 to $450, an approximately 81% reduction. The new $450 fee takes effect April 13, 2026. It is the same level the fee was at before 2014 (it was $450 in 2010, raised to $2,350 in 2014). The fee is paid to the State Department at your renunciation appointment.
Is the $450 fee the same thing as the exit tax?
No, and confusing the two is the most expensive mistake in this area. The $450 is a State Department consular fee for processing your Certificate of Loss of Nationality. The exit tax is a completely separate IRS liability under IRC 877A, administered by a different agency under a different part of the law. A covered expatriate can pay the $450 fee and still owe well over $100,000 to the IRS. Paying one has no effect on the other.
What are the three covered expatriate tests for 2026?
1) Net worth test: worldwide net worth of $2,000,000 or more on the expatriation date (not inflation-indexed). 2) Income-tax test: average annual net US income tax liability over the five years before expatriation greater than $211,000 for a 2026 expatriation. 3) Compliance test: failure to certify under penalty of perjury on Form 8854 that you complied with all US federal tax obligations for the prior five years. Meeting any one test makes you a covered expatriate.
Is the $2 million net worth test adjusted for inflation?
No. The $2,000,000 net worth threshold has been fixed since 2008 and is not indexed for inflation. This is a quiet trap: as portfolios grow and Canadian home values rise, more people cross the line each year even though the dollar figure never changes. By contrast, the income-tax test ($211,000 for 2026) and the mark-to-market gain exclusion ($910,000 for 2026) are adjusted annually under Revenue Procedure 2025-32.
Can I owe $0 income tax but still be a covered expatriate?
Yes. The income-tax test is just one of three independent tests. Many Americans in Canada owe little or no US tax because the foreign tax credit wipes out their US liability, so they easily pass the income test. But they can still be covered expatriates if their worldwide net worth hits $2,000,000 (very common with a paid-off home plus an RRSP) or if they cannot certify five clean years of US tax compliance on Form 8854.
Do green card holders have to pay the US exit tax?
They can. A green card holder who was a lawful permanent resident in at least 8 of the last 15 tax years is a long-term resident under IRC 7701(b)(6). When such a person abandons the green card (Form I-407) or takes a treaty-nonresident position, they are treated as expatriating and run the same three covered-expatriate tests as a citizen. A green card holder who has been a resident fewer than 8 of 15 years generally avoids the exit tax entirely, so timing the surrender of the card matters.
What is the dual-citizen-at-birth exception and does it cover everyone?
Under IRC 877A(g)(1)(B), if you became a US citizen and a citizen of another country at birth, still hold that other citizenship, are taxed as a resident of that other country, and were a US resident for no more than 10 of the prior 15 years, you are not treated as a covered expatriate even if you exceed the net worth or income tests. But it does not waive the compliance test: you must still certify five clean years of US filings on Form 8854. It also requires you to have been dual at birth, so naturalizing as a Canadian later does not qualify.
What happens to my RRSP if I renounce US citizenship?
Your RRSP/RRIF keeps its US income-tax deferral under Article XVIII(7) of the US-Canada treaty, so it is not currently taxed by the IRS and is not part of the mark-to-market deemed sale. However, its present value still counts toward the $2,000,000 net worth test, and if you are a covered expatriate the deferred-account rules of 877A can produce a deemed-distribution or 30% withholding outcome on payouts, so it must be modeled rather than assumed safe.
Is my TFSA or RESP subject to the US exit tax?
Yes, in two ways. Neither the TFSA nor the RESP is protected by the US-Canada treaty. The IRS already treats them as taxable to US persons (and often as foreign trusts requiring Form 3520/3520-A). Both count toward the $2,000,000 net worth test, and their built-in gains feed the mark-to-market deemed sale if you are a covered expatriate. For US persons in Canada, TFSAs and RESPs are liabilities in an expatriation analysis, not tax shelters.
Does the US exit tax apply to my Canadian home?
Yes, if you are a covered expatriate. Your principal residence is included in the mark-to-market deemed sale at its full fair market value, and the full built-in gain is captured (the US allows only the $250,000/$500,000 Section 121 exclusion, not Canada's unlimited principal residence exemption). The home's equity also counts toward the $2,000,000 net worth test. A paid-off home in Toronto or Vancouver is frequently the single asset that pushes a Canadian into covered-expatriate status.
How does the Canadian departure tax differ from the US exit tax?
They are separate taxes with different triggers. The Canadian departure tax (ITA s.128.1) fires when you cease to be a resident of Canada and deems a disposition of most worldwide assets, with no net worth threshold. The US exit tax (IRC 877A) fires when you renounce US citizenship or abandon a long-term green card, and only if you are a covered expatriate. Critically, if you renounce US citizenship while continuing to live in Canada, the Canadian departure tax does not fire at all because you have not left Canada.
Will I be taxed twice, by both the IRS and the CRA?
Potentially, if both the US exit tax and the Canadian departure tax apply to the same assets, but the US-Canada treaty provides relief. Article XIII(7) lets you elect to align the timing of the deemed dispositions so the same gain is taxed in both countries in the same year, which makes the foreign tax credit work and prevents stranded credits. Most dual citizens who renounce while staying in Canada only face the US side, since Canadian departure tax does not trigger. Sequencing the events is essential to avoid genuine double tax.
What is Form 8854 and when is it due?
Form 8854, the Initial and Annual Expatriation Statement, is the core expatriation form. It certifies your five years of US tax compliance, reports the mark-to-market calculation, and documents your net worth. Every person who renounces must file it, covered expatriate or not. It is attached to your final-year US tax return and due by that return's due date including extensions. Failure to file or filing an incomplete form carries a $10,000 penalty absent reasonable cause.
What is the Section 2801 tax and Form 708, and will it tax my children?
IRC Section 2801 imposes a 40% transfer tax on covered gifts and bequests that a covered expatriate makes to US citizens or residents, at any time after expatriation. The US recipient pays it, not the expatriate, by filing the new Form 708 (released by the IRS in January 2026). Only the $19,000 annual exclusion per recipient (2025 and 2026) shields the transfer. So if you renounce as a covered expatriate and later give your US-resident child $500,000, she would owe roughly ($500,000 minus $19,000) times 40%, or $192,400. It applies indefinitely with no sunset, which is a strong reason to either avoid covered status or complete major family transfers before expatriating.
What happens to my IRA or 401(k) when I expatriate?
It depends on the account type and whether you are a covered expatriate. Specified tax-deferred accounts (traditional and Roth IRAs, HSAs, 529s, Coverdell, ABLE) are treated as fully distributed the day before expatriation under 877A(e), so the entire balance is taxed in one year and Roth gains lose their tax-free status. Eligible deferred compensation (most 401(k)s and employer pensions) is not taxed at exit but is subject to a flat 30% withholding on each future distribution, provided you file Form W-8CE with the payor within 30 days. Miss that 30-day deadline and the account can flip to an immediate, full-balance deemed distribution.
Do I still have to file US taxes after I renounce?
Generally yes for the year of expatriation, and sometimes afterward. For the expatriation year you file a dual-status return: Form 1040 for the part of the year you were a US citizen and Form 1040-NR for the post-expatriation part, with Form 8854 attached. After that, you only file Form 1040-NR if you have US-source income (such as US rental property, US business income, or certain US investment income). Once your final filings and Form 8854 are complete and you have no US-source income, your annual US filing obligation ends.
How can I legally reduce or avoid the exit tax?
The whole game is staying out of covered-expatriate status. The main legitimate strategies are: get fully tax-compliant first (Streamlined Foreign Offshore Procedures) so you can certify on Form 8854; reduce net worth below $2,000,000 before the expatriation date through lifetime gifting, spousal transfers to a non-US-citizen spouse, and charitable giving while you are still a US person; use the dual-citizen-at-birth exception if you qualify; harvest losses and reset basis to shrink net gain against the $910,000 exclusion; and complete large family gifts before expatriating to avoid the 40% Section 2801 tax on your US-resident heirs. Sequencing against both US and Canadian rules is what makes these work.
Should I wait for residence-based taxation before renouncing?
Possibly, if you are a middle-net-worth accidental American, but do not bank on it. The Residence-Based Taxation for Americans Abroad Act (LaHood/Young) is proposed, not law. The original bill expired with the 118th Congress, and an updated version is expected to be reintroduced in the 119th Congress before summer 2026 pending a JCT score. The One Big Beautiful Bill Act in 2025 did not change the 877A regime. Even if RBT passes, the drafts contemplate a special mark-to-market departure tax on high-net-worth electors, so the wealthiest filers may not escape an exit-tax-style event regardless.
How do I renounce US citizenship from Canada?
First become fully US tax-compliant for five years (use Streamlined if behind) and model your covered-expatriate status. Then book a renunciation appointment at a US consulate in Canada (Toronto, Vancouver, Calgary, Montreal, Ottawa, and others). At the appointment you sign DS-4081 acknowledging the consequences, take the oath of renunciation on DS-4080, and pay the $450 fee; that date is generally your expatriation date. If you are a covered expatriate, deliver Form W-8CE to deferred-comp payors within 30 days. You then receive your Certificate of Loss of Nationality and file your final-year dual-status return with Form 8854 the following spring.
