What is Exit Tax?
A tax on unrealized gains imposed on covered expatriates who renounce US citizenship or long-term residency.
Definition
The exit tax (Section 877A) applies to covered expatriates who renounce US citizenship or terminate long-term resident (green card) status. It treats all worldwide assets as if sold at fair market value on the day before expatriation, triggering capital gains tax on the net unrealized gain exceeding the exclusion amount ($866,000 for 2023). Deferred compensation and specified tax-deferred accounts have special rules. The exit tax is designed to prevent wealthy individuals from expatriating to avoid US taxation.
Who Needs to Know This?
US citizens renouncing citizenship and long-term residents (green card holders for 8+ of the last 15 years) abandoning their status who meet the covered expatriate thresholds.
Key Deadline
Form 8854 due with the final dual-status or final US tax return
Potential Penalties
Failure to file Form 8854 results in continued US tax obligations and potential penalties
Related Forms
Common Mistakes to Avoid
- 1Not realizing long-term green card holders are subject to exit tax
- 2Failing to file Form 8854
- 3Not understanding the covered expatriate net worth and tax thresholds
- 4Missing the exclusion amount that reduces the exit tax
Related Terms
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