Exit Tax
Exit Tax Guidance for U.S Citizens and Green Card Holders
At Paley & Prehn, PLC, we help individuals navigate one of the most misunderstood and financially consequential areas of international tax law: The U.S. Exit Tax. Whether you’re planning to renounce U.S. citizenship or surrender your Green Card, we ensure your departure doesn’t lead to lifelong financial or legal complications.
What is the Exit Tax?
The U.S. Exit Tax applies to U.S. citizens and long-term residents who give up their status and meet certain financial thresholds. It operates like a capital gains tax on your worldwide assets, as if you sold everything the day before you expatriate. This includes:
- Investment portfolios
- Business interests
- Real estate
- Retirement accounts (401(k), IRA, pensions)
- Trusts and deferred compensation
If you are classified as a “covered expatriate,” you may owe significant tax—even on assets you haven’t actually sold.
Are You a Covered Expatriate?
You’re likely subject to the Exit Tax if you meet any of the following:
- Your average annual U.S. income tax liability for the last five years exceeds $206,000.
- Your net worth is $2 million or more at the time of expatriation.
- You have not been tax compliant for the five years preceding expatriation.
If you meet any of these, the IRS may label you a covered expatriate—this means that you will be subject to the Exit Tax and other serious, potentially lifelong tax and reporting consequences. Additionally, any future gifts or inheritances you leave to U.S. citizens or residents may trigger a 40% transfer tax paid by the recipient.
Are There Exceptions?
Yes. Some individuals may qualify for relief. For example, you may be exempt from covered expatriate status if you were a dual citizen at birth and haven’t lived in the U.S. for more than 10 of the last 15 years, or if you expatriate before age 18½ and were a U.S. tax resident for no more than 10 years.
Plan Your Departure the Smart Way
At Paley & Prehn, we offer personalized guidance that includes:
- Pre-renunciation tax compliance review
- Asset restructuring strategies to lower tax exposure
- Coordination with international tax advisors
- Estate and inheritance planning for U.S. heirs
- FATCA, FBAR, and Form 8854 preparation
Expatriating without proper legal and tax planning can lead to long-term problems—including surprise tax bills years into the future. You can only renounce once, and it must be done correctly. Leaving the U.S. shouldn’t cost you your future – let us help you make a clean break.