The US exit tax reaches a citizen who renounces, or a long-term green card holder who gives up the card, when that person is a covered expatriate. A covered expatriate is taxed as if every asset were sold the day before expatriation. In 2026 the first $910,000 of that gain is excluded.
What is the US exit tax
The US exit tax is the regime in section 877A of the Internal Revenue Code, in force for anyone who expatriated after 16 June 2008. It taxes unrealised gains when a person leaves the US tax net for good.
Expatriation means renouncing citizenship before a US consular officer, confirmed by a certificate of loss of nationality, or ending permanent residence, for example by filing Form I-407. The IRS Instructions for Form 8854 (2025 edition) set out both dates.
Who counts as a covered expatriate in 2026
You are a covered expatriate if any one of three tests applies on your expatriation date. The two money thresholds are indexed each year by revenue procedure; Rev. Proc. 2025-32 sets the 2026 figures.
- Net worth test · $2 million or more on the expatriation date · a fixed figure, absent from the annual inflation tables
- Tax liability test · average annual net income tax for the 5 years before expatriation above $211,000 in 2026 · $206,000 in 2025
- Compliance test · failure to certify on Form 8854 that all federal tax obligations for the 5 prior years were met · applies whatever your wealth
What is the 8 year exit tax rule for green card holders
A green card holder becomes a long-term resident once they were a lawful permanent resident in at least 8 of the last 15 tax years, ending with the year residence ends.
A year does not count if you were a treaty resident of another country and did not waive the treaty benefits. The substantial presence test decides how US residence starts.
Who is exempt from exit tax
Two groups are exempt from the money tests, though both must still certify 5 years of compliance.
- Dual citizens at birth · still a citizen and tax resident of the other country · US resident for no more than 10 of the last 15 tax years
- Minors · expatriated before age 18½ · US resident for no more than 10 tax years before expatriating
How the mark-to-market tax works
Section 877A(a) treats all property of a covered expatriate as sold for fair market value on the day before the expatriation date. Gains count for that year whatever other rule would defer them; losses count only where the Code otherwise allows them, and the wash sale rule is switched off.
The resulting net gain is reduced, but not below zero, by an exclusion amount. It was $600,000 in the statute and is indexed each year: $890,000 for 2025 and $910,000 for 2026. The exclusion is spread across the gain assets in proportion to their gain.
An illustration for 2026. A former green card holder with 9 years of permanent residence holds a share portfolio worth $3,000,000 with a basis of $1,200,000. Net worth passes $2 million, so they are covered. Deemed gain: $3,000,000 minus $1,200,000 equals $1,800,000. After the exclusion: $1,800,000 minus $910,000 equals $890,000 of gain taxed on the final return. Section 877A(a)(2) adjusts the gain on any later real sale for the gain already taxed.
Retirement accounts, deferred pay and trusts
Four kinds of asset follow their own rules in section 877A(c) to (f).
- Specified tax deferred accounts · IRAs (other than SEP and SIMPLE plans), 529 plans, Coverdell accounts and HSAs · treated as fully distributed the day before expatriation, with no early distribution penalty
- Eligible deferred compensation · the payer is a US person and the expatriate waives treaty cuts to withholding · 30 percent withheld from each later payment
- Ineligible deferred compensation · plans that fail those conditions · present value taxed as if received the day before expatriation
- Interests in nongrantor trusts · 30 percent withheld from the taxable portion of each later distribution
What heirs pay: the section 2801 tax
Under section 2801, a US citizen or resident who receives a gift or bequest from a covered expatriate pays tax on it. The rate is the highest estate and gift tax rate, which section 2001(c) puts at 40 percent.
The recipient pays on Form 708, on receipts above $19,000 in 2026. Final regulations apply from 1 January 2025, and a donor is presumed covered unless they let the recipient see their return information.
Heed's reading: two of the three tests turn on records, the 8 of 15 year count and the 5 year compliance certificate. Both can be checked from returns already filed, before an I-407 or a renunciation appointment.
Form 8854 and the $10,000 penalty
Every expatriate files Form 8854 with the return for the year that includes the expatriation date, by that return's due date. Someone with no return to file sends the form on its own by the date a Form 1040-NR would have been due.
A missing, incomplete or incorrect form costs $10,000 a year unless there was reasonable cause.
Our notes on the UK exit rules and five European exit taxes cover other exits; the exit tax overview compares them. Heed monitors international tax law changes across every jurisdiction we track and sends personalised alerts before they affect your situation.