US exit tax (expatriation tax) explained – 2026 rules
The US exit tax is a federal expatriation tax that may apply when a US citizen renounces citizenship or a long-term green card holder ends US residency. For calendar year 2026, the key IRS figures are $211,000 for the average annual net income tax liability test, $2 million for net worth, and $910,000 for the mark-to-market exclusion.
The US exit tax is a federal expatriation tax that may apply when a US citizen renounces citizenship or a long-term green card holder ends US residency.
Planning to give up US citizenship or a green card usually starts with one practical question: will the IRS treat the move as taxable? Most people won’t owe tax. The rules mainly affect people classified as covered expatriates because of wealth, average tax liability, or missing 5 years of US tax compliance.
NOTE! Exit thresholds change yearly, so 2025 numbers do not control a 2026 expatriation. The IRS may treat a covered expatriate as if most worldwide assets were sold the day before expatriation, even when no real sale happened.
What is the US exit tax?
The US exit tax means the IRS rule under IRC section 877A that can tax certain people when they leave the US tax system. For 2026, the mark-to-market exclusion is $910,000, meaning only net unrealized gain above that amount can be taxable under the default deemed-sale rule.
When US citizens or long-term green card holders decide to renounce citizenship or officially cut tax ties with the United States, the IRS expects final tax obligations to be settled first. The US exit tax, also called the expatriation tax, is the IRS’s way of taxing certain unrealized gains before a covered expatriate leaves the US tax system.
This rule became the modern 877A exit tax regime in 2008. It is sometimes called the American exit tax, the federal exit tax, or the exit tax in the United States, but the core rule is the same: a covered expatriate may be taxed as if most property were sold for fair market value on the day before expatriation.
These 4 terms explain the basic mark-to-market rule.
| Term | Plain-English meaning | Why it matters |
|---|---|---|
| Deemed sale | The IRS treats expatriation as if most worldwide property was sold the day before exit | Creates possible taxable gain without an actual sale |
| Fair market value | The price an asset would likely sell for on the open market | Used to measure the deemed-sale value |
| Basis | Original cost, adjusted for items like improvements or depreciation | Used to measure gain or loss |
| Unrealized gain | Growth in value that has not been cashed out yet | This is what the mark-to-market rule can tax |
For a deeper form-by-form breakdown, see our guide to Form 8854 for expatriates.
Who pays the US exit tax?
Only a covered expatriate faces the covered expatriate exit tax rules or expat exit tax. For a 2026 expatriation, that generally means meeting 1 of 3 tests: net worth of $2 million or more, average annual net income tax liability of more than $211,000, or failure to certify 5 years of US federal tax compliance.
Not everyone giving up citizenship or a green card pays tax. A person can owe $0 in actual income tax and still become a covered expatriate by failing the Form 8854 compliance certification.
The 3 covered expatriate tests decide whether the exit tax rules apply.
| Test | 2026 threshold | What it means in plain English | Common pitfall |
|---|---|---|---|
| Average annual net income tax liability test | More than $211,000 | Your average annual US income tax liability for the 5-year lookback period is above the threshold | Confusing tax liability with salary, income, or balance due |
| Net worth test | $2 million or more | Worldwide net worth on the expatriation date reaches the threshold | Forgetting foreign real estate, business equity, or assets held through entities |
| Compliance certification test | 5 tax years | Form 8854 cannot certify full US federal tax compliance for the 5 years before expatriation | Assuming “no tax due” means fully compliant |
Who are covered expatriates?
A covered expatriate is a US citizen or long-term resident who expatriates and meets at least 1 IRS test. For calendar year 2026, the two money tests are more than $211,000 in average annual net income tax liability or $2 million in net worth, and the third test is failure to certify 5 years of compliance on Form 8854.
Net worth test: total worldwide net worth of $2 million or more on the expatriation date makes a person a covered expatriate. This includes property, investments, business interests, and other assets worldwide, reduced by liabilities.
Average tax liability test: average annual US income tax liability for the 5 years before expatriation must be more than $211,000 for a 2026 expatriation. The threshold adjusts each year for inflation.
Certification test: even low net worth and low tax liability do not protect a person who cannot certify 5 years of US federal tax compliance. This certification is made on Form 8854, Initial and Annual Expatriation Statement, and missing it can create covered expatriate status.
The following 3 edge cases cause problems even when no tax is due.
- Filing Form 8854 still matters even when the mark-to-market result is $0.
- Asset transfers during the 5 years before expatriation may need clear records when net worth is close to $2 million.
- Green card holders with fewer than 8 of the last 15 tax years as lawful permanent residents generally do not fall under the long-term resident exit rules.
What about green card holders?
Long-term green card holders may face the same 3 covered expatriate tests as citizens. The key threshold is the 8-of-15-year rule: a lawful permanent resident is generally a long-term resident when they held green card status in at least 8 of the last 15 tax years ending with the year residency ends.
A shorter green card history usually means the expatriation tax rules do not apply, though final-year filing may still be required. Long-term residents may also face exit rules even after years abroad when their green card status was never formally ended.
Exceptions: US exit tax for dual citizens at birth and minors
US exit tax for dual citizens can be avoided in narrow cases, but the exception is not automatic. Form 8854 instructions say certain dual citizens and certain minors are not treated as covered expatriates solely because of the net worth or tax liability tests, but they still must file Form 8854 and certify 5 years of tax compliance.
These 2 exceptions can help, but Form 8854 still matters.
| Exception | Who qualifies | What still must be filed |
|---|---|---|
| Dual citizens at birth | Became a US citizen and another country’s citizen at birth, remains a citizen and tax resident of the other country, and was a US resident for no more than 10 of the last 15 tax years | Form 8854 with 5-year compliance certification |
| Certain minors | Expatriated before age 18½ and was a US resident for no more than 10 tax years before expatriation | Form 8854 with 5-year compliance certification |
The following 4 records help support an exception claim.
- Birth certificates or passports proving dual citizenship at birth.
- Tax residency documents from the other country.
- Physical presence history showing no more than 10 qualifying US tax years.
- Form 8854 showing 5 years of federal tax compliance.
This is the main US exit tax exemption for dual citizens and minors, but it is narrow. A missed Form 8854 certification can still affect the result.
How much is the US exit tax?
The answer to “how much is the US exit tax” depends on net unrealized gain, asset type, and the tax rate that applies after the $910,000 2026 exclusion. The IRS does not charge a flat US exit tax rate; the taxable gain is generally taxed under normal income tax rules after the section 877A calculation.
A covered expatriate is generally treated as if most worldwide property was sold the day before expatriation. That deemed sale produces the exit tax calculation, but the final tax can vary because capital gains, ordinary income items, NIIT, deferred compensation, and trust interests may follow different rules.
The 2026 exclusion reduces taxable mark-to-market gain, but it does not create a flat tax rate.
| Net unrealized gain | 2026 exclusion | Taxable gain before rates | Rate note |
|---|---|---|---|
| $700,000 | $910,000 | $0 | No taxable mark-to-market gain |
| $1,300,000 | $910,000 | $390,000 | Rates depend on asset character |
| $2,000,000 | $910,000 | $1,090,000 | Capital gain, ordinary income, or NIIT may apply |
Step-by-step exit tax calculation
The exit tax calculation starts with a worldwide asset list and ends with taxable gain after the $910,000 2026 exclusion. The key formula is simple: fair market value minus cost basis equals gain or loss, then gains and losses are netted before applying the one-time exclusion.
The following 5 steps show the basic calculation.
- List assets and estimate fair market value, including brokerage accounts, real estate, business interests, crypto, and other property.
- Calculate gain or loss for each asset: FMV minus cost basis = gain or loss.
- Net gains and losses together.
- Subtract the $910,000 exclusion for 2026.
- Apply the correct US tax rules based on asset type.
Based on TFX client scenario: a US citizen in Spain had $1,300,000 of net unrealized gain across a brokerage account and foreign rental property. After the $910,000 exclusion, $390,000 remained potentially taxable before rates, foreign tax issues, and asset character were reviewed.
Real estate can be one of the hardest assets to value, especially when the property is outside the United States.
Short examples based on our client scenario at TFX
The 2026 exclusion can reduce taxable mark-to-market gain to $0, but it is not applied per asset. It is one exclusion against total net unrealized gain, and the final expatriation tax rate depends on whether the taxable amount is capital gain, ordinary income, or subject to the 3.8% Net Investment Income Tax.
These 3 examples show how the one-time $910,000 exclusion works.
| Scenario | Net gain before exclusion | 2026 exclusion | Taxable gain before rates | Result |
|---|---|---|---|---|
| No tax after exclusion | $700,000 | $910,000 | $0 | No mark-to-market tax |
| Taxable gain remains | $1,300,000 | $910,000 | $390,000 | Taxed under applicable rules |
| Covered expatriate due to Form 8854 issue | $0 | Not needed | $0 | No mark-to-market gain, but covered expatriate status may still apply |
This approach is the mark-to-market regime. The IRS applies it to many investments and property interests, but not all assets follow the same rule.
US exit tax forms: Form 8854, W-8CE, 1040-NR, and final return
Several forms can matter in the year of expatriation, and Form 8854 is the central one. For 2026 planning, the biggest deadlines are the normal April 15, 2026 filing date for most calendar-year individual returns and the Form W-8CE deadline of the earlier of 30 days after expatriation or the day before the first relevant distribution.
These 5 forms cover the most common expatriation filing paths.
| Form | Who files or gives it | Due date | Filed with IRS or payer | Why it matters |
|---|---|---|---|---|
| Form 8854 | US citizens and long-term residents who expatriate | With final return, including extensions | IRS | Certifies 5 years of compliance and reports expatriation information |
| Form 1040 | Citizens or residents for the part-year before expatriation | April 15, 2026 for most 2025 calendar-year filers | IRS | Reports final resident-year income |
| Form 1040-NR | Nonresident after expatriation with US-source filing duties | April 15 or June 15, 2026 depending on wages and withholding | IRS | Reports post-expatriation US-source income |
| Form W-8CE | Covered expatriates with certain deferred compensation, tax-deferred accounts, or nongrantor trusts | Earlier of 30 days after expatriation or day before first distribution | Payer, plan, or trustee | Gives notice under section 877A |
| Form 708 | US recipients of covered gifts or bequests from covered expatriates | Generally 15th day of the 18th month after the calendar year closes | IRS | Reports section 2801 tax |
Form 8854 instructions currently direct filers to send the original form to the IRS address listed in the current instructions. Check the latest IRS instructions before filing because mailing addresses can change.
Is there a US exit tax calculator?
There is no official IRS US exit tax calculator because the result depends on at least 5 inputs: asset value, basis, losses, the $910,000 exclusion, and tax character. A worksheet can estimate exposure, but it cannot replace Form 8854 analysis or a review of pensions, trusts, and tax-deferred accounts.
The following 6 worksheet items can help estimate exposure before filing.
- Worldwide assets on the day before expatriation.
- Fair market value for each asset.
- Cost basis for each asset.
- Unrealized gains and losses.
- The $910,000 2026 exclusion.
- Asset character, such as capital gain, ordinary income, deferred compensation, or trust interest.
What is exit tax in the USA? A simple worksheet can answer this at a high level, but it cannot give the final US expatriation tax rate. That rate depends on what the taxable item is and how the regular tax rules apply.
Covered expatriate? Don’t forget Form W-8CE
Form W-8CE is a timing-sensitive notice for covered expatriates with certain deferred compensation, specified tax-deferred accounts, or nongrantor trust interests. It is generally due to the payer by the earlier of 30 days after expatriation or the day before the first distribution on or after expatriation.
Covered expatriates with certain 401(k), pension, deferred compensation, IRA-related, tax-deferred, or trust interests may need this form. With Form W-8CE, the payer is notified that section 877A expatriation rules may apply.
The following 3 points matter most for Form W-8CE.
- Covered expatriates give Form W-8CE to the payer, plan, or trustee.
- The deadline is the earlier of 30 days after expatriation or the day before the first relevant distribution.
- Eligible deferred compensation can face 30% withholding on taxable payments.
NOTE! Form W-8CE is generally given to the payer, not filed with the IRS like Form 8854.
Before expatriation, net investment income may also be subject to the 3.8% NIIT when modified adjusted gross income is above $200,000 for single filers or heads of household, $250,000 for married filing jointly, or $125,000 for married filing separately. NIIT applies to investment income, not wages or self-employment income.
Do I still need to file any US taxes after paying the exit tax?
Paying the exit tax does not erase every future US filing duty. After expatriation, US-source income such as rental income, US dividends, pensions, and US real estate sales may still create Form 1040-NR filing or withholding obligations, including possible 30% withholding on certain fixed or determinable annual or periodical income unless a treaty or exception applies.
A nonresident may qualify for treaty rates depending on the treaty, residency, income type, and paperwork filed with the payer. Some former citizens also need to review treaty rules carefully because expatriation can affect how benefits are claimed.
Form 8854 is usually filed with the final US return. Annual Form 8854 filing can still apply in limited cases, such as deferred tax, eligible deferred compensation, or nongrantor trust reporting.
After expatriation, these 5 US connections can still create tax filings or withholding.
| US connection after expatriation | Common treatment | Form or issue to watch |
|---|---|---|
| US rental property | Net rental income may be reported as effectively connected income when properly elected | Form 1040-NR |
| US dividends | Often subject to withholding unless treaty relief applies | Form W-8BEN and withholding review |
| US pensions | May be taxable or treaty-reduced depending on treaty terms | Form 1040-NR or withholding forms |
| Sale of US real estate | US tax reporting can still apply | FIRPTA and Form 1040-NR |
| US-situs estate assets | US estate tax exposure may remain | Estate tax review |
At Taxes for Expats, we can make this process simple through our nonresident tax return service that helps with filing after expatriation.
How to avoid the US exit tax: proven strategies
Legal planning can reduce or avoid covered expatriate status, but it must be done before the expatriation date and documented well. The safest approach is to confirm the $2 million net worth test, the $211,000 average tax liability test, and the 5-year Form 8854 compliance certification before making the final move.
With the right legal tax planning, it may be possible to reduce or avoid the tax. The goal is not expatriation to avoid tax in an abusive sense; it is lawful planning, complete filing, and accurate documentation.
A person close to $2 million in net worth may need to review gifting, asset ownership, liabilities, and valuations before expatriation. Timing matters, too: a large asset sale, business exit, or inheritance can change both net worth and tax liability.
If classified as a covered expatriate, gifts or bequests left to US citizens or residents can trigger section 2801 tax for the recipient. For 2026, the annual exclusion is $19,000, and section 2801 tax uses the highest estate tax rate, currently 40% under the estate and gift tax rate structure.
Failing to file or correct past returns is one of the clearest ways to become covered. The IRS relief procedures for certain former citizens can help only in narrow cases, including a net worth below $2 million and an aggregate tax liability of $25,000 or less for the 5 prior years, plus the expatriation year.
The following 4 mistakes create avoidable risk.
- Forgetting that losses offset gains across the mark-to-market calculation.
- Thinking the $910,000 exclusion applies per asset.
- Lacking valuation support for real estate, business interests, or private equity.
- Cleaning up the 5-year compliance record after filing Form 8854 instead of before.
Special assets cheat sheet: rules to watch
Special assets can change the exit tax result even when the $910,000 exclusion looks large enough. Deferred compensation, specified tax-deferred accounts, nongrantor trusts, PFICs, foreign pensions, and private equity may need separate treatment under section 877A and Form 8854.
Exit tax is not always a simple “sell everything on paper and pay capital gains” calculation. Pensions, 401(k)s, IRAs, trusts, and foreign funds can create different timing, withholding, and reporting outcomes.
The $910,000 exclusion mainly applies to mark-to-market gain; these asset categories may need separate handling.
| Asset category | Why it’s special | Forms commonly seen | What to gather |
|---|---|---|---|
| Deferred compensation | May involve 30% withholding or present-value income rules | Form 8854, W-8CE | Plan statements, vested amounts, payout terms |
| IRAs and tax-deferred accounts | May be treated as distributed before expatriation | Form 8854, W-8CE | Latest statements, account type, contribution history |
| Nongrantor trusts | May require withholding and annual Form 8854 reporting | Form 8854, W-8CE | Trust deed, trustee statements, distribution history |
| Private business or equity | Valuation is often the hardest part | Form 8854, valuation reports | Cap table, financials, transaction history |
| Foreign funds and ETFs | PFIC reporting can change tax results | Form 8854 plus investment reporting forms | Purchase dates, basis, annual statements |
| Foreign pensions | US classification may differ from local treatment | Form 8854, W-8CE where relevant | Plan terms, employer details, contribution records |
| Not covered by the $910,000 exclusion | Deferred compensation, specified tax-deferred accounts, and nongrantor trusts are carved out from the default deemed-sale rule | Form 8854, W-8CE | Category-by-category review |
Renouncing US citizenship? Here’s what else to consider
US citizenship renunciation has tax and non-tax consequences, and the tax piece is only 1 part of the decision. As of April 13, 2026, the State Department reduced the Certificate of Loss of Nationality fee from $2,350 to $450, but that fee is separate from IRS tax, Form 8854, and section 877A.
Renunciation is permanent. It can affect the ability to pass citizenship to children, access certain US government services, or maintain business and legal ties with the United States.
A person researching US citizenship renunciation exit tax, renounce US citizenship exit tax, or giving up US citizenship exit tax is usually looking at the same IRS issue: whether covered expatriate rules apply. Which is why exit tax US citizenship refers to tax consequences of leaving the US tax system, not the consular fee.
The following 4 non-tax areas deserve review before renunciation.
- Travel and re-entry: future visits to the US may require a visa or ESTA eligibility, depending on nationality.
- Social Security benefits: payments may still continue for some noncitizens, but access and payment rules vary by country.
- Banking and investments: US banks and brokerages may restrict accounts for noncitizens abroad.
- Estate and gift planning: covered expatriate gifts and bequests to US persons can create section 2801 issues for the recipient.
Make your exit smooth – talk to a tax professional
Before renouncing, confirm covered expatriate status, Form 8854 readiness, asset valuation, and 5-year compliance. A missed form, wrong threshold, or weak valuation can create tax exposure even when the mark-to-market tax itself would be low.
The exit tax is complex, and getting it wrong can be costly. When the numbers are close, guessing is risky.
Whether the plan is to relinquish US citizenship exit tax exposure, wait and reassess, or complete a final filing package, a tax professional can help organize the facts. TFX can review financials, assist with Form 8854, and help reduce filing stress before the final deadline. Plan your expatriation with experienced tax guidance
Frequently asked questions on the exit tax in the United States
These FAQs answer the core 2026 questions in short form, including the $211,000 tax liability threshold, $2 million net worth test, and $910,000 mark-to-market exclusion. For personal results, Form 8854 and asset details matter.
Yes. The US has an exit tax, officially handled under the expatriation tax rules. It applies to certain people who renounce US citizenship or end long-term green card residency and meet at least 1 covered expatriate test.
Exit tax in the USA is a federal tax regime for certain expatriates. Under section 877A, the IRS may treat most worldwide property as sold the day before expatriation and tax net gain above the $910,000 2026 exclusion.
There is no single dollar amount. The taxable amount depends on net unrealized gain after the $910,000 exclusion, plus the tax character of the assets and any special rules for retirement accounts, pensions, or trusts.
There is no single US exit tax rate. The expatriation tax rate depends on the type of income or gain, such as long-term capital gain, ordinary income, NIIT, or 30% withholding on eligible deferred compensation payments.
The expatriation tax rate is not a flat rate. Mark-to-market gains are taxed under regular tax rules, while section 2801 gifts and bequests use the highest estate tax rate, currently 40%, when the rule applies to US recipients.
A covered expatriate is someone who expatriates and meets 1 of 3 tests: net worth of $2 million or more, average annual net income tax liability of more than $211,000 for 2026, or failure to certify 5 years of tax compliance on Form 8854.
Some dual citizens at birth may qualify for an exception if they meet the Form 8854 requirements, remain a citizen and tax resident of the other country, and were US residents for no more than 10 of the last 15 tax years. The exception is narrow.
Renunciation does not erase past US tax duties or automatically prevent future US tax on US-source income. The IRS rules on expatriation to avoid tax still require Form 8854, 5-year compliance certification, and covered expatriate testing.
Long-term green card holders can pay exit tax when they meet the covered expatriate tests. A long-term resident generally means a lawful permanent resident in at least 8 of the last 15 tax years ending with the year residency ends.
Most expatriates need Form 8854 with the final return. A covered expatriate with deferred compensation, specified tax-deferred accounts, or nongrantor trust interests may also need Form W-8CE within 30 days after expatriation or before the first distribution, whichever comes first.
