How the exit tax actually works
Step 1 β Are you a covered expatriate? You only face the exit tax if you trigger at least one of the three tests: net worth β₯ $2M, average US tax > $211,000 (2026), or failure to certify compliance on Form 8854. Most people who plan carefully aim to avoid all three.
Step 2 β The deemed sale. If covered, the IRS pretends you sold everything you own worldwide at fair market value the day before you expatriate. It adds up the gains and losses across all mark-to-market assets.
Step 3 β Apply the exclusion. The first $910,000 (2026) of net gain is excluded. Only the excess is taxed, at the capital-gains rates that would normally apply.
The big trap: retirement accounts and deferred compensation skip this calculation and have their own rules β often an immediate deemed distribution taxed as ordinary income, with no exclusion.
The compliance test catches people by surprise
Plenty of people who are nowhere near $2M net worth still become covered expatriates β because they can't certify five clean years of US tax filings on Form 8854.
This hits "accidental Americans" and long-term expats who fell behind on US filing obligations (the US taxes citizens on worldwide income wherever they live). If that's you, catching up first β sometimes via the IRS Streamlined Procedures β before expatriating can be the difference between covered and non-covered status.
Filing Form 8854 itself is mandatory when you expatriate; skipping it triggers covered status and penalties.
Planning levers (talk to a professional first)
Because each test is a bright line, timing and structuring matter enormously:
- Net worth is per person β gifting to a spouse or heirs before expatriation can bring an individual below $2M (subject to gift-tax rules).
- Tax liability is a 5-year average β renouncing after lower-income years, or letting a high-tax year "fall off," can keep you under the threshold.
- Compliance β get fully current on filings and file Form 8854 correctly.
These moves have real tax and legal consequences and must be done with a cross-border professional β this tool only flags whether you're in the zone.
Frequently asked questions
Q. I'm just giving up my green card, not citizenship β does this apply?
A. If you're a "long-term resident" (green card in 8 of the last 15 years), yes β the same expatriation rules apply when you abandon the card.
Q. My average US tax is near zero thanks to the FEIE β am I safe on test 2?
A. Possibly. The test looks at actual US tax owed, which the foreign earned income exclusion and foreign tax credits can reduce to near $0 β but you can still be covered via the net worth or compliance tests.
Q. Does cash get taxed by the exit tax?
A. Cash has no built-in gain, so the deemed sale produces nothing to tax β but it still counts toward the $2M net worth test.
Q. Can I just leave and not file?
A. No. Failing to file Form 8854 makes you covered automatically and exposes you to penalties and continued US tax obligations. Expatriation is a formal tax event.
Sources: IRC Β§877A (mark-to-market expatriation tax); IRS Expatriation Tax guidance and Form 8854; 2026 figures β net worth $2,000,000 (fixed), tax-liability threshold $211,000, exclusion amount $910,000. This is an independent self-assessment tool, not tax or legal advice; the exit tax is highly fact-specific, especially for retirement accounts and trusts. Consult a licensed cross-border tax attorney or CPA before expatriating. See also our N-400, green card travel and SPT tools.