The expatriation tax, or exit tax, is a one-time US federal tax that treats a high-net-worth American who renounces citizenship or gives up long-term green-card status as if they had sold their entire worldwide portfolio the day before leaving.
In plain terms
Giving up a US passport, or a long-held green card, doesn’t erase a tax bill — for anyone wealthy enough, it can trigger one all at once. The IRS treats the act of leaving as a sale: every asset a person owns, public stock to a private business stake, is marked to its current market value and taxed as though it had actually been sold the day before expatriation, even though nothing was sold and no cash changed hands.
How it works
The exit tax, formally IRC §877A, applies only to a “covered expatriate”: someone who gives up US citizenship, or ends long-term US permanent residency (generally eight or more of the prior fifteen years as a green-card holder), and meets at least one of three tests — a net worth of $2 million or more, an average annual net income tax liability above an inflation-adjusted threshold over the five years before expatriating, or a failure to certify five years of US tax compliance on Form 8854.
Once someone is classified as covered, the IRS applies a deemed mark-to-market sale to essentially everything they own worldwide, valued the day before expatriation. The resulting gain is taxed at ordinary capital-gains rates, but a portion of the built-in gain is excluded from the calculation, and that exclusion rises with inflation each year.
Deferred compensation, pensions, and interests in certain trusts sit outside the mark-to-market regime entirely and are instead taxed under separate rules when eventually paid out, frequently with a flat 30% US withholding no matter where the recipient then lives.
The numbers
- Covered-expatriate net worth test: $2 million or more, fixed by statute under IRC §877(a)(2)(B) and not adjusted for inflation.
- Covered-expatriate average annual net income tax liability test for calendar year 2026: more than $211,000 across the five tax years before expatriation.
- Mark-to-market exclusion amount for calendar year 2026: the first $910,000 of built-in gain is excluded from the deemed sale.
- A related transfer tax under IRC §2801 taxes US recipients of gifts or bequests from a covered expatriate; the annual per-donor exclusion for that tax is $19,000 for 2026.
All three 2026 figures come from the IRS’s annual inflation-adjustment Revenue Procedure 2025-32.
What people get wrong
People assume the exit tax is a penalty aimed specifically at people fleeing US taxes. It isn’t conditioned on motive at all — it applies purely on the net-worth and tax-liability thresholds, so a founder who built a company and simply wants to retire abroad is caught exactly the same way as someone leaving specifically to dodge future US tax. The other frequent surprise is that the tax falls on unrealized gains, valued at a fair market value the IRS can itself contest, which means someone can owe real cash against paper wealth they have not converted into cash — the liquidity mismatch that makes this the single most expensive part of giving up a US passport.
Related
Read more: Residency and Citizenship: Why the Wealthy Buy Options Across Borders · Taxes: How Wealth Is Structured and Preserved
See also: Domicile vs residency · Non-dom · Golden visa