Topic · US expats
US Exit Tax & Form 8854: Renouncing Citizenship or Giving Up a Green Card
How the covered-expatriate screens, 2026 thresholds, special-asset rules, filing timing, and five-year certification fit together.
By Danilson Ramos · Founder, Atamatax
Published June 2026 · Updated October 2026
Direct answer
Who is a covered expatriate for the US exit tax?
For a 2026 expatriation, a person who renounces citizenship or ends long-term green-card residence is a covered expatriate if any one test applies: average annual net income tax liability over the prior five years of more than $211,000; net worth of $2,000,000 or more; or failure to certify 5 years of federal tax compliance on Form 8854.
A covered expatriate is taxed as if their worldwide property were sold the day before expatriation, with the first $910,000 of gain excluded for 2026; deferred compensation, specified tax-deferred accounts and non-grantor trusts follow separate rules.
- Applies when
- US citizens who renounce or relinquish citizenship, and long-term residents — a green card held in at least 8 of the last 15 years — who give it up.
- Underlying rule
- IRC §877A and §877(a)(2); the income-tax threshold is indexed each year (Rev. Proc. 2025-32 for 2026), the net-worth test is not.
- Important exception
- Narrow exceptions for certain dual citizens from birth and for some who expatriate before age 18½ remove the financial tests — not the five-year certification.
- What remains uncertain
- Net worth is valued on the expatriation date and the liability figure comes from the actual returns; an estimate is a screen, not a determination.
- Last verified
What changes the answer
- One of the five preceding years is not filed or not compliant: the certification test can make you covered whatever your income or net worth.
- The expatriation date moves into another calendar year: that year's indexed thresholds apply.
- You hold deferred compensation, a foreign pension or a non-grantor trust interest: those items follow their own rules outside the mark-to-market computation.
Next step: Check my renunciation readiness
Form 8854 is the IRS initial and, for certain ongoing items, annual expatriation statement. It is part of the federal tax process; the Department of State separately administers loss of nationality. This page explains tax readiness; whether to renounce is your decision, administered by the Department of State.
Are you a 'covered expatriate'?
The exit tax generally applies only to covered expatriates — those who meet any one of these tests at expatriation:
| Test | Broad trigger | Notes |
|---|---|---|
| Net worth | Net worth at or above $2 million | Not inflation-indexed in the same way as the tax test; values most worldwide assets |
| Average tax liability | For 2026, average annual net income tax liability over the prior 5 years is more than $211,000 | The threshold is indexed; use the rule for the actual expatriation year |
| Certification | Failure to certify 5 years of U.S. tax compliance on Form 8854 | Applies even if you're below the net worth and tax thresholds |
Limited exceptions to covered-expatriate status
Some narrow exceptions exist — for example, certain dual citizens from birth who continue to meet specific conditions, and certain individuals who expatriate before a defined age — may avoid covered-expatriate status even if they cross the net worth or tax thresholds. Crucially, these exceptions generally still require meeting the five-year certification, and their conditions are precise, so they should be confirmed rather than assumed.
The mark-to-market exit tax
For covered expatriates, the exit tax generally works on a mark-to-market basis: most worldwide assets are treated as if sold at fair market value the day before expatriation. For 2026, net gain otherwise included is reduced, but not below zero, by $910,000. Eligible and ineligible deferred compensation, specified tax-deferred accounts, and nongrantor trusts follow separate rules rather than the general deemed-sale computation.
Form 8854 and the compliance requirement
- Form 8854 is the official expatriation statement; without filing it, you can be treated as a covered expatriate.
- You generally must be able to certify five years of U.S. tax compliance.
- Renouncing does not erase prior obligations — back filings may still need to be addressed first.
A rough sequence to think about
- Get five prior years compliant (returns plus any FBAR/Form 8621/other forms you missed), since certification depends on it.
- Estimate covered-expatriate exposure — run the net worth and average-tax tests for your situation.
- Model the mark-to-market computation and the special regimes for pensions and deferred items.
- File Form 8854 for the expatriation year and complete the consular/USCIS expatriation step as applicable.
Build the five-year record before choosing a service
The free Expatriation Tax Readiness check separates filed, prepared, reviewed, missing, and not-required items, then routes the case for professional review where needed.
Authorities cited
- IRC §877A — IRC §877A — Tax responsibilities of expatriation (mark-to-market exit tax)
- IRS Form 8854 — About Form 8854 — Initial and Annual Expatriation Statement
- IRS annual inflation adjustments — IRS annual inflation adjustments (Rev. Proc.) — indexed limits/thresholds; verify per tax year
- FinCEN Form 114 (FBAR) — Report of Foreign Bank and Financial Accounts (FBAR)
- IRS Form 8621 — About Form 8621 — Information Return by a Shareholder of a PFIC or QEF
Primary sources (Cornell Legal Information Institute for the US Code and CFR; IRS.gov for forms, procedures, and treaty documents). This page is general information, not individualized tax or legal advice.
Atamatax provides tax preparation support and educational resources. This website does not constitute legal or tax advice.