How Much Is the US Exit Tax and How Is It Calculated?

The U.S. exit tax applies only to “covered expatriates” and is calculated as if you sold every asset you own worldwide the day before you gave up citizenship or long-term residency. For expatriations in 2026, the first $910,000 of unrealized gain is excluded, and anything above that is taxed at the capital gains or ordinary income rates that would normally apply to each asset. Retirement accounts and deferred compensation follow separate, often harsher rules.¹

Who Actually Owes the Exit Tax

Most people who renounce citizenship or turn in a green card never trigger the tax. It reaches only “covered expatriates.” To even be in the running, you have to be either a U.S. citizen relinquishing citizenship or a long-term resident, meaning someone who held a green card during at least eight of the fifteen tax years ending with the year of expatriation. Seven years or fewer, and the exit tax doesn’t apply to you.¹

From there, you become a covered expatriate if you trip any one of three tests:

Net worth of $2 million or more on the expatriation date.
Average annual net income tax over the five preceding years above $211,000 (the 2026 threshold, adjusted for inflation each year).²
Failure to certify on Form 8854 that you’ve met all federal tax obligations for the five preceding tax years.³

Any one is enough. The certification test catches people who wouldn’t otherwise cross the wealth or tax thresholds: skip the paperwork and you’re a covered expatriate regardless of net worth.

How the Calculation Works

The IRS pretends you sold everything you own, anywhere in the world, the day before you expatriated, at fair market value. The difference between your cost basis and that fair market value is your gain. You didn’t actually sell anything, but the tax bill lands as if you had.¹

The first $910,000 of that gain is excluded for 2026 expatriations.² The exclusion is spread proportionally across every asset with a gain, so you can’t concentrate it against a single high-appreciation holding.

Each dollar of taxable gain keeps the character it would have carried in a real sale. Assets held more than a year fall under long-term capital gains rates of 0%, 15%, or 20%, plus the 3.8% net investment income tax where it applies. Assets held a year or less get taxed as ordinary income. For most appreciated investments, the practical ceiling is 23.8%.

Worked Example

Suppose your worldwide assets show $4 million in unrealized gains on your expatriation date. The 2026 exclusion of $910,000 leaves $3,090,000 subject to tax. If all of it qualifies for the top 20% long-term capital gains rate plus the 3.8% surtax, the exit tax comes to roughly $734,420. Your actual number depends on holding periods, other income, and filing status.

Retirement Accounts and Deferred Compensation Are Different

Not every asset runs through the deemed-sale calculation, and the carve-outs often hit harder than the general rule.

IRAs, 529s, HSAs, and Other Tax-Deferred Accounts

Traditional and Roth IRAs, 529 plans, Coverdell ESAs, HSAs, and Archer MSAs are treated as if you received a full distribution of the entire balance the day before expatriation. The whole amount is ordinary income.¹ The under-59½ early distribution penalty is waived, but the $910,000 exclusion does not apply here.

401(k)s and Pensions

Employer-sponsored plans with a U.S. plan sponsor can qualify as “eligible deferred compensation items” if you properly notify the payor of your covered expatriate status and irrevocably waive any treaty-based withholding reduction. The plan then pays out normally over time, with 30% withheld from each taxable payment.⁴ Miss the notification, or hold a plan that doesn’t qualify, and the entire accrued benefit is deemed distributed on the day before expatriation, just like an IRA.

Nongrantor Trusts

If you’re a beneficiary of a nongrantor trust, no deemed sale happens at expatriation. Instead, when the trust later distributes to you, the trustee withholds 30% of the taxable portion. The tax hit is delayed, but the flat 30% is often steeper than the capital gains rate would have been.

Deferring Payment

If you can’t or don’t want to pay the exit tax upfront, you can elect to defer it on an asset-by-asset basis until each asset is actually sold or you die, whichever comes first.¹ The election is irrevocable and comes with two conditions.

You have to post adequate security. Acceptable forms include a surety bond conditioned on payment of the tax and interest, or an IRS-approved letter of credit.³ You also have to irrevocably waive any treaty rights that could block the IRS from later assessing or collecting the tax. Interest accrues on the unpaid balance the whole time, and if your security ever falls short of IRS requirements and you don’t cure it, the full deferred amount becomes due immediately.

A Downstream Cost: Gifts and Bequests to U.S. Recipients

Being a covered expatriate creates a second tax problem that outlives the exit tax itself. Any gift or inheritance you later leave to a U.S. citizen or resident triggers a separate tax, paid by the recipient, at the highest estate and gift tax rate then in effect (currently 40%).⁵⁶

The tax applies only to covered gifts and bequests exceeding $19,000 to a given recipient in a calendar year (the 2026 threshold).² Transfers already subject to U.S. estate or gift tax are excluded, as are gifts to a spouse or charity that would qualify for a marital or charitable deduction. Any foreign gift or estate tax already paid on the transfer reduces the U.S. tax owed. The U.S. recipient reports the transfer on Form 708.⁷

Form 8854 and the $10,000 Penalty

Everyone who renounces citizenship or ends long-term residency files Form 8854, whether or not they owe any exit tax.⁸ The initial form attaches to your final U.S. income tax return and requires a full asset balance sheet plus certification of tax compliance for the five prior years.³ If you deferred exit tax, hold eligible deferred compensation, or are a beneficiary of a nongrantor trust, you also file annual Form 8854s for each year those situations continue.

Failing to file, or filing with missing or incorrect information, carries a $10,000 penalty per year unless the IRS finds reasonable cause. And until you’ve properly notified both the IRS and either the Department of State (citizens) or Department of Homeland Security (green card holders), the IRS continues to treat you as a U.S. taxpayer.⁸ Skipping the paperwork doesn’t get you out of the U.S. tax system. It keeps you inside it.

1
Office of the Law Revision Counsel. 26 USC 877A – Tax Responsibilities of Expatriation
2
Internal Revenue Service. Revenue Procedure 2025-32
3
Internal Revenue Service. Instructions for Form 8854 (2025)
4
Office of the Law Revision Counsel. 26 US Code 877A – Tax Responsibilities of Expatriation
5
Office of the Law Revision Counsel. 26 USC 2801 – Imposition of Tax
6
Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
7
Internal Revenue Service. Instructions for Form 708 – United States Return of Tax for Gifts and Bequests Received From Covered Expatriates
8
Internal Revenue Service. Expatriation Tax