Expatriation from the United States: The Exit Tax

If you give up your U.S. citizenship or green card, you may have to pay a special tax. This tax has two parts: an “exit tax” and an “inheritance tax.” U.S. citizens can give up their citizenship at a U.S. embassy, while long-term residents can give up their green card. The tax rules are in section 877 of the tax code, and they treat someone who gives up their citizenship or green card as a U.S. resident for tax purposes for 10 years after they give it up, if they spend more than 30 days in the U.S. in any year during that time. If someone who used to live in the U.S. gives up their citizenship, they may have to pay taxes even if they’re not living in the U.S. anymore. This is called the “exit tax.” It means they have to pay taxes on any money they would have made if they sold all their stuff before they left, as well as on certain types of savings accounts. This law was put in place in 2008. If you give up your U.S. citizenship, you may have to pay a tax on the value of all your stuff, like property and investments, as if you sold them. This tax only applies to really rich people though, and there are some exceptions. There’s also an extra tax if you leave money or property to someone in the U.S. after you give up your citizenship. If you have a green card and have been living in the US for a long time, you may have to pay a special tax when you give up your green card and leave the country. This tax applies if you have a lot of money or make a lot of money, or if you don’t follow the tax rules for the five years before you leave. So, if you’re thinking about leaving the US after having a green card for a long time, you should know about these rules. If a person gives up their U.S. citizenship or green card, they may have to pay a tax on their assets. If the tax is less than $737,000, no tax is due. If it’s more, the person can defer paying the tax until they sell the assets or die. They have to report their assets and income to the IRS for several years after giving up their citizenship or green card. If you give up your U.S. citizenship, you have to report any assets you have in a foreign trust and file special tax forms. You also have to adjust the value of your assets for tax purposes, and there are some rules about what types of assets can be adjusted. To avoid being subject to these rules, you can give away some of your assets before you give up your citizenship, as long as you stay below a certain net worth limit. If you plan to move out of the U.S., it’s best to give away any gifts or money at least three years before you leave to avoid extra taxes. You can give unlimited gifts to your spouse without worrying about extra taxes, as long as they are a U.S. citizen. If you have a green card, you can also give away assets before you officially leave the U.S. to avoid taxes on them. There are different ways to do this, like putting money into trusts or setting up special types of trusts. These strategies can help you make the most of your money before you move. For someone who wants to move abroad and avoid paying high taxes, they can use a special trust or plan their move outside the US to lower their net worth and avoid certain taxes. This can help them protect their money when they leave the country. If you’re a U.S. citizen or green card holder thinking about giving up your citizenship or residency, you need to plan carefully. Doing so can trigger an exit tax and inheritance tax. The current exit tax considers all your assets sold, but there are ways to reduce the tax, like limiting your income and net worth. For example, you can sell your home before giving up your citizenship to reduce your net worth. It’s important to understand the tax implications before making this decision. If you were born with dual citizenship or gave up your U.S. citizenship before turning 18½, you might not be considered a “covered expatriate” for tax purposes. However, you still need to file a form to certify that you’ve been following tax laws for the past five years. There are also rules for deferring tax payments if you meet certain criteria. These rules are explained in IRS Notice 2009-85. The text cites specific sections of the tax code and discusses different tax laws and regulations. It also mentions two attorneys and their law firm in Orlando.

Source: https://www.floridabar.org/the-florida-bar-journal/expatriation-from-the-united-states-the-exit-tax/