US Exit Tax Explained: What Expats Must Know Before Renouncing Citizenship

Renouncing US citizenship is a serious legal and tax decision.

For some expats, it’s the right move — but doing it without planning can be financially devastating.

Understanding the US exit tax rules is essential.

What Is the US Exit Tax?

The exit tax applies to certain individuals classified as covered expatriates.

It treats assets as if they were:

• Sold at fair market value

• Taxed on unrealized gains

Even assets you never sold can be taxed.

Who Is a Covered Expatriate?

You may be classified as covered if you meet any of these:

• Net worth above the IRS threshold

• Average tax liability above limits

• Failure to certify tax compliance

Noncompliance alone can trigger coverage.

Why Compliance History Matters

To avoid covered status, you must certify:

• Five years of compliant US tax filings

• Accurate reporting of foreign assets

This includes:
👉 /fbar-foreign-bank-account-reporting-expats
👉 /fatca-form-8938-expats

Exit Tax and Foreign Assets

Assets potentially subject to exit tax include:

• Foreign businesses

• Investment accounts

• Retirement plans

• Stock options

Business owners should review:
👉 /us-expats-foreign-companies-cfc-gilti

PFIC holdings may also complicate calculations:
👉 /pfic-foreign-investments-us-expats

Renunciation Is Not Retroactive

Renouncing does not erase past obligations.

Unresolved issues often surface during:

• Final filings

• Bank disclosures

• Immigration processes

Fixing issues first is critical.

Streamlined Filing Before Renunciation

Many expats choose to clean up filings through:
👉 /streamlined-filing-compliance-procedures-expats

This can reduce risk and preserve options.

Clear, Human Perspective

Renunciation is not about escape — it’s about clarity.

Exemplary helps expats evaluate renunciation carefully, understand exit tax exposure, and ensure decisions are made from strength — not pressure.