If you are considering renouncing your U.S. green card after holding it for 8 years or more, you may be subject to the U.S. exit tax, also known as the expatriation tax. This tax can have serious financial consequences if not properly planned for. Failing to understand the exit tax rules can result in unexpected tax liabilities, including taxes on unrealized capital gains. If you have significant assets or investments, this can cost you. Timely planning can help you avoid being classified as a "covered expatriate."

Quick Takeaways

• Holding a green card for 8+ years may trigger exit tax liability.
• You must formally file Form I-407 to abandon your green card.
• Proper timing and compliance can help you avoid covered expatriate status.
• Strategies like consolidating accounts and avoiding PFICs can ease the tax burden.

Who Is Considered a Long-Term Resident (LTR)?

A long-term resident is someone who has held a green card for at least 8 of the last 15 years. Even a single day of residency in a year counts.

What Happens if You Relinquish Your Green Card?

If you’ve held your green card for 8 years or more and give it up, you may be treated as a "covered expatriate." This designation comes with specific tax responsibilities, including the potential for an exit tax.

If you've held it for less than 8 years, you typically won’t be subject to the exit tax.

Who Is a Covered Expatriate?

You are considered a covered expatriate if you have high average income tax liability, a net worth of $2 million or more, or fail to certify five years of U.S. tax compliance on Form 8854.

How Do You Formally Give Up the Green Card?

You must file Form I-407 with a U.S. consular or immigration officer. Simply letting the card expire does not end your U.S. tax residency.

What Is the Exit Tax?

The exit tax applies to U.S. citizens and long-term residents who give up their status. It taxes the unrealized gains on your worldwide assets as if you had sold them the day before expatriation.

How Is the Exit Tax Calculated?

1. Determine the fair market value of all worldwide assets.
2. Subtract the exclusion amount ($866,000 for 2025).
3. Apply the appropriate capital gains tax rate to the remaining unrealized gains.

How Can You Avoid the Exit Tax?

Here are five strategies:

1. Ensure Tax Compliance – File accurate U.S. tax returns for the past 5 years.
2. Plan Timing Carefully – Exit before the 8-year mark if you qualify.
3. Consolidate Foreign Accounts – Streamlines reporting and minimizes risk.
4. Avoid Foreign Mutual Funds – These may be considered PFICs, which face punitive tax treatment.
5. Integrate with Business Planning – Consider how U.S. tax laws affect your international ventures.

FAQs - Giving Up Your Green Card

1. Can I avoid the exit tax if I’m not wealthy? Yes, if your assets and income are below certain thresholds, and you meet tax compliance requirements, you may not be classified as a covered expatriate.

2. Is the exit tax only on assets in the U.S.? No, it applies to your worldwide assets.

3. Can I return to the U.S. as a visitor after giving up my green card? Yes, but you’ll need to apply for a visa like any other non-resident.

4. What if I already gave up my green card but didn’t file Form I-407? You may still be considered a tax resident. Filing Form I-407 is essential to end your residency for tax purposes.