Giving up a green card or U.S. citizenship? How the exit tax, covered expatriate tests and Form 8854 work

The exit tax rules in IRC §877A apply to two groups: citizens who give up citizenship, and long-term residents who give up a green card. A long-term resident is someone who held a green card in at least 8 of the 15 tax years ending with the year their status ends. If you're in neither group, there's no exit tax analysis, though the final-year return is still due.

Most people who ask us about this have been green card holders for years and moved back to China for work or retirement, or have kids in the U.S. while they live in China, or are naturalized citizens thinking about renouncing. The first question is always whether you're a long-term resident.

• How the 8 years are counted: Look back over the 15 tax years ending with (and including) the year your status ends, and count the years you held a green card. A year generally counts if you held the card on any day of it, so you don't need 12 full months.
• An example: You got your green card in December 2019, so 2019 is year one. Give it up in 2025 and that's 7 years (2019–2025), so you're not a long-term resident. Wait until 2026 and it's 8. One year makes all the difference.
• Treaty years don't count: A year in which you were treated as a resident of a treaty country (China, for instance) and didn't waive treaty benefits is left out of the count. For someone who's already a long-term resident, though, doing that can itself end resident status, as the next section explains.
• Citizens: There's no 8-year test. Renouncing citizenship brings in these rules however long you've been a citizen.

For tax purposes, what matters is your expatriation date. For a green card holder, that's usually the day you hand Form I-407 to an immigration or consular officer, or the date of a final government finding that you abandoned the card. For a citizen, it's the day you renounce before a U.S. consular officer, as later confirmed by a Certificate of Loss of Nationality. Moving away, letting the card expire or simply not coming back doesn't end anything.

• Green card holders: the earliest of filing Form I-407 with an immigration or consular officer; a final administrative order finding abandonment (or a final court order, if appealed); a final removal order; or the date you start being treated as a treaty-country resident without waiving benefits and notify the IRS (Forms 8833 and 8854).
• Citizens: generally the date you renounce at a U.S. embassy or consulate, provided the State Department later confirms it with a Certificate of Loss of Nationality. Under a State Department final rule published in March 2026, the renunciation fee dropped from $2,350 to $450 starting April 13, 2026.
• Why living abroad isn't enough: Until the card is surrendered or formally found abandoned, you're a U.S. tax resident. That means a Form 1040 on worldwide income, FBARs and Form 8938. Plenty of people assume an expired card means no more U.S. returns, then discover at exit time that the missed years make them fail the 5-year compliance test.
• The treaty tie-breaker: Article 4 of the U.S.–China tax treaty resolves dual residency. If a long-term resident uses Form 8833 to claim Chinese residence under the treaty, IRS rules can treat that as the end of U.S. residence, which triggers the exit tax analysis. Don't check that box casually to save a year of U.S. tax.
• You can become a resident again: After surrendering the card, spending enough days in the U.S. to meet the substantial presence test makes you a U.S. tax resident again, by a different route.

Surrendering a green card, the renunciation interview and oath, and what any of it means for future visas are immigration law questions for an immigration attorney. We handle the tax side: whether you'd be a covered expatriate, how much tax is involved, and when to make the move.

You're a covered expatriate if any one of these applies: net worth of $2 million or more on the expatriation date; average annual net income tax for the 5 years before expatriation above the threshold ($211,000 for 2026); or you can't certify on Form 8854 that you've complied with all federal tax obligations for those 5 years. If none applies, there's no exit tax, just the final-year return and Form 8854.

• Net worth test ($2 million): Worldwide assets count, including real estate and accounts in China, company stakes, U.S. property, retirement accounts and the cash value of insurance policies, minus debts. Values follow gift tax principles, in dollars. Spouses are tested separately. The figure hasn't changed since 2004.
• Income tax test ($211,000): The average of your actual net federal income tax (after credits) for the 5 tax years before expatriation. The threshold depends on the year you leave: $201,000 for 2024, $206,000 for 2025, $211,000 for 2026.
• Compliance certification: You sign Form 8854 certifying that you met every federal tax obligation for the 5 prior years, including income tax returns, information returns (Forms 3520, 5471, 8938, 8621 and others) and gift tax returns. The FBAR is a Title 31 filing rather than a tax obligation, but it's usually wise to bring it current too. If you can't certify, you're a covered expatriate regardless of wealth.
• Two exceptions: (1) people who were dual citizens at birth, are still citizens and tax residents of the other country, and were U.S. residents for no more than 10 of the last 15 tax years; (2) people who renounce before age 18½ and were U.S. residents for no more than 10 years. These exceptions only remove the first two tests. You still have to certify compliance, and they don't apply to green card holders.

Description: Work down the rows and stop at the first one that fits; the right column shows the result.

Question	If it applies	Result
1. Are you a U.S. citizen, or a long-term resident (green card in at least 8 of the last 15 years)?	Neither	No exit tax; file a dual-status return for the final year, generally without Form 8854
2. Can you certify full federal tax compliance, including information returns, for the past 5 years?	No	Covered expatriate. Catch up first, then expatriate (see planning below)
3. Do you qualify for the dual-citizen-at-birth or under-18½ exception? (citizens only)	Yes	Net worth and income tax tests don't apply; certify compliance on Form 8854
4. Is your worldwide net worth $2 million or more on the expatriation date?	Yes	Covered expatriate: deemed sale, IRAs treated as distributed, and so on
5. Was your average federal income tax over the past 5 years above $211,000?	Yes	Covered expatriate
6. None of the above	—	Not a covered expatriate: no exit tax; file the final-year return and Form 8854

A covered expatriate is treated as selling everything at fair market value on the day before the expatriation date. Gains and losses are netted, the net gain is reduced by the exclusion ($910,000 for 2026), and the rest goes on the final-year return at capital gain or ordinary rates. Losses can offset gains. You can elect to defer the tax, but only with security and interest.

• What's included: Everything you own worldwide, including property and shares in China, U.S. real estate and brokerage accounts, and private company stakes. Retirement accounts, deferred compensation and trust interests follow the special rules in the next section.
• The exclusion: One per person, indexed each year: $866,000 for 2024, $890,000 for 2025, $910,000 for 2026. It's spread across the assets with gains in proportion.
• A break for green card holders: For long-term residents, property you already owned on the day you first became a U.S. tax resident gets a basis of at least its fair market value on that day (you can elect out). If most of the growth in an apartment in China happened before you immigrated, that can shrink the gain a lot, as long as you can document the value at the time.
• Deferral: You can elect, asset by asset, to defer the tax until you actually sell, but you need a deferral agreement with the IRS, a bond or other security, interest that accrues each year, and a waiver of treaty protection. It's uncommon in practice and fits people with substantial assets but little cash.
• When you later sell: Gain already taxed in the deemed sale is reflected in an adjusted basis, so it isn't taxed twice.

Example (hypothetical numbers, to show the method): Mr. Wang got his green card in 2012 and surrendered it with Form I-407 in June 2026, so he's a long-term resident. His worldwide net worth on the expatriation date is about $3 million, which makes him a covered expatriate.

The $1,200,000 net gain minus the 2026 exclusion of $910,000 leaves $290,000 on his 2026 return. If it's all long-term capital gain at 20%, that's roughly $58,000 of federal tax, before considering the 3.8% net investment income tax and the home sale exclusion. If the apartment's basis were its purchase price of $200,000 from 20 years ago, the gain would be $400,000 higher. Separately, his $400,000 traditional IRA is treated as fully distributed and taxed as ordinary income, as described next.

Specified tax-deferred accounts such as IRAs, 529 plans and HSAs are treated as fully distributed the day before expatriation, taxed in that year without the 10% early withdrawal penalty. Deferred compensation such as a 401(k) or pension can stay in place if the payor is a U.S. person and you file Form W-8CE on time, with 30% withheld from each later payment; otherwise its present value is taxed right away. Distributions from nongrantor trusts face 30% withholding later.

A 401(k) and an IRA are handled differently. The 401(k) is usually deferred compensation that can stay put with withholding on later payments, while the IRA is taxed in full at expatriation. Whether to draw down an IRA over several years before you leave is worth modeling alongside the deemed-sale tax.

In the year you expatriate, you're a U.S. resident until the expatriation date and a nonresident after it, so you file a dual-status return with Form 8854 attached, by the return's due date. Form 8854 is where you certify 5 years of compliance and report your balance sheet and the deemed-sale calculation. Not filing, leaving things out or getting them wrong costs $10,000 unless there's reasonable cause.

• Who files Form 8854: Citizens who renounce and long-term residents whose status ends, whether or not they're covered expatriates. Green card holders with fewer than 8 years generally don't.
• When: With the Form 1040 or 1040-NR for the year you expatriate, by its due date including extensions. For a 2026 expatriation, that's generally April 15, 2027, with an extension available. If you don't otherwise have to file a return that year, send Form 8854 on its own by the Form 1040-NR due date.
• The dual-status return: If you're a nonresident at year-end, Form 1040-NR is generally the return, with a Form 1040 statement for the resident period. The resident period covers worldwide income; the nonresident period covers only U.S.-source income. Dual-status filers can't take the standard deduction and generally can't file jointly.
• Annual Form 8854 afterward: If you defer the exit tax, have eligible deferred compensation or are a beneficiary of a nongrantor trust, you file Form 8854 each year until that ends.
• FBARs and other forms: For the part of the year before expatriation, an FBAR is still due if your foreign accounts pass the threshold.
• State tax: A North Carolina resident who moves away and gives up status files a part-year resident return (Form D-400) for that year, so keep proof of the move and departure.

Description: Left to right in time order, with what happens at each step and who handles it.

When	What happens	Who
6–12 months before	Count your green card years; review the last 5 years of returns and information returns and catch up anything missing; value assets for the net worth test and model the deemed-sale tax	YCL
3–6 months before	Pick the expatriation date; weigh gifts, sales and early IRA withdrawals; gather proof of asset values from before you immigrated	YCL, with an estate planning attorney if needed
Expatriation date (June 2026)	File Form I-407 with an immigration or consular officer and keep the receipt	You / immigration attorney
Within 30 days after	File Form W-8CE with the payor or trustee of any 401(k), pension or trust interest	You, with YCL's help
April 15, 2027 (extendable)	2026 dual-status return with Form 8854; FBAR; North Carolina part-year return	YCL
Each year after	Annual Form 8854 if you deferred tax or have deferred compensation or trust distributions; Form 1040-NR for any U.S. income	YCL

Yes. Under IRC §2801, gifts and bequests from a covered expatriate to a U.S. citizen or resident are taxed to the person who receives them, at the top gift and estate tax rate of 40%, with only one annual exclusion ($19,000 for 2026) each year. Final regulations took effect in January 2025, the return is Form 708, and receipts from 2025 are due by June 15, 2027. If you aren't a covered expatriate, this tax doesn't apply.

• Who pays: U.S. citizens and residents who receive the gift or bequest (residence here is based on domicile), and U.S. trusts that receive such property. The expatriate doesn't pay.
• How it's figured: Add up all covered gifts and bequests received in the year, subtract the annual exclusion ($19,000 for both 2025 and 2026), and multiply by 40%. Gift or estate tax paid to a foreign country can be credited.
• Location doesn't matter: A wire from an account in China to a child in the U.S., or transferring an apartment in China, can count. So can later distributions from a foreign trust to a U.S. beneficiary that trace back to a covered expatriate.
• What's excluded: Transfers the expatriate reported on a timely U.S. gift or estate tax return; transfers to a spouse or charity that would qualify for a deduction anyway; amounts within the annual exclusion.
• Filing: Form 708 is filed by calendar year, due on the 15th day of the 18th month after the year of receipt, so 2025 receipts are due June 15, 2027. A 6-month extension to file is available, but not to pay.
• What it means for families: If you plan to leave while your children stay in the U.S., factor decades of future gifts and bequests into the decision. Gifts made before you expatriate are often far cheaper than gifts made after.

Three things matter most: catch up any missed years so the compliance test doesn't make you a covered expatriate by default; get the timing right, both the green card year count and the expatriation date; and adjust assets and income before you leave through gifts, sales or withdrawals. All of this has to happen before you surrender the card or take the oath. Once the expatriation date passes, most options are gone.

• Catch up first: If any of the last 5 years is missing income tax returns, FBARs or Forms 8938, 3520 or 5471, file them before expatriating. Green card holders and citizens living abroad whose failures were non-willful can look at the Streamlined Foreign Offshore Procedures (see our guide at yclcpa.com/sfop). Former citizens who already renounced, never filed, have net worth under $2 million and owe $25,000 or less across 6 years can use the IRS Relief Procedures for Certain Former Citizens, still open as of September 2026.
• Count the years: If you've held a green card for 7 years, whether to surrender it before year 8 is a big decision. If you've left the U.S. but haven't filed I-407, the years keep counting.
• Pick the expatriation date: It decides which year's thresholds and exclusion apply, and how much income falls in the resident period. A mid-year date keeps less income in the resident period; an early-year date can avoid a full resident year.
• Gifts to reduce net worth: Before you leave, gifts to a U.S. citizen spouse (unlimited marital deduction) or to children (the $19,000 annual exclusion per person, then the 2026 lifetime exemption of $15 million, reported on Form 709) can bring net worth under $2 million and avoid the 40% §2801 tax later. The gifts have to be real and complete, not just on paper.
• Document basis and value: For property you owned before immigrating, gather the purchase price and evidence of value on the day you became a resident. Appraisals and purchase contracts for property in China are easier to get sooner than later.
• Retirement accounts and deferred compensation: Model whether to draw down an IRA over several years before you leave, and whether to keep a 401(k) by filing W-8CE, alongside the deemed-sale tax.
• Residency afterward: If you'll visit the U.S. often after surrendering the card, watch your day count so you don't become a resident again under the substantial presence test. Your Chinese tax residency and filing obligations after moving back should be planned at the same time.

Start with four facts: citizen or green card holder, how many years you've held the card, whether the last 5 years are fully filed, and roughly what you own. Then decide what comes first.

• Situation A: green card for fewer than 8 years, living in China. Generally not a long-term resident, so no exit tax. Surrender the card sooner rather than later and file a dual-status return for the final year. Keep an eye on how close you are to year 8.
• Situation B: green card for 8+ years, back in China, no U.S. returns lately. Don't rush to file I-407. Catch up first (often through SFOP) so the compliance certification holds, then run the net worth and income tax tests and pick a date.
• Situation C: net worth near or above $2 million. Get valuations first. See whether genuine gifts to a U.S. citizen spouse or children bring you under the line; if not, model the deemed-sale tax using pre-immigration values, loss assets and the exclusion.
• Situation D: naturalized citizen thinking about renouncing. Check whether an exception such as dual citizenship at birth applies, then run the three tests. Finish planning before the oath, because that day is your expatriation date.
• Situation E: parents leaving while the children stay in the U.S. Plan future gifts, bequests and the §2801 tax together. If a trust is needed, an estate planning attorney drafts it and we run the tax analysis (see our guide at yclcpa.com/trust).