For any US citizens or green card holders looking to relinquish their citizenship or Green Card, you will need to consider the possible impacts of the ‘IRS’ expatriation tax provisions.
The expatriation tax provisions under Internal Revenue Code apply to U.S. citizens who have renounced their citizenship and long-term residents (Greencard holders) who have ended their U.S. resident status for federal tax purposes.
For US citizens expatriation in 2024, the IRC 877A expatriation rules (explained below) apply to you if you expatriated after June 16, 2008 and any of the following statements apply to you:
- Your average annual net income tax liability for the 5 tax years ending before the date of expatriation is more than $190,000.
- Your net worth was $2 million or more on the date of your expatriation.
- You fail to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years preceding the date of your expatriation.
If any of these rules apply, you are a “covered expatriate” – exceptions for dual citizens and certain minors will apply.
IRC 877A imposes a mark-to-market regime, which generally means that all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date. Any gain arising from the deemed sale is taken into account for the tax year of the deemed sale notwithstanding any other provisions of the Code. Any loss from the deemed sale is taken into account for the tax year of the deemed sale to the extent otherwise provided in the Code.
It is also important to consider the impact of expatriation on future financial plans and of course your extended family. Careful planning is needed to minimize future US tax issues.
If you would like to speak to us regarding expatriation or any US tax issues please contact us.
