The Expatriation Tax for Long-Term Green Card Holders

If you hold a green card for long enough and later give it up, the United States can tax you on the way out as if you had sold everything you own. Few green card holders know this rule exists until they are close to leaving, and by then the choices that would have avoided it may be gone. This chapter explains who the expatriation tax can reach, the three tests that decide it, what it does to retirement accounts, and the dates worth knowing years in advance. It is the most technical chapter in the book, and it is a map for a conversation with a professional, not a substitute for one.

Who it can reach, and who it cannot

The rules in sections 877 and 877A of the Internal Revenue Code apply to two groups only:

• US citizens who give up citizenship.
• Long-term residents who end their US residence for tax. A long-term resident is someone who was a lawful permanent resident (a green card holder) in at least 8 of the 15 tax years ending with the year the residence ends.

Someone on a work or student visa (H-1B, L-1, F-1, O-1, TN and so on) is in neither group, however many years they have lived in the US. Leaving on a visa does not trigger this tax. A green card holder who leaves before reaching the long-term threshold is also outside it.

Two details in the count deserve care. First, the count is of tax years, not of full years since the card was issued, so the calendar years in which the card started and ended both matter. Second, under the Instructions for Form 8854, a year does not count toward the eight if in that year you were treated as a resident of another country under a tax treaty and did not waive the treaty benefits. Because the count can turn on a single year, have a professional confirm your own count from your documents.

When green card residence ends for tax

This is where many people get caught. Moving abroad does not end your status as a US tax resident if you keep the green card. Under the Instructions for Form 8854, a long-term resident's residency ends, and the expatriation date is set, on the earliest of these:

• the date you voluntarily abandon permanent resident status by filing Form I-407 with a US consular or immigration officer;
• the date of a final administrative order that you abandoned the status (or, if appealed, a final court order);
• the date of a final administrative or court order of removal;
• the date you begin to be treated as a resident of another country under a tax treaty, do not waive the treaty benefits, and notify the IRS on Forms 8833 and 8854.

Until one of those happens, a green card holder living abroad is generally still a US tax resident, taxed on worldwide income and required to file US returns. Years of that can add up to long-term resident status without the person realizing it.

The three tests: who is a "covered expatriate"

A citizen or long-term resident who expatriates is a covered expatriate, and owes the exit tax, if any one of three tests is met.

1. Tax test. Average annual net income tax for the five tax years before the expatriation date is more than $211,000 for 2026 (Rev. Proc. 2025-32, adjusted for inflation each year).
2. Net worth test. Net worth on the expatriation date is $2,000,000 or more. This figure is set in the statute and is not indexed for inflation.
3. Certification test. You fail to certify on Form 8854 that you met all federal tax obligations for the five preceding tax years.

The third test surprises people the most. Someone with modest income and assets becomes a covered expatriate simply by not being able to certify five years of compliant returns, which is why getting every year filed, including foreign account reports, matters before you leave. Not filing Form 8854 when it is required can also bring a penalty of $10,000.

The first two tests are not out of reach for long-careered professionals. Because the net worth line does not rise with inflation, a household that saves steadily can cross it without ever feeling wealthy.

A household with $900,000 of net worth (home equity, retirement accounts and investments all count) that adds $3,000 a month and earns 7.0% a year reaches about $1,927,426 in 8 years, just under the line; a year or two more would carry it over.

The tax test needs high income sustained over five years. A married couple with $850,000 of income in 2026 owes about $224,751 of federal income tax before credits; five years like that would put the average over the threshold. The test uses net income tax as defined in the code, so the real calculation uses the figures on your returns, not this estimate.

What the tax does

For a covered expatriate, section 877A treats all property as sold at fair market value on the day before the expatriation date. The resulting gain is taxed, after an exclusion that is $910,000 for 2026. Retirement accounts get their own treatment:

• IRAs and similar accounts (an HSA or a 529 plan, for example; SEP and SIMPLE IRAs follow the employer-plan rule below) are treated as fully distributed on the day before the expatriation date, so the whole pre-tax balance becomes taxable income in that year. Section 877A(e) says the 10% early-distribution tax does not apply to that deemed payout.
• Employer plans such as a 401(k) are usually "eligible deferred compensation items" if the payer is a US person, you notify it on Form W-8CE and you irrevocably waive treaty reductions on Form 8854: tax is then withheld at 30% from each later payment instead. If the item does not qualify, its present value is treated as received the day before you expatriate.

There are deferral elections and special rules for some trusts, all of which need professional handling. The statute also has exceptions to the tax and net worth tests for people who were dual citizens from birth or who give up citizenship before age 18½ and meet residence limits; those exceptions are for US citizens and do not help a green card holder.

Planning years ahead

The most useful decisions are made long before the expatriation date.

• Count your green card years now. If you are likely to leave, the difference between giving up the card in year 7 and year 8 can be the difference between these rules and none of them. That is an immigration decision as well as a tax one, and it belongs with both an attorney and a tax adviser.
• Keep five clean years of filings. The certification test is the one you control completely.
• Know your net worth trajectory. If you will be near the line, the timing of gifts, home sales and conversions matters, and some steps only work before the date.
• Do not let a green card outlive your residence. If you move abroad for good, ending the status properly ends US tax residence; leaving it in a drawer does not.