Expatriation Exit Tax

Expatriation Exit Tax

Consult Diosdi Ching & Liu, LLP to assist you with expatriation planning and/or assistance with the expatriation process

It’s no secret that a number of Americans are considering renouncing their citizenship or residency due to high taxes. Those considering terminating their citizenship or residency should carefully plan to avoid the costly exit or expatriation exit tax, and should contact a San Francisco Expatriation Exit Tax lawyer. The exit tax only applies to “covered expatriates.” You can be classified as a covered expatriate if:

  1. Your average net income for the five years preceding the year of expatriation is greater than $162,000 (for 2017);
  2. Your net worth on the date of expatriation is $2 million or more; or
  3. You have not satisfied your U.S. federal tax compliance requirements for the five years preceding the year of expatriation, and you did not file Form 8854, Initial and Annual Expatriation Statement with the Internal Revenue Service.

If you are classified as a “covered expatriate,” you will be subject the the exit tax. The U.S. taxes a “covered expatriate” on a mark-to-market basis. This means that the worldwide assets of the “covered expatriate” are deemed sold for fair market value on the day before the expatriation date. However, a “covered expatriate” can irrevocably elect, on an asset by asset basis, to defer the payment of tax attributable to an asset deemed sold until the due date of the tax return in which the asset is actually sold. Given the tax cost of being a “covered expatriate”, a determination should be completed prior to expatriating to determine if the expatriation rules apply. If the expatriation rules may apply to you, please consult Diosdi Ching & Liu, LLP to assist you with expatriation planning and/or assistance with the expatriation process. Contact us now for a free consultation!

415.318.3990