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You got your green card years ago. The American dream was achieved. But now life has changed. Maybe you're moving back home permanently. Maybe you're tired of U.S. tax obligations on worldwide income. Maybe you just want to simplify your life.
So you're thinking about giving up your green card. Seems straightforward, right? File Form I-407, turn in your card, and walk away from the U.S. tax system forever.
Most green card holders don't realize until it's too late that giving up their green card can trigger a massive exit tax bill. We're talking about paying capital gains tax on assets you haven't even sold. The IRS treats you as if you sold everything you own the day before you gave up your status.
There are specific rules about who qualifies as a "covered expatriate." There are thresholds, exemptions, and planning strategies that can save you hundreds of thousands of dollars. Most people discover these rules after they've already given up their green card. By then, it's too late to plan. You're stuck with whatever tax bill the IRS calculates.
Here’s what you need to know before giving up your green card, including who pays the exit tax, how it's calculated, and strategies to minimize or avoid it entirely.
What Is a Green Card and Who Qualifies?
A green card makes you a U.S. lawful permanent resident. This gives you the right to live and work permanently in the United States, but it also creates significant tax obligations that many people don't understand. A green card (Form I-551) proves your permanent resident status. Common ways to obtain green cards include:
- Family sponsorship (spouse, parent, child of U.S. citizen)
- Employment-based sponsorship
- Diversity visa lottery
- Refugee or asylum status
- Investment visas (EB-5)
Long-Term Resident Status
For tax purposes, you become a "long-term resident" if you held a green card for at least 8 years out of the last 15 years. This doesn't have to be consecutive years. The count is based on calendar years, even if you only held the card for part of a year.
Important Timing Rules:
- The year you receive a green card counts as one full year
- The year you give up your green card counts as one full year
- Years with treaty tie-breaker elections may not count
- Dual-status years still count toward the 8-year test
The 8-Year Rule
Once you become a long-term resident (8 out of 15 years), giving up your green card can trigger an exit tax if you meet other criteria. This is the IRS's way of preventing people from avoiding taxes by abandoning U.S. status.
Tax Obligations for a Green Card Holder
Green card holders have the same tax obligations as U.S. citizens. This creates a worldwide tax liability that many people don't expect or understand.
Worldwide Income Reporting
As a green card holder, you must report all worldwide income to the IRS:
- U.S. source income (wages, investments, business income)
- Foreign source income (foreign wages, foreign investments)
- Income from any country where you live or work
- Passive income, like interest, dividends, and capital gains
Annual Filing Requirements
You must file U.S. tax returns every year if your income exceeds filing thresholds:
- Single: $15,000 (2025)
- Married Filing Jointly: $30,000 (2025)
- Married Filing Separately: $5 (2025)
Foreign Account Reporting
Green card holders must report foreign financial accounts:
- FBAR for accounts over $10,000 combined balance
- Form 8938 (FATCA) for foreign assets over thresholds
- Various forms for foreign business interests or trusts
Green card holders can use the same tax benefits as citizens:
- Foreign Earned Income Exclusion (up to $130,000 in 2025)
- Foreign Tax Credit for taxes paid to other countries
- Tax treaty benefits (if applicable)
Giving Up Your Green Card
The process of abandoning green card status involves both immigration and tax components. Both must be handled correctly to avoid long-term problems. To formally abandon green card status:
- File Form I-407 (Record of Abandonment of Lawful Permanent Resident Status)
- Schedule an interview at the U.S. consulate or the port of entry
- Turn in your physical green card
- Receive the certificate of abandonment
Tax Process
The tax side is more complex and has different requirements:
- File Form 8854 (Initial and Annual Expatriation Statement)
- Certify five years of tax compliance
- Pay any exit tax owed
- File final U.S. tax return
The date you abandon your green card affects your tax obligations. Immigration abandonment date may differ from the tax expatriation date. Early-year abandonment may provide planning opportunities, and late-year abandonment may trigger additional tax year obligations
Abandoning green card status is irreversible. You cannot change your mind later. If you want to return to the U.S., you'll need a visa and may face immigration complications.
Understanding Exit Tax and Its Calculation
Exit tax only applies to "covered expatriates" who meet specific wealth, income, or compliance criteria. Understanding these tests determines whether you'll face exit tax.
You become a covered expatriate if you meet ANY of these tests:
- Net Worth Test: Worldwide net worth of $2,000,000 or more on expatriation date
- Income Tax Test: Average annual net U.S. income tax liability exceeds $206,000 for the five years before expatriation
- Compliance Test: Cannot certify five years of U.S. tax compliance on Form 8854
Net worth includes all worldwide assets:
- Real estate (primary residence, investment properties)
- Investment accounts and retirement plans
- Business interests and partnerships
- Personal property with significant value
- Cash and bank accounts
- Minus debts and liabilities
Some assets have special valuation rules, include:
- Retirement accounts (IRAs, 401(k)s, foreign pensions)
- Deferred compensation arrangements
- Trust interests (even non-grantor trusts)
- Stock options and restricted stock
How Exit Tax Is Calculated
If you're a covered expatriate, the IRS treats you as selling all worldwide assets at fair market value the day before expatriation:
- Determine the fair market value of all assets
- Subtract tax basis (what you paid plus improvements)
- Calculate net gain across all assets
- Apply exclusion amount ($890,000 for 2025)
- Pay capital gains tax on the remaining gain
Exit tax uses capital gains rates:
- 0%, 15%, or 20% depending on income level
- Plus 3.8% net investment income tax for high earners
- Maximum combined rate of 23.8%
Key Tax Forms
Several important forms are required when giving up green card status. Filing these correctly is crucial for compliance.
Form 8854 (Initial and Annual Expatriation Statement)
This is the main form for expatriation:
- Must be filed by the due date of the tax return for expatriation year
- Certifies five years of tax compliance
- Calculates exit tax liability
- Required even if you don't owe exit tax
Form 8854 Key Sections:
- Part I: General information and expatriation date
- Part II: Certification of tax compliance
- Part III: Covered expatriate determination
- Part IV: Assets and tax calculation (if covered expatriate)
Form 1040 (Final Tax Return)
Your final U.S. tax return as a resident:
- Report income through expatriation date
- Include exit tax liability
- May be dual-status return if expatriating mid-year
Form 1040-NR (Nonresident Return)
May be required for income after expatriation:
- U.S. source income received after expatriation
- Income effectively connected with U.S. business
- Fixed, determinable, annual, or periodic income
Form W-8CE (Notice of Expatriation)
Filed with financial institutions to:
- Prevent automatic deemed distributions from retirement accounts
- Elect special treatment for certain deferred compensation
- Avoid withholding on certain payments
Form 8833 (Treaty-Based Return Position)
Used to claim treaty benefits:
- Reduce U.S. tax on certain income types
- Claim treaty tie-breaker provisions
- Must be filed with supporting documentation
How to Plan for Smooth Exit Taxes
Smart planning can significantly reduce or eliminate exit tax liability. The key is understanding your options and acting before you expatriate.
- Strategy #1: Time Your Expatriation
Expatriation timing affects several important factors. If you leave before reaching eight years as a U.S. long-term resident, you can avoid long-term resident status altogether. Expatriating early in the tax year may provide more planning time and flexibility. You should also consider market timing so asset values are favorable when calculating gains, and coordinate the date with low-income years to potentially reduce tax exposure.
- Strategy #2: Try to reduce Net Worth Below $2 Million
If your net worth is close to the $2 million threshold, consider steps to narrow the gap before expatriation. Gifting assets to family members can lower your net worth, as can paying down debts that factor into the calculation. Charitable donations may provide both tax benefits and a reduction in net worth. You can also spend on deductible expenses like home improvements to further reduce your net worth for the test.
- Strategy #3: Realize Losses Before Expatriation
Harvesting capital losses before expatriation can help offset gains. This may include selling losing investments to realize losses and rebalancing portfolios to reset basis. Coordinate the timing of these transactions with your expatriation date for maximum effect, and remember that capital losses can be carried forward to offset gains subject to the exit tax.
- Strategy #4: Use Annual Gift Exemptions
Systematic gifting over multiple years can be effective. Use annual exclusion gifts, which are $19,000 per recipient in 2025, and consider gifts to spouses, which are unlimited if the spouse is a U.S. citizen. With appropriate planning, generation-skipping transfers may also play a role. Starting early allows you to maximize the total amount transferred through annual exclusions.
- Strategy #5: Address Compliance Issues Early
Cleaning up tax compliance before expatriation is essential. File any missing returns through the appropriate programs, correct errors with amended returns, and ensure FBAR and FATCA reporting is complete. For complex situations, engage professional help so issues are identified and resolved well in advance of your expatriation date.
- Strategy #6: Consider Asset Location
Where you hold assets can affect tax outcomes. Evaluate differences in treatment for U.S. versus foreign assets, make informed elections and plans for retirement accounts, and understand how trust structures could impact taxation and reporting. Review business entity structures as well to position assets for optimal treatment when you expatriate.
How NSKT Global Can Help
NSKT Global specializes in comprehensive expatriation planning for green card holders. We understand the complex intersection of immigration law, federal tax law, and state tax obligations that affect your decision to give up green card status. Our Green Card Expatriation Services:
Comprehensive Exit Tax Analysis
We analyze your complete financial picture to determine covered expatriate status and calculate potential exit tax liability. Our analysis includes net worth calculations, income tax history review, and compliance assessment.
Form 8854 Preparation
We prepare accurate Form 8854 returns with all required calculations and supporting documentation. This includes complex asset valuations, basis calculations, and proper tax compliance certification.
Multi-Year Compliance Review
We review your prior five years of tax returns to identify and correct any compliance issues that could make you a covered expatriate. This includes amended returns, missing forms, and FBAR/FATCA compliance.
State Tax Expatriation Planning
We help you properly sever state tax ties and handle ongoing state obligations. This includes domicile planning, final state returns, and ongoing compliance for state-sourced income.
Retirement Account Elections
We help you navigate complex elections for IRAs, 401(k)s, and foreign pensions to minimize tax impact and avoid double taxation on retirement benefits.
Whether you're just considering giving up your green card or ready to move forward with expatriation, our expertise ensures you understand all implications and minimize the tax cost of your decision.
Frequently Asked Questions
Q: Do all green card holders pay exit tax when giving up their status?
No, only "covered expatriates" pay exit tax. You must meet at least one of three tests: net worth over $2 million, average tax liability over $206,000 for five years, or inability to certify tax compliance. Many green card holders don't meet these criteria.
Q: How is the $890,000 exclusion applied in calculating exit tax?
The exclusion applies to your total net gain across all assets. If your combined gains from all assets are below $890,000, you owe no exit tax. The exclusion is per person, so married couples can potentially exclude $1,780,000 combined.
Q: Can I give up my green card before reaching 8 years to avoid exit tax?
If you give up your green card before holding it for 8 of the last 15 years, you won't be subject to exit tax regardless of your wealth or income. However, you'll still need to file Form 8854 and complete the expatriation process properly.
Q: What happens to my 401(k) and IRA if I'm subject to exit tax?
Retirement accounts receive special treatment. You may face deemed distributions, meaning the IRS treats the entire balance as withdrawn and taxable. However, elections are available to defer taxation until actual distributions occur.
Q: Can I reduce my net worth before expatriating to avoid the $2 million threshold?
Yes, legitimate strategies include gifting assets to family members, paying down debts, making charitable donations, or spending on deductible improvements. However, the IRS scrutinizes transactions close to expatriation, so timing and documentation are important.
Q: Do I still need to file U.S. tax returns after giving up my green card?
Generally no, unless you have U.S. source income or meet other filing requirements. However, you may need to file nonresident returns (Form 1040-NR) if you continue receiving certain U.S. income after expatriation.
Q: Can I return to the U.S. after giving up my green card and paying exit tax?
Yes, but you'll need appropriate visas for entry. Immigration law may impose restrictions on former green card holders who were subject to exit tax, so consult with immigration counsel about future travel plans.
