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 2016, the new IRC 877A expatriation rules (explained below) apply to you if any of the following statements apply to you:
- Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($151,000 for 2012, $155,000 for 2013, $157,000 for 2014, and $160,000 for 2015).
- Your net worth is $2 million or more on the date of your expatriation or termination of residency.
- You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.
If any of these rules apply, you are a “covered expatriate.”
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.