Leaving the US tax system
Renouncing US Citizenship or Giving Up a Green Card: Form 8854
Renouncing citizenship or ending long-term green card status is a legal step and a tax event. Gurleen Kaur, CPA licensed in British Columbia and Washington State, helps you check the covered expatriate tests, catch up any missing years and file the final return with Form 8854.
Quick answer
What tax steps apply when you renounce US citizenship?
A final US return and Form 8854, filed by the due date of that year's return. The 2025 Form 8854 instructions treat you as a covered expatriate if your net worth is US$2 million or more, your average annual net income tax for the 5 years before expatriating is more than US$206,000 (2025 figure, adjusted yearly), or you cannot certify 5 years of US tax compliance. Covered expatriates may owe an exit tax on unrealized gains above an exclusion amount, US$890,000 for 2025. Green card holders are affected if they were permanent residents in at least 8 of the last 15 tax years.
The covered expatriate tests
Meeting any one test makes you a covered expatriate. Dollar thresholds are adjusted for inflation each year.
| Test | You are covered if | Source |
|---|---|---|
| Net worth | US$2 million or more on the expatriation date | Form 8854 instructions |
| Tax liability | Average annual net income tax for the 5 prior tax years is more than US$206,000 (2025) | Form 8854 instructions |
| Compliance | You fail to certify on Form 8854 that you met all federal tax obligations for the 5 prior years | Form 8854 instructions |
Exceptions and relief
- Dual citizens from birth. Certain people who became US citizens and citizens of another country at birth, and remain citizens and tax residents of that country, can be excepted from the net worth and tax tests if they meet the conditions in the instructions.
- Under 18½. People who expatriate before age 18½ with no more than 10 years of US residence can also be excepted.
- Relief procedures. Certain former citizens who were not compliant may qualify for the IRS relief procedures for certain former citizens.
The 5-year certification still applies to everyone, so missing returns or FBARs usually need to be fixed first.
If you are covered
A covered expatriate is generally taxed as if most property was sold at fair market value on the day before the expatriation date, the mark-to-market exit tax, with gains above the exclusion amount taxed (Form 8854 instructions). Gifts or bequests later made to US citizens or residents can carry a separate tax for the recipient.
For Canadians, RRSPs, TFSAs, Canadian real estate and private company shares all count toward net worth and need to be valued carefully in US dollars.
Steps in order
- Check compliance. Confirm the last 5 years of US returns, FBARs and information returns, and catch up first if anything is missing
- Measure the tests. Value worldwide assets in US dollars and compute the 5-year average tax
- Renounce or end status. Citizens renounce through a US embassy or consulate; green card holders formally end permanent residence
- File the final year. A dual-status return for the expatriation year with Form 8854, by that return's due date including extensions
- Keep records. Penalty for a missing or incomplete Form 8854 is US$10,000 unless due to reasonable cause
Common questions
Does renouncing end my US tax obligations?
It ends them going forward, but only after the final return and Form 8854 are filed for the expatriation year, and covered expatriates may owe exit tax on that return.
What is a covered expatriate?
Someone who expatriates and meets any one of three tests in the Form 8854 instructions: net worth of US$2 million or more, average annual net income tax above the yearly threshold (US$206,000 for 2025), or failure to certify 5 years of compliance.
I am an accidental American living in Canada. Can I renounce without exit tax?
Possibly. Dual citizens from birth who remain citizens and tax residents of the other country can be excepted from the net worth and tax tests if they meet the conditions, but the 5-year compliance certification still applies. The IRS relief procedures for certain former citizens may also help.
Does this apply to green card holders?
Yes, if you are a long-term resident: a lawful permanent resident in at least 8 of the last 15 tax years ending with the year your status ends. Years treated as a treaty resident of another country without waiving benefits do not count.
What is the penalty for not filing Form 8854?
US$10,000 for the year, unless the failure is due to reasonable cause and not willful neglect.
When is Form 8854 due?
With the return for the year that includes your expatriation date, by that return's due date including extensions. If no return is required, it is sent separately by the date the return would have been due.
Sources
Every rule and figure on this page links to the IRS, CRA or other official source it comes from. Amounts change; we re-check them before each engagement.
- IRS: Instructions for Form 8854 (2025)
- IRS: Expatriation tax
- IRS: Relief procedures for certain former citizens
- IRS Publication 519, U.S. Tax Guide for Aliens
Gurleen Kaur, CPA licensed in British Columbia and Washington State. Last updated October 21, 2026. This page is general information, not tax or legal advice for your situation.
Related guides: Behind on US filings, Americans abroad, US tax accountant in Surrey.
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