Executive Summary

• The nuts and bolts of expatriation, including the legal process of expatriation
• The tax consequences of expatriation
• The immigration consequences of expatriation
• The pros and cons of U.S. investments once you expatriate
• The tax consequences should you choose to spend more than a few months each year in the United States after expatriation

If you have not yet read Part 1: A Primer For Those Considering Expatriation, available free to all readers, please click here to read it first.

Expatriation: The Basics

Once you’ve obtained a second passport and qualified for residence in another country, you can begin the legal process of expatriation.

To do so, you must make an appointment with a U.S. consulate. You generally cannot expatriate within the territorial boundaries of the United States. The consular officer will explain the consequences of expatriation and have you sign some forms.

Two or more appointments may be necessary to complete the process. At the end of whatever sequence of visits applies at the consulate you choose, you’ll then hand in your U.S. passport. Anywhere from several weeks to several months later, you’ll receive an official document called a “Certificate of Loss of Nationality” (CLN). With the receipt of this document, you will have officially relinquished your U.S. nationality.

Income Tax Consequences of Expatriation

Once you give up your U.S. citizenship and passport, you have no further obligation to pay U.S. tax on your worldwide income. However, U.S. law imposes an “exit tax” on unrealized gains that exceed $725,000 for any property you own, worldwide (2019 exemption, adjusted annually for inflation).

Only “covered expatriates” need to pay the exit tax. A covered expatriate is an expatriating U.S. citizen or long-term permanent resident who has:

• A net worth over $2 million; AND/OR
• Paid more than an average of $168,000 annually in federal income tax for the five years prior to giving up U.S. citizenship or permanent residence (2019 figures adjusted annually for inflation); AND/OR
• Failed to certify compliance with all U.S. federal tax obligations for the five-year period preceding expatriation; AND/OR
• Failed to complete IRS Form 8854, “Expatriation Information Statement,” following expatriation.

If you’re a covered expatriate, there are additional tax consequences to consider.