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Exit Tax Book Chapter 1: A Quick Overview of the Exit Tax

Today’s topic: A quick overview of the exit tax

The term “exit tax” is not used or defined in the Code or regulations anywhere. It is a shorthand to describe the federal law that requires some citizens and green card holders who are leaving the US tax system to pay US tax, one last time, on their worldwide assets.

The defining feature of the exit tax is that all assets are treated as if they are sold on the day before citizenship or resident status is terminated. If there are any profits from the pretend sale, you pay tax on those profits.... continue reading

Dual-Status: Expatriation Year Tax Returns when US Income is Zero

This week we are talking about dual-status returns. An email reader sent us this question, asking what his income tax return should look like in the year of expatriation:

I file 1040 covering income up to the date of renunciation. Do I have to file 1040NR from the date of renunciation to the end of the year if I don’t have any US source income at all for either before or after renouncing?

The expatriation year income tax return is a little more complicated than that. It is slightly difficult to figure out whether you need to file Form 1040NR or Form 1040 as your tax return.... continue reading

Treaty Elections, Long-Term Resident Status, and Expatriation

The impact of treaty elections on long-term resident status and expatriation

Over the course of two days last week, I received three questions about the interaction of treaty elections, long-term resident status, and expatriation.

It seems there exists some confusion about what happens when a lawful permanent resident makes a treaty election to be taxed as a resident of another country: Does it cause you to expatriate? Does it prevent you from becoming an expatriate?

I am not surprised this confusion exists. Depending on when the treaty election is made, it could either cause you to expatriate or prevent you from becoming an expatriate.... continue reading

Certification Test Basics

Of the three tests that an expatriate must meet to be non-covered, the certification test is the most difficult to understand. It is also the only test to which there are no exceptions – fail this test, and you are a covered expatriate.

Today’s topic will be limited to a general discussion of what it means to pass this test.

Expatriation and the three tests

Expatriation occurs when a US citizen or “long-term resident” terminates his or her citizenship or permanent residence. 1

If the expatriate meets certain thresholds for net worth and the amount of tax they have been paying over the last five years, he or she will be what is known as a covered expatriate.... continue reading

Do Covered Expatriates Get to Use Their Suspended Passive Activity Losses?

Today’s topic: Do covered expatriates get to use their suspended passive activity losses?

Let us imagine that you are planning to expatriate in 2018, and that you will be a covered expatriate. You have a number of rental properties in the United States. Those rental properties have accumulated a substantial amount of passive activity losses (PALs) during the time that you have owned them. Because you are a covered expatriate, you will need to pretend you sold all those properties at fair market value on the day before your expatriation and report the gains or losses on your tax return as if you really sold the properties.... continue reading