Market volatility means US citizens looking to expatriate may no longer trigger the exit tax, timing well for Americans abroad looking to give up their citizenship.
Americans checking their portfolios lately may notice a figure that has dropped fast compared to just a week ago.
While this sudden change might sting, for those US citizens considering expatriation, it could actually be a positive.
When a US citizen relinquishes their citizenship, meeting certain criteria makes them a ‘covered expatriate’, which means they are subject to various taxes, including the exit tax.
And under US tax law, one of the tests for being subject to exit tax when renouncing US citizenship is whether or not you have a net worth of US$2 million or more.
Due to market volatility, those who were over the threshold just days ago may now find themselves under it. This means many may now qualify to renounce their US citizenship without triggering the exit tax.
So, what is the exit tax?
If you’re considered a ‘covered expatriate’, the IRS calculates your net worth as if you sold everything you own the day before you renounce. Stocks, real estate, crypto, businesses – everything gets valued. Any unrealised gains over a certain exemption (about US$866,000 for 2025) are taxed as if you sold them.
Talk to a tax expert at 1040 Abroad, who specialise in US expatriation
It doesn’t matter whether or not anything is actually sold – the taxes are still due, based on hypothetical gains. It’s like an ‘exit toll’ for giving up your US citizenship with a sizable portfolio in hand.
However, if your net worth is under US$2 million, this could be sidestepped, which is why this market dip matters.
Timing is everything
While portfolios may recover in a few weeks or months, the current dip could be a financial gift to those feeling the pull of life abroad or experiencing frustrations with US tax obligations while on global incomes.
The decision to renounce citizenship is not one to be taken lightly but for those Americans abroad who have already been questioning whether the US is still their country, this might be a clear sign that now is the time.
Not just numbers – feelings count too
It’s likely not only the markets having an influence over Americans who are deciding to renounce their citizenship. The changing political climate in the US is causing many to feel increasingly alienated and uncertainty about the direction of the country – both economically and socially – affects people’s emotional connections to their US citizenship.
Many of the three to six thousand Americans who have cut ties with the US since 2013 have cited tax burdens as the reason. However, for some, the decision is not just about tax but also about values, identity and whether the US still feels like home.
For those considering expatriation, it’s important to understand the full tax situation before renouncing US citizenship, so you can make the decision with confidence.
How to prepare to renounce US citizenship
If your net worth has recently dipped below US$2 million and you’re considering renunciation, don’t wait for the markets to bounce back. The experts at 1040 Abroad, a tax firm helping US expats, suggest getting a proper valuation of your assets to confirm your net worth. Next, make sure you’re compliant with the past five years of US tax filings.
Talk to a tax professional who specialises in expatriation, like the experts at 1040 Abroad. Even if you’re not ready to renounce tomorrow, it could be worth exploring the process now – while the math might still be on your side.
Before you decide, be sure to understand the consequences of renouncing US citizenship to ensure you’re fully aware of the potential impacts. For example, did you know that if you voluntarily inform a US consulate that your reason for renouncing citizenship is tax avoidance, the consulate is obligated to pass this on and the government is allowed to bar you from entering the US?
In practice, the law (the Reed Amendment) is only applied in extremely rare cases. Fewer than a dozen people have been barred because of it, which is a minuscule number compared to the thousands who renounce each year.
During a renunciation appointment at a US consulate, the officer’s job is to ensure that the person giving up their citizenship understands the consequences of renouncing – including that the decision is irreversible – and that they are acting voluntarily. The officer will not interrogate the individual or try to uncover tax motives. However, they are required to ask if the applicant wishes to give a statement as to why they’re renouncing.
Most give a general personal reason – or simply decline to provide a statement – which is perfectly acceptable and does not affect the process.
Want to know more?
There’s a lot to think about when it comes to giving up citizenship. 1040 Abroad offers a 20-minute consultation to walk you through the renunciation process and see if this moment really makes sense for you.
