In the U.S., a special “expatriation” tax regime exists to deter “wealthy” U.S. citizens from relinquishing their citizenship in order to avoid future U.S. taxes. Under this tax regime, so-called “covered expatriates” are treated for U.S. income tax purposes as having sold all property in which they are considered to own an interest. The sale is considered to occur on the day before their expatriation date and at the then fair market value of their assets in calculating their income tax for their last tax year as a U.S. citizen. (For my Canadian dual citizen clients, this “deemed disposition” of property is similar to that which occurs under the so-called Canadian “departure“ tax. That “departure” tax treats a Canadian income tax resident as having sold certain assets at fair market value at the time they cease to be a Canadian income tax resident.) In calculating the amount of the net gain subject to tax (i.e., the excess of taxable gains over deductible losses), the first US$744,000 of net gains is excluded (for expatriations occurring in 2021).
You are a “covered expatriate” to whom the tax regime applies at the time of relinquishing your citizenship if either:
There are several US tax consequences of becoming subject to the US “expatriation” tax regime, in addition to the “deemed” sale of your worldwide assets mentioned above. Additionally:
We advise US citizens concerning planning for the relinquishment of US citizenship, including planning to avoid “covered expatriate” status. In our experience, the most effective expatriation tax planning occurs when a cross-border tax planning attorney is consulted long before the date you wish to relinquish your citizenship. We are also experienced advising those who become subject to the special inheritance tax regime. We welcome any inquiries that you may have concerning your specific tax situation. Feel free to call us at (760) 578-5093, contact us via email at Brent@LanceCrossborder.com or by using our online contact form. We will respond to all relevant inquiries quickly, without any obligation.