I'm giving up my green card and moving back to China β will the exit tax hit me?
It can, but only if two gates both open: first you must be a long-term resident (green card in at least 8 of the last 15 tax years), and second you must be a covered expatriate by meeting at least one of three tests. If either gate stays closed, there is no exit tax. And even covered expatriates only pay tax on gains above a $910,000 exclusion for 2026.
Gate 1: Are you a long-term resident?
A green card holder becomes a "long-term resident" for expatriation purposes after holding lawful permanent resident status in at least 8 of the 15 tax years ending with the year the status terminates. Important details:
- A tax year counts even if you held the card for only part of it. Someone who got a green card in December 2019 and gives it up in January 2026 has touched 8 tax years (2019β2026) despite holding it for just over 6 elapsed years.
- Years in which you were treated as a resident of a treaty country (under a tax-treaty tie-breaker) and did not waive the treaty benefits do not count.
If you are below 8 years, stop here β the exit tax does not apply to you. You still need to terminate your status properly (Form I-407) and file a final return, but no mark-to-market tax.
Gate 2: The three covered-expatriate tests
Fail any one of these and you are a covered expatriate:
| Test | 2026 threshold |
|---|---|
| Net-worth test | Worldwide net worth of $2,000,000 or more on the expatriation date |
| Tax-liability test | Average annual net US income tax for the 5 tax years before expatriation above $211,000 |
| Compliance test | You cannot certify on Form 8854 that you met all federal tax obligations for the prior 5 years |
The compliance test is the silent killer. People with modest wealth fail it all the time because of unfiled returns or unreported accounts. Note the tax-liability test is about tax liability, not income β $211,000 of average annual tax implies a very high income. The net-worth test counts worldwide assets: US and Chinese real estate, investment accounts, business interests, everything.
Limited exceptions exist for certain dual citizens from birth and some minors β check the Form 8854 instructions before assuming they apply to you.
How the tax is actually calculated
Covered expatriates are treated as having sold all worldwide assets at fair market value the day before expatriation (the "mark-to-market" rule). For 2026, the first $910,000 of net gain is excluded. Gains above that are taxed at the rates that would apply to an actual sale β there is no single flat exit-tax rate, and the net investment income tax can also apply.
Special regimes apply to deferred compensation (pensions, stock options), specified tax-deferred accounts (like IRAs), and interests in nongrantor trusts β these are not covered by the $910,000 exclusion in the same way.
The paperwork that cannot be skipped
Form 8854 (Initial and Annual Expatriation Statement) is filed with your final-year tax return. It is where you certify the 5 years of compliance and report the mark-to-market calculation. Two warnings:
- Filing Form I-407 (abandoning the green card) ends your immigration status; filing Form 8854 ends your tax obligations cleanly. Do both. Until you file Form 8854, the IRS can keep treating you as a US tax resident.
- Not filing Form 8854 at all is itself a compliance failure β it can make you a covered expatriate by default.
Frequently asked questions
My net worth is under $2M and my taxes were low, but I missed filing for two years. Am I covered?
Quite possibly. The compliance test does not care about your wealth. Get the missing years filed (the IRS Streamlined procedures can help for non-willful cases) before you expatriate, so you can truthfully certify 5 years of compliance.
Does the exit tax apply to my apartment in China?
Yes, if you are a covered expatriate β the deemed sale covers worldwide assets, not just US ones. The $910,000 exclusion applies to total net gain across all assets.
Can I reduce exposure by timing when I give up the card?
Sometimes. Because partial tax years count toward the 8-year test, giving up the card in January versus December of a year can change the count. Run the 8-of-15 calculation carefully before filing Form I-407.
Sources
- IRS, Expatriation Tax (IRC 877A, covered expatriate tests, long-term resident definition): https://www.irs.gov/individuals/international-taxpayers/expatriation-tax
- IRS, Instructions for Form 8854: https://www.irs.gov/instructions/i8854
- IRC Section 877A (statutory $2M net-worth test, mark-to-market rules)
- https://us-wealth-guide.com/2026-exit-tax-renunciation-guide/