Exit Tax Expatriation 877A 2026 Mark-to-Market Calculator

Under IRC §877A, US citizens who renounce and long-term green-card holders who terminate residency must check three "covered expatriate" tests. If any one is met, you owe an exit tax on a deemed sale of all worldwide assets (mark-to-market), plus 30% withholding on deferred compensation and immediate taxation of IRAs. For 2026, the exclusion against MTM gain is $866,000 (inflation-adjusted from $600,000 in 2008 per IRS Rev. Proc. 2025-32) and the 5-year average tax threshold is $206,000.

The Three Covered Expatriate Tests

Net worth test: worldwide net worth of $2 million or more on the expatriation date — not inflation-indexed and unchanged since 2008. Average tax liability test: average annual US net income tax for the prior 5 tax years of $206,000 or more (2026 — inflation indexed yearly). Certification test: failure to certify under penalty of perjury on Form 8854 that you've complied with all US federal tax obligations for the prior 5 years. Failing ANY one makes you a covered expatriate and triggers §877A. Dual citizens from birth and certain young expatriates may qualify for limited exemptions.

How the Mark-to-Market Tax Works (2026)

On the day before expatriation, you're deemed to have sold all worldwide property at fair market value. Net unrealized gain is calculated. The first $866,000 (2026 exclusion under Rev. Proc. 2025-32) is excluded. The remainder is taxed at capital gains rates (typically 20% long-term + 3.8% NIIT for high earners = 23.8%). You may elect under §877A(b) to defer payment until the asset is actually sold, but you must post collateral (US-situs assets or a bond), pay interest at the IRS underpayment rate, and waive treaty benefits. The election is generally only practical for illiquid assets like closely held business interests.

Deferred Comp, IRAs, and Trusts

Eligible deferred compensation (most US pensions and 409A plans whose payor agrees to withhold): subject to 30% withholding on each future distribution. Ineligible deferred compensation (foreign plans, payor refuses to withhold): treated as received on day before expatriation — immediate income tax. Specified tax-deferred accounts (IRA, 401k, HSA): deemed distributed in full on the day before expatriation, fully taxed at ordinary rates with no early-withdrawal penalty. Non-grantor trust interests: each distribution subject to 30% withholding and loss of basis step-up.

Common Exit Tax Mistakes

(1) Missing the Form 8854 — required even for non-covered expatriates; failure to file triggers $10,000 penalty AND automatic covered-expatriate status. (2) Forgetting state exit considerations — California has no state exit tax but tax-residency claims linger. (3) Skipping the deemed-disposition planning year — gifting appreciated assets to non-US-person family BEFORE the expatriation date can reduce MTM gain, but the §2801 transfer tax on covered gifts may apply post-expatriation. (4) Treating principal residence wrongly — the §121 $250K/$500K exclusion is preserved if held more than 2 of last 5 years. (5) Renouncing without pre-clearance — once you sign DS-4081, the exit tax clock starts and there's no undo. Always model the bill with a cross-border tax attorney before scheduling the consular appointment.

Last updated May 2026. Sources cited in tool output.