Exit Tax for Green Card Holders: What Long-Term Residents Owe

The US exit tax is commonly understood as something that applies to citizens who renounce. What's less well known is that it applies equally to long-term permanent residents — green card holders — when they formally abandon their green card. The threshold that defines "long-term" is lower than most people expect, and the tax rules are identical to those that apply to citizenship renouncers.

For green card holders who've been in the US for years and built significant wealth, the exit planning questions are exactly the same as for citizens.

Who Qualifies as a Long-Term Resident

A long-term permanent resident (LTPR) is defined under IRC Section 877(e)(2) as someone who held a green card in at least 8 of the 15 tax years ending with the year of expatriation.

The 8-year count applies to any year in which you held the green card for any part of the year — you don't have to be physically present for the full year. It's the holding of the card, not the residence, that counts.

Example: A green card holder who received their card in 2015 and is now considering leaving in 2026 has held it for parts of 11 tax years (2015 through 2026). They are an LTPR. Their formal departure from the US is subject to the exit tax rules.

Someone who received their green card in 2021 and is leaving in 2026 has held it for parts of 6 years — not yet an LTPR. No exit tax applies to them (though they still have US worldwide income tax obligations until they formally abandon the card).

How Green Card Holders Expatriate

Abandoning a green card is done by filing Form I-407 (Record of Abandonment of Lawful Permanent Resident Status) with USCIS or at a US port of entry or consulate. Simply leaving the US, letting the green card expire, or stopping to file US tax returns does not constitute abandonment under the IRS's view.

This is a critical point: the IRS considers you a US tax resident — and a potential covered expatriate with exit tax obligations — as long as you hold a green card, regardless of where you physically live. A green card holder who moved to their home country five years ago and hasn't filed US returns is still technically a US tax resident until Form I-407 is filed.

Once Form I-407 is filed, the expatriation date is established, and the exit tax calculation (if applicable) is triggered.

Covered Expatriate Status for LTPRs

Long-term residents face the same three-test covered expatriate determination as citizens:

Net worth test: Worldwide assets exceed $2 million on the date of expatriation.

Tax liability test: Average annual net income tax over the five years before expatriation exceeds $211,000 (2026 indexed amount).

Compliance test: Cannot certify five years of full federal tax compliance — including all required forms (FBAR, Form 5471, Form 8938, etc.).

The compliance test is particularly significant for LTPRs who may have spent years resident abroad before obtaining a green card. If they had foreign bank accounts or foreign entities during those years and didn't report them to the IRS (as required once they became US residents), those prior omissions can fail the compliance test.

The Exit Tax Calculation: Same Rules as Citizens

If an LTPR is a covered expatriate, the mark-to-market regime applies. All worldwide assets are deemed sold at fair market value the day before expatriation. Net gains above the $910,000 exclusion (2026) are taxed at capital gains rates.

Retirement accounts (401(k)s, traditional IRAs) are treated as fully distributed and taxed at ordinary income rates, without the $910,000 exclusion.

Section 2801 applies post-expatriation: future gifts or inheritances from the covered LTPR to US persons are taxed at 40% in the hands of the recipient.

Form 8854 must be filed by the expatriation year's tax deadline. Failure to file auto-triggers covered expatriate status.

Planning Considerations for LTPRs

Time the departure relative to the 8-year threshold. If you're approaching the 8-year mark but haven't reached it yet, departing before crossing the threshold avoids LTPR status and the associated exit tax rules entirely. The count is in tax years, not calendar years — precise timing matters.

Check compliance history first. Before filing Form I-407, verify you've filed all required disclosures for every year you held the green card: FBAR (FinCEN 114) for foreign accounts over $10,000 at any point in the year, Form 8938 for FATCA reporting if thresholds were met, Form 5471 if you had a 10% interest in a foreign corporation, and any other required information returns.

Catching up on delinquent filings before expatriating — through the IRS Streamlined Filing Compliance Procedures or Delinquent International Information Return Submission Procedures — is generally the right order of operations. Filing amended or late returns and then expatriating is cleaner than having a compliance failure trigger covered status.

Net worth is measured at departure. If your assets fluctuate (a concentrated stock position, for example), timing the departure date when values are lower reduces the deemed-sale gain and potentially keeps you below the $2 million threshold.

Consider Roth conversions. Traditional IRA and 401(k) balances face full ordinary income tax under Section 877A if you're a covered expatriate. Converting to Roth before expatriation — paying income tax now — can be preferable to the Section 877A treatment, particularly if your income in the year of conversion is lower than your expected ordinary rate as a covered expatriate.

Green Card Holders from Countries with Their Own Exit Taxes

LTPRs who are citizens of countries with departure taxes — Canada, Germany, France, Norway, Denmark, Spain — face a potential double-taxation problem on departure: their country of citizenship may tax them when they "return" by formally establishing residency there again, and the US will tax them on the same appreciated assets through Section 877A.

Most countries' departure taxes are triggered by establishing residency there, not just by citizenship. So a French citizen who has a US green card for 10 years and then moves back to France may face both US exit tax (as a covered LTPR) and French exit tax (triggered by becoming French resident) on the same portfolio.

Treaty analysis and sequencing — particularly the order in which residency is established and abandoned — can prevent or mitigate this double-hit. The US-Canada treaty has specific provisions for this coordination; the US-France treaty is less explicit.

The Exit Tax Playbook covers the LTPR exit tax scenario alongside the citizenship renunciation scenario, with specific attention to sequencing for common home-country corridors.