There is considerable talk today about leaving America, and the head count is up. Of course, the numbers are still small compared to those who are arriving. And despite the rhetoric, it is rarely political. Some of it is about family, and about the pressures of America’s global tax reporting and compliance regime, including FATCA (the Foreign Account Tax Compliance Act).
Giving up a U.S. passport is not to be taken lightly, nor is giving up a long term (8 years or more) green card. For some, there is even an IRS tax on your exit. You pay tax on all your income every year. The Exit Tax is like an estate tax on the gain in your assets, even though you are not actually selling anything. It is the IRS’s last chance to tax you.
The Exit Tax is computed as if you sold all your assets on the day before you expatriated, and had to report the gain. Currently, net capital gains can be taxed as high as 23.8%, including the net investment income tax. For a time, Congress talked of hiking the tax to 30% after Eduardo Saverin of Facebook fame took off for Singapore. Still, 23.8% is nothing to sneeze at. There are three triggers for the Exit Tax, and any one of them will make you a “covered expatriate.”
First, is your net worth over $2 million? This is the aggregate net value of worldwide assets. It is not just your U.S. assets. For married taxpayers, each spouse’s net worth is calculated separately from the other. If they own their assets relatively equally, a married couple could have a total net worth of up to $4 million without triggering the Exit Tax.
On the other hand, if one spouse owns most of the assets, that spouse could be a covered expatriate, even if the other spouse owns significantly less than $2 million of assets. Thankfully, some couples can gift assets to each other to bring both spouses’ net worths to below $2 million. If the spouse receiving the gifts is a U.S. citizen, these gifts may escape U.S. gift tax. ..Continued.. by Robert W. Wood
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