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Figuring The Exit Tax For US Expatriates

“Kathleen, I have a question for the Mailbag or anyone who may like to address it:

“If a U.S. citizen is planning to expatriate, do they have to pay an exit tax on real estate they own outside of the United States? And does it matter if that foreign real estate creates rental income or not? Same question for foreign bank accounts; are they required to pay an exit tax on that wealth, as well?”

–Jeff F., United States

Our resident offshore expert Lief Simon responds:

The location of your assets doesn’t matter. If you qualify as a “covered expat” (that is, you have an average of US$157,000 or greater tax liability for each of the previous five years or US$2 million or more in net worth, you have to list out all of your assets and the potential gains. Take a look at Form 8854 and the instructions.

Whether tax is owed when you expatriate will depend on the unrealized gains on your assets (and any deferred compensation and tax-deferred plans such as IRAs). You get an exemption on taxable gains (US$680,000 for 2014) before taxes are owed.

Rental income on property overseas should be reported the year earned.

Continue Reading: Owning Foreign Real Estate Has Many Benefits

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