Who is a Covered Expatriate in the US (Renouncing Citizenship & Exit Tax)

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Lately, we've been seeing more and more Americans taking action to renounce their US citizenship. It looks like this is a current trend, and many people are interested in all the aspects of renunciation.

When renouncing US citizenship, the concept of cover expatriate is extremely important! What is a covered expatriate and how does it make a difference for you?

A covered expatriate is someone who has a net worth of 2 million dollars or more, at the time they expatriate OR they have an average tax liability for the previous 5 years of 161 000 USD adjusted for inflation.

In other words, if your tax bill at the end of the year was 161 000 USD or more, for the past 5 years you are a covered expatriate. The same goes if your net worth is 2 million or more.

If you are a covered expatriate you will have to pay the exit tax. For someone who has lots of assets, this can be significant.

Another thing is that all of a sudden if you're a covered expatriate and want to gift assets or money to US citizens this will be taxable. This would normally not be taxable, but after you leave the US as a covered expatriate it will be. The only exception is your spouse, so there are ways to plan around this. Normally, foreigners can give gifts to American citizens tax-free.

Having all this in mind, there is the way to plan around your income and your assets when it comes to exit tax.

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