The US Exit Tax (IRC §877A), Explained

~9 min read·Updated August 2026

Calculator:US Exit Tax Estimator — run your own numbers.

"Exit tax" gets used loosely, but the US and Canada each run their own — and confusing them leads people to think they're covered when they aren't, or exposed when they aren't. This one is the US's: a one-time tax under IRC Section 877A that applies only to a narrow group of people who formally give up their US status, and only if they clear one of three thresholds on the way out. Most people who leave the US never come close to it. For the ones who do, it can be the single largest line item of the entire move.

Who this actually applies to

Section 877A only reaches two groups, and only at the moment they formally exit:

US citizens who renounce citizenship — a deliberate legal act at a US consulate, not something that happens by living abroad or letting a passport lapse.
"Long-Term Residents" — Green Card holders who held that status in 8 or more of the last 15 tax years — when they formally give it up, whether by surrendering the card, having it administratively revoked, or being treated as a nonresident under a tax treaty's tie-breaker rule.

If you're a Canadian who held a Green Card for only a few years and simply lets US residency lapse by moving home, none of this applies to you — you're not a Long-Term Resident, so there's no exit tax to consider at all. The 8-year clock is the entire gate for the Green Card path; cross it and the next question is whether you also clear one of the covered-expatriate tests below.

ℹ️Not the same tax as Canada's departure tax

Canada's departure tax is triggered by ceasing Canadian tax residency and applies regardless of citizenship. This is a completely separate US regime, triggered by giving up US citizenship or Long-Term Resident status specifically. Leaving the US for Canada can trigger Canada's arrival-side rules on one end and this tax on the other — or neither, or both — depending on your citizenship, immigration status, and how long you held it.

The three covered-expatriate tests

Crossing the citizenship or Long-Term Resident gate above doesn't by itself trigger the tax. You also have to meet at least one of three tests — meet none of them, and you expatriate with no Section 877A liability at all, regardless of how the paperwork feels.

1. Net worth

Worldwide net worth of $2,000,000 or more on the date you expatriate — all assets minus debts, everywhere, not just US-situated ones. Unlike the other threshold, this figure is fixed in the statute and isn't adjusted for inflation year to year.

2. Average tax liability

Average annual net US federal income tax liability over the five years before expatriating above an inflation-adjusted threshold — $211,000 for 2026. This measures tax actually paid, not income earned, so it tends to catch high earners in high-tax states more than it catches people with large but low-turnover net worth.

3. Form 8854 compliance certification

Separately from wealth or tax paid, you're a covered expatriate if you can't certify five years of full US tax compliance on Form 8854 — every required return actually filed, correctly, for each of the five years before expatriating. This is the test people are most likely to trip over by accident: a few years of unfiled FBARs or a missed international information return can make someone "covered" regardless of net worth.

Meet any one of the three and you're a covered expatriate. The estimator only checks the net-worth and tax-liability tests numerically — the compliance certification is a yes/no question about your filing history that no calculator can verify for you.

How the tax itself is calculated

If you are a covered expatriate, Section 877A treats you as if you sold your entire worldwide estate at fair market value the day before you expatriate — not just US-situated assets, and not limited to non-registered or taxable accounts the way Canada's departure tax is. Real estate anywhere, taxable brokerage accounts anywhere, business interests — all of it is deemed sold and immediately repurchased at the same price, crystallizing whatever gain had built up.

That deemed gain isn't taxed in full. A flat exclusion amount is subtracted first — $910,000 for 2026, indexed for inflation annually — and only the gain above that exclusion is taxed, generally at ordinary long-term capital-gains rates. A covered expatriate with a modest deemed gain can clear all three tests above and still owe nothing, once the exclusion is applied.

⚠️Retirement accounts, deferred comp, and trusts don't follow the mark-to-market rule

"Specified tax-deferred accounts" — 401(k)s, traditional and Roth IRAs, and similar — get their own separate treatment instead: generally either a flat 30% withholding on future distributions, or immediate income inclusion, depending on the account and elections made. Restricted stock units, nonqualified deferred compensation, and interests in certain trusts each have their own distinct rules too. None of this follows the ordinary deemed-sale mechanism above, and a rough net-worth estimate that lumps these in with ordinary investment accounts will misstate what's actually owed.

Paying it — and the one deferral option

The tax is due with your final US tax return (Form 8854, Part IV) covering your expatriation year. IRC §877A(b) does allow an irrevocable election to defer payment on specific property, but the bar is meaningfully higher than it sounds: you have to post a bond or other security acceptable to the IRS and pay interest on the deferred amount until it's settled. That's a different animal from Canada's own deferral mechanism for departure tax (Form T1244), which is automatic with no security required below a modest tax-owing threshold — don't assume the two deferral options work the same way just because both are called "deferral."

A tax on whoever inherits from you, not on you

One more piece worth knowing even if it doesn't affect your own bill: IRC §2801 imposes a separate tax on any US person who later receives a gift or bequest from someone who was a covered expatriate. That liability lands on the recipient, potentially years or decades after the original expatriation, not on the person who expatriated. If you're a covered expatriate leaving assets to a US-resident child or grandchild down the road, it's worth having that conversation with a specialist separately from the exit-tax bill itself.

✅Most people leaving the US never reach this

The citizenship-or-Long-Term-Resident gate, followed by a $2M net worth or $211K/year tax-liability threshold, filters out the large majority of people who move from the US back to Canada. Confirming you're clearly under both thresholds is often enough to rule this out entirely — the detailed mark-to-market mechanics only matter once you've established you're a covered expatriate in the first place.

Not tax, legal, or immigration advice — covered-expatriate status and the mark-to-market rules are fact-specific and the thresholds change annually; confirm your situation with a cross-border tax specialist before renouncing citizenship or surrendering a Green Card. Run your own numbers with the US Exit Tax Estimator, see Moving Back to Canada for the account-by-account checklist, or read the full moving-back guide for how this fits into a return to Canada more broadly. Full citations for the figures above are on the methodology page.