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Crypto Law/Level VII · Loopholes worth understanding/7.2 Residency and borders/Lesson 4

Exit taxes

How the United States and some other countries tax unrealised crypto gains when someone gives up citizenship or residence, and who gets caught.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Most holders face no US exit tax: §877A reaches only covered expatriates, those with net worth of $2 million or more, 2026 average annual income tax above $211,000, or no compliance certification; even then the first $910,000 of deemed gain is excluded.
  2. Certify five years of full US compliance on Form 8854 when expatriating, catching up returns and FBARs first if needed; failing to certify makes anyone a covered expatriate, and not filing the form carries a $10,000 penalty.
  3. Dual citizens from birth still taxed as residents of the other country, with no more than 10 US-resident years in the last 15, escape the income and net-worth tests under §877A(g)(1)(B); the compliance certification still applies.
  4. A covered expatriate can elect under §877A(b) to defer the deemed-sale tax on chosen property until it is sold, with adequate security and interest; later gifts or bequests to US persons above $19,000 in 2026 face §2801 tax.
  5. Elsewhere, read the departure rule first: Canada deems certain property sold on emigration and requires Form T1161 above $25,000, and Portugal treats losing residence as an onerous crypto disposal, so check whether the 365-day exclusion covers your lots.

Materials26 U.S.C. §877A and §877(a)(2) on covered expatriates (law.cornell.edu)IRS ‘Expatriation tax’ page and Form 8854Rev. Proc. 2025-32, sections 4.37, 4.38 and 4.42, for 2026 thresholds

Wonder

  1. Can leaving a country trigger tax on coins I never sold?
  2. Who counts as a ‘covered expatriate’ in the US?
  3. Do other countries do the same thing?

Explore

  1. An exit tax treats departure as a taxable moment. Crypto often carries large unrealised gains, meaning increases in value on coins not yet sold. A country that loses a resident or citizen loses the chance to tax those gains later, so some countries tax them on the way out by treating the assets as sold. The person receives no cash from this deemed sale but may owe tax as if they had sold. The details differ widely by country, so the starting point is always the specific rule of the country being left.
  2. In the United States, section 877A applies to a ‘covered expatriate’, which can be a citizen who renounces or a long-term resident who gives up a green card. A long-term resident is someone who held lawful permanent residence in at least 8 of the 15 tax years ending with the year of departure. For a covered expatriate, all property is treated as sold for its fair market value on the day before the expatriation date. The resulting gain is reduced by an exclusion amount, which Rev. Proc. 2025-32 sets at $910,000 for 2026; the remainder is taxed under the usual rules.
  3. Under §877(a)(2), a person is a covered expatriate if any of three tests is met: average annual net income tax for the five years before expatriation above a threshold, which is $211,000 for 2026; net worth of $2 million or more on the expatriation date; or failure to certify on Form 8854 that they complied with US tax law for the previous five years. The IRS says that not filing Form 8854 carries a $10,000 penalty. Crypto holdings count toward net worth at market value, so a holder with a modest income can still cross the $2 million line.
  4. There are narrow exceptions. Someone who was a US citizen and a citizen of another country from birth, who still holds and is taxed as a resident of that other country, and who was a US resident for no more than 10 of the last 15 years, can escape the income and net-worth tests. A similar exception covers some people who give up citizenship before age 18½. Neither exception excuses the five-year compliance certification. Other rules also follow covered expatriates: gifts or bequests they later make to US persons can be taxed under section 2801 above an annual amount, $19,000 for 2026.
  5. Other countries use different designs. Canada treats people leaving as having sold certain types of property at fair market value and immediately reacquired it, and requires Form T1161 when the total value of property owned at departure is more than $25,000. Portugal’s income tax code treats losing Portuguese residence as an onerous disposal of crypto-assets, a rule set out in article 10 and renumbered in May 2026 by Decree-Law 97/2026. The UK’s temporary non-residence rule works differently: it can tax certain gains on return after a short absence (lesson 7.2.3). A holding-period exemption elsewhere (lesson 7.2.5) does not cancel an exit charge here.
  6. A practical check: list each coin with its date of purchase, cost and current value, then add up the unrealised gain and your total net worth at market prices. Separately, confirm that you could certify five years of complete US filings, including FBAR and Form 8938 where they applied (lesson 2.3.6). Those three numbers show whether the US covered-expatriate tests would be met. This lesson explains the rules; it does not recommend renouncing citizenship or giving up residence. Thresholds change every year with inflation. An adviser experienced in expatriation can apply the rules to a specific situation.

Key facts

  • Under 26 U.S.C. §877A, a covered expatriate’s property is treated as sold for fair market value on the day before the expatriation date.
  • For 2026, the §877A exclusion amount is $910,000, according to Rev. Proc. 2025-32.
  • For 2026, the average annual net income tax threshold for covered expatriate status is $211,000.
  • A net worth of $2 million or more on the expatriation date makes a person a covered expatriate under §877(a)(2)(B).
  • Failing to certify five years of US tax compliance on Form 8854 makes a person a covered expatriate, and the IRS says not filing the form carries a $10,000 penalty.
  • Portugal’s income tax code treats losing Portuguese tax residence as an onerous disposal of crypto-assets.

Exercise nine, six, three, one

9CollectList up to 9 numbers and facts that would decide an exit-tax result for a real or imagined holder: net worth, unrealised gains, five years of filings, years holding a green card, citizenships.
6ClusterSort them into 6 groups: net worth, income tax paid, filing compliance, citizenship history, assets held and the destination country.
3DistillReduce the 6 to 3: which tests would most likely be met?
1CrystallizeWrite 1 sentence explaining why a crypto holder with a modest income can still face the US exit tax.

Fact check

Dates, figures and claims checked against the published sources listed below.

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