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Am I Required to Sell my US Assets when I Expatriate?
Must I Sell my US Assets when I Expatriate?
Do I have to Sell my Assets when I Expatriate from US: Whether or not a Taxpayer’s US or Foreign Assets must be sold at the time of expatriation is a very common question we receive from Covered Expatriates who are considering relinquishing their lawful permanent resident status or renouncing their US citizenship through formal expatriation. The answer is, no — a Taxpayer is not required to actually sell assets when they expatriate from the United States. Sometimes, it may be financially better for a Taxpayer to cash-out or otherwise give up some of their US assets (such as US real estate) but there is no absolute requirement that the taxpayer sell their assets when they expatriate — although they may lose some of the tax deferred benefit — such as future contributions to retirement plans.
Expatriating is an Elaborate Game of Make Believe
A few months back, our international tax attorneys authored a detailed post explaining the concept behind expatriation, entitled “Expatriation & Exit Taxes: A Tax Trip to the Bubble Gum Moon.” The idea behind the post, is to explain that when a person expatriates from the United States they are paying real taxes on an “imaginary sale” of assets — technically referred to as Exit Tax. The exit tax is designed to account for certain unrecognized gains that have accrued while the Taxpayer was a US Person. From the IRS‘s perspective if a person for example has certain stock assets that significantly accrued value during the time they were a US Person (and falling into one of the two categories of Expatriates) then when it’s time for exiting from the United States — this is a taxable event equivalent to sale or deemed distribution.
Otherwise, from the US tax perspective, the expatriate generated significant gain that would otherwise be taxed at some point in the future, what may no longer be taxed when the person expatriates from the United States — such as Capital Gain.
Some Assets May Be Better Sold at Expatriation
For some Taxpayers, it may benefit them to cash out certain investments prior to expatriation. For example, when it comes to 401K, that is deemed eligible deferred compensation and the US withholds 30% of each payment — and the taxpayer cannot rely on the treaty in order to reduce the withholding amount. Likewise, once a non US person owns US Real Property, the rental income is considered FDAP (unless elections are made) any exclusion amount on estate taxes currently $60,000 — in addition to certain tax traps when transfers of US real property are made from nonresidents.
About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and expatriation.
Contact our firm for assistance.