1040 Abroad: Falling Portfolios Create Rare Opportunity to Renounce Without Exit Tax

A week ago, your net worth might have been sitting comfortably above $2.5 million. But if you've checked your portfolio lately, that cushion may have deflated-fast.

If you've been considering expatriation, this sudden drop might not just sting; it might actually be your ticket.

Under U.S. tax law, one of the tests for being a "covered expatriate" (and subject to the US exit tax [https://1040abroad.com/faq/renouncing-u-s-citizenship/]) is having a net worth of $2 million or more. But with market volatility hitting hard, some individuals who were over that threshold just days ago may now find themselves under it.

That's right-you might now qualify to renounce US citizenship [https://1040abroad.com/faq/renouncing-u-s-citizenship/] without triggering the Exit Tax.

So, What Is the Exit Tax?

If you're considered a "covered expatriate," the IRS pretends you sold everything you own the day before you renounce. Stocks, real estate, crypto, businesses-everything gets marked to market. Any unrealized gains over a certain exemption (about $866,000 for 2025) are taxed as if you sold them.

It doesn't matter whether you actually sell a thing-you're still on the hook for the taxes, based on hypothetical gains. Think of it as an "exit toll" for giving up your U.S. citizenship with a sizable portfolio in hand.

But here's the kicker: if your net worth is under $2 million, you could sidestep that whole system entirely. That's why this market dip matters.

Timing Is Everything

Think of it like this: your portfolio might recover in a few weeks or months. But if you've been feeling the pull of life abroad, or frustration with U.S. tax obligations on global income, this dip could actually be a financial gift.

We're not saying "panic and renounce." But if you've already been on the fence, if you're already questioning whether the U.S. is still your country, this might be the clearest sign you'll get.

Not Just Numbers-Feelings Count Too

It's not just the markets that are shaking things up. The political climate in the U.S. has many people feeling increasingly alienated. With polarization at an all-time high, an election season already steeped in tension, and looming questions about the direction of the country-both economically and socially-it's understandable if your emotional connection to U.S. citizenship is starting to fray. For some, it's no longer just about taxes-it's about values, identity, and whether the U.S. still feels like home. If you're already living abroad or planning to, this might be the moment when it all just... clicks.

If you're considering expatriation, it's important to understand the full tax planning before renouncing US citizenship [https://1040abroad.com/faq/renouncing-u-s-citizenship/], so you can make the decision with confidence.

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