Renouncing U.S. Citizenship: What You Need to Know About the Tax Side

The decision to renounce U.S. citizenship is one of the most consequential a person can make. For Americans living abroad, the reasons vary widely, from frustration with banking closures tied to U.S. reporting rules to a genuine desire to simplify a life that has already moved on. Whatever is driving the question, the tax consequences deserve serious attention before anyone walks into a consulate.

This is a primer on the U.S. tax framework that applies when you renounce. It is not a complete treatment of every issue, but it covers the terrain you need to understand before making any decisions.

The fee just got a lot more manageable

For years, the U.S. charged $2,350 to process a renunciation, making it one of the most expensive citizenship-exit fees in the world. That fee has been reduced to $450. The change lowers a real financial barrier for Americans who have been weighing this step but had been put off by the cost. The consular appointment process remains the same; the fee reduction does not affect the legal or tax consequences that follow.


Not everyone faces exit tax. But many do

The U.S. imposes an exit tax on individuals who meet certain thresholds at the time they give up their citizenship. The people subject to these rules are referred to as “covered expatriates.”

You fall into that category if any one of the following applies: your average U.S. tax bill over the five years before you renounce exceeded roughly $201,000 per year; your net worth on the date of renunciation was $2 million or more; or you cannot confirm that you have been fully compliant with your U.S. tax obligations for the five years prior.

That last condition is the one people underestimate. Full compliance means all returns have been filed, all foreign account and asset reporting has been taken care of, and any taxes owed have been paid. For Americans abroad who have not kept up with their U.S. filing obligations, getting current before renouncing is often a necessary first step, and one that takes time to do properly.

If you are a covered expatriate, here is what happens

The exit tax works by treating you as if you sold everything you own on the day before you formally renounce. Any gain above a threshold amount, roughly $866,000 for 2024, is subject to tax. It is a paper transaction, but the tax liability is real.

Retirement accounts, pension interests, and certain other deferred assets are handled under separate rules rather than the general sale framework, and the results can be immediate and significant depending on the size of those holdings.

There is also a lesser-known rule that affects gifts and inheritances you make to U.S. persons after you renounce. A U.S. recipient who receives money or assets from a covered expatriate may owe U.S. tax on that transfer, even in situations where the transfer would normally have been tax-free. This is an area where advance planning can make a meaningful difference.

A note for Americans in Portugal

Renunciation appointments for Americans living in Portugal, regardless of where in the country they reside, are processed exclusively at the U.S. Embassy in Lisbon. There is no option to renounce through a consulate elsewhere in Portugal or remotely. Wait times are currently estimated at more than six months, and that figure can shift. We recommend submitting your request and building your planning timeline around the reality that the appointment date is unlikely to be immediate.

One thing worth flagging for Americans resident in Portugal specifically: the year you renounce is still a U.S. tax year. You will owe a U.S. tax return for that year, including the expatriation tax filing, regardless of when during the year the renunciation takes place. For Americans in Portugal who have become accustomed to thinking of their U.S. filing obligations as winding down, this is a reminder that the final year requires at least as much attention as any other, and often more.

What this means in practice

Renunciation is irreversible. The tax analysis needs to happen before you take the step, not after. That means understanding whether you are likely to be a covered expatriate, getting a realistic picture of what the exit tax would look like in your situation, taking care of any outstanding filing obligations, and considering whether there are planning steps worth taking before you renounce.

For some people, the numbers are straightforward and the tax cost is manageable or nonexistent. For others, the picture is more complex and takes time to work through. Either way, the work should happen with qualified legal and tax counsel before any decisions are made.
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This article is provided for general informational purposes only and does not constitute legal or tax advice. It reflects the law as of the date of publication and is subject to change. No attorney-client relationship is created by reading this content. If you are considering renunciation, please consult with qualified legal and tax counsel before taking any action.*

Areia Global Legal Advisors is based in Miami with a partner office in Lisbon. Our practice is focused exclusively on cross-border U.S. legal and tax matters for Americans in Portugal.*