Exit Tax 2027: The $218,000 Test and the $940,000 Exclusion

Most tax thresholds govern how much you owe. The exit tax thresholds govern something odder: whether a departing citizen or long-term green card holder is treated, for tax purposes, as having sold everything on the way out the door. Two of the three tests that decide that question are dollar figures that move with inflation each year, and the 2027 versions are now close enough to project with unusual precision. The short answer: for someone who expatriates in 2027, the average annual net income tax test is projected at $218,000 (or $217,000 depending on how the IRS handles a data gap), the exclusion applied to deemed-sale gains is projected at $940,000 (or $939,000), and the net worth test stays fixed at $2,000,000 because it was never indexed.

The three tests that make someone a covered expatriate

A “covered expatriate” is the term the Internal Revenue Code uses for a person who gives up U.S. citizenship, or ends long-term permanent residence, and meets at least one of three conditions. Those conditions come from 26 U.S.C. section 877(a)(2), which section 877A(g)(1)(A) then applies to the modern exit tax. Because any single test is enough, the tests are best read as three separate doors rather than a combined score.

The first door is the tax test. A person is covered if their “average annual net income tax” for the five tax years ending before the expatriation date is greater than a threshold. The statute’s base figure is $124,000, and it is adjusted for inflation for citizenship losses in calendar years after 2004, with section 1(f)(3) substituting “2003” as the base year. The increase is rounded to the nearest multiple of $1,000. Notice the phrase “nearest”: this is not the round-down habit that governs many other tax figures, and it matters a great deal for the 2027 projection, as the section below explains. The threshold that applies is the one for the calendar year of expatriation, so a person leaving in 2027 would use the 2027 number.

The second door is the net worth test. A person is covered if their net worth on the expatriation date is $2,000,000 or more, under section 877(a)(2)(B). That figure has no inflation clause. It is the same $2,000,000 it was when the rule was first written, which means that, unlike the other two numbers on this page, a given household drifts toward it simply as asset values rise over the years.

The third door is the certification test, under section 877(a)(2)(C), and it is the one that catches people who assumed they were safely under both dollar figures. A person who does not certify under penalty of perjury that they met all federal tax obligations for the five preceding tax years is a covered expatriate no matter how little they earned or own. The certification is made on Form 8854, which is filed with the return for the year of expatriation, according to the IRS’s About Form 8854 page. There is no dollar threshold to index here, so nothing about it changes between 2026 and 2027, but it deserves attention precisely because the other two tests are the ones people tend to check.

Who counts as a long-term resident

The regime does not apply only to citizens. Under section 877A(g)(2)(B) and section 877(e), a person who held a green card as a lawful permanent resident for at least 8 of the last 15 years is treated as a long-term resident, and ending that status can trigger the same analysis. In that case the same three doors apply: the average tax test, the net worth test and the certification test. The practical lesson is that the eight-year count can be reached by someone who never thought of themselves as a settled U.S. taxpayer, which is one reason the topic surprises people who came for a job or a degree and stayed.

The two exceptions, and what they do not cover

Section 877A(g)(1)(B) carves out two narrow groups from the tax test and the net worth test. The first is a person who has held dual nationality since birth, who remains a citizen of and is taxed as a resident of the other country, and who was not a U.S. resident for more than 10 of the 15 years before expatriation. The second is a person who relinquishes citizenship before turning 18 and a half and who was not a U.S. resident for more than 10 years.

The detail that is easy to miss is that these exceptions relieve a person of the tax test and the net worth test, but not the certification test. A dual national who qualifies for the exception but cannot certify five years of tax compliance would still be a covered expatriate. The structure is deliberate: the dollar tests are about how much the person has, while the certification test is about whether they have kept their account with the IRS clean, and the second question is asked of everyone.

What the exit tax actually does

Being a covered expatriate has a concrete consequence, which is a deemed sale. Under section 877A, all of the person’s property is treated as sold the day before the expatriation date at its fair market value. The net gain, if any, is then taxed, but only the portion above an exclusion amount. That exclusion is the figure that is indexed from a $600,000 base for years after 2008, with “calendar year 2007” as the base year, again rounded to the nearest multiple of $1,000. The exclusion that applies is the one for the year in which the person’s taxable year begins.

A simple example from the projected numbers shows the mechanics. Suppose a person expatriates in 2027 and holds $1,500,000 of net unrealized gains across everything they own. With a $940,000 exclusion, the gain subject to tax is $560,000. If the IRS ends up at $939,000 instead, the gain subject to tax is $561,000. I stop there on purpose: the resulting tax depends on the character of the gains, the person’s other income and the rate brackets that apply, and none of those inputs can be responsibly guessed in an example.

The statute adds special rules for three categories of asset that do not fit neatly into a deemed sale. Section 877A(c) through (f) address deferred compensation, specified tax-deferred accounts such as IRAs, and interests in non-grantor trusts. Each has its own treatment instead of the simple mark-to-market. The details are technical enough that they belong with a professional adviser rather than a summary article, so I only flag that they exist.

There is also a consequence that falls on other people. Section 2801 imposes a tax on certain gifts and bequests that a covered expatriate makes to U.S. persons, and the tax is paid by the recipient rather than the giver. This is easy to overlook because it surfaces long after the expatriation itself, at the moment a relative in the United States receives something.

The 2025 and 2026 figures, and the 2027 projection

The table below sets the official figures beside the projection. The 2025 values come from Rev. Proc. 2024-40 and the 2026 values from Rev. Proc. 2025-32.

The rise from 2026 to 2027 follows the same indexing path as the rest of the tax code’s inflation-adjusted figures. The IRS measures the chained consumer price index (C-CPI-U) over the twelve months ending August 31 and compares it with the base-year average, following section 1(f)(3) through (6). For a broader view of how the same inflation reading feeds dozens of other numbers, the IRS 2027 inflation adjustments tracker lists them together. Another figure that moves on the same index, with a different dollar base and rounding rule, is covered in the 2027 foreign earned income exclusion projection, which is the one most relevant to Americans who live abroad but have not given up their status.

Why the projection has two answers

The August 2026 reading of the series, from the BLS C-CPI-U data, was published on September 11, 2026, so the twelve-month window the IRS uses is closed. The complication is that October 2025 does not exist in the BLS series. The government shutdown meant the data was not collected for that month, which leaves a hole in the middle of the window.

There are two reasonable ways to handle a missing month. One is to average only the eleven months that exist, and the other is to impute a value for October and average twelve. Which one the IRS prefers is the single unresolved variable behind the whole 2027 inflation table, and it is the reason this article gives two figures for each threshold instead of one.

For the tax test, the October-imputed method gives $217,459.26 before rounding and the eleven-month average gives $217,729.69. Because the statute rounds to the nearest $1,000, the first becomes $217,000 and the second becomes $218,000. The dividing line sits at $217,500, and the imputed figure lands only $40.74 below it, which is a reminder of how little separates one published number from the other. For the exclusion, the imputed figure is $938,601.37 and the eleven-month figure $939,768.63, which round to $939,000 and $940,000.

To check the method before trusting it, I applied the same approach to the 2026 year. It reproduces the official $211,000 tax test and the official $910,000 exclusion, so both control figures match. That does not prove the 2027 result, since the October gap is new, but it does show that the indexing formula and the rounding rule are being applied the way the IRS applied them last year.

How the nearby thresholds fit together

A person thinking about the exit tax is usually looking at several other 2027 numbers in the same sitting. The deemed-sale gain is generally taxed under the capital gains rules, so the 2027 capital gains brackets projection is the natural companion for understanding how a large deemed gain could be layered across rate bands. The transfer-tax side is a separate regime: the 2027 estate and gift tax exemption projection covers the ordinary exemption, and the annual gift tax exclusion for 2027 covers the yearly amount, both of which are distinct from the section 2801 tax on gifts from a covered expatriate. Keeping those regimes apart avoids the common mistake of assuming the ordinary gift tax figures apply to this special case.

What could still change

The official 2027 numbers will come from the IRS’s inflation adjustment revenue procedure for the year, which is normally released in late October or in November. The final answer on the tax test and the exclusion depends on the October 2025 question described above, and the two outcomes are $218,000 versus $217,000 and $940,000 versus $939,000, the higher figure in each pair coming from the eleven-month average. Nothing about the $2,000,000 net worth test or the certification requirement depends on that announcement, because neither is indexed.

Legislative change is the other source of uncertainty. The dollar thresholds in the statute are the product of choices Congress made years ago, and a future law could alter them or the structure around them. I have no basis for predicting that and nothing in the sources suggests it is imminent, so the projection assumes current law.

What to do with this information

The exit tax is one of the few areas where the consequences of a decision are large and permanent, and the rules involve interactions between several parts of the code that this page only sketches. If you are considering expatriating or giving up a green card, work with a qualified cross-border tax professional before making any decision and well before the year in which you expect to leave, because the five-year look-back for the tax test and the certification is fixed by the past, not the future.

Sources

• Rev. Proc. 2025-32 (2026 inflation adjustments, sections 4.37 and 4.38) — irs.gov/pub/irs-drop/rp-25-32.pdf
• Rev. Proc. 2024-40 (2025 inflation adjustments) — irs.gov/pub/irs-drop/rp-24-40.pdf
• 26 U.S.C. section 877 — law.cornell.edu/uscode/text/26/877
• 26 U.S.C. section 877A — law.cornell.edu/uscode/text/26/877A
• 26 U.S.C. section 2801 — law.cornell.edu/uscode/text/26/2801
• IRS, About Form 8854 — irs.gov/forms-pubs/about-form-8854
• BLS, C-CPI-U series SUUR0000SA0 — api.bls.gov/publicAPI/v2/timeseries/data/SUUR0000SA0