What the tax system covers
US citizens and resident aliens generally report worldwide income. Moving abroad does not end citizenship-based taxation; an exclusion or foreign-tax credit addresses particular income and does not erase the filing framework. Nonresident aliens have a different source and business-connection analysis.
When you become tax resident
For a noncitizen, the green-card test and substantial-presence test are the main federal residence routes. Substantial presence requires at least 31 days in the current year and a weighted total of at least 183 days: all current-year days, one third of the preceding year and one sixth of the second preceding year. Excluded days, closer-connection relief, treaty positions and arrival/departure rules require separate testing. US citizenship creates a separate worldwide-tax connection; moving abroad does not simply turn a citizen into a nonresident alien.
Rates and the tax base
10%–37% federal ordinary income tax. The seven marginal federal rates remain in force for 2026. Filing status sets the thresholds; deductions, state and local taxes, payroll taxes, investment surtaxes and capital-gains rates are separate.
Private investment gains and business trading
US taxpayers generally recognize gains on disposals of investment capital assets. Holding period distinguishes short-term gains taxed as ordinary income from long-term gains with separate rates; asset-specific rules and exclusions apply. Dealer inventory and business trading do not simply inherit private-investor treatment.
Asset cost basis on arrival
The federal starting point for purchased assets is historical adjusted cost; becoming a US tax resident does not generally replace that cost with arrival market value. Pre-arrival appreciation may therefore be included on a later taxable sale.
- A specific US–Canada treaty election can align basis with Canadian departure taxation. Eligibility, timing and the person’s existing US tax status matter; it is not automatic.
- The arrival-value floor in section 877A(h)(2) is solely for the covered-expatriate mark-to-market calculation. It does not establish a general basis reset for ordinary sales.
- Gifts, inheritances, employee equity, funds and state taxes require their own analysis.
| Asset or situation | Starting value and treatment |
|---|---|
| Purchased investments | Retain original adjusted cost under the applicable federal rules. |
| Qualifying Canada-to-US departure | Examine the Article XIII(7) election and Revenue Procedure 2010-19. |
| Later expatriation calculation | Keep the special section 877A basis calculation separate from ordinary tax basis. |
Determine the owner’s status first
For a non-citizen, the green-card and substantial-presence tests are central federal residence rules, with exceptions and treaty provisions requiring separate analysis. The substantial-presence calculation uses a weighted multi-year day count; it is not simply a universal 183-day allowance.
A person planning repeated visits should track days before booking travel. A resident alien and a nonresident alien may own an identical company but have materially different tax obligations.
Foreign companies do not automatically defer U.S. tax
U.S. shareholders of controlled foreign corporations may have current income inclusions and Form 5471 reporting even without a dividend. Ownership attribution, income category, elections and the shareholder’s status matter. Recent legislative changes also make old online summaries unsafe to reuse without checking the relevant tax year.
A useful review identifies each entity’s tax classification, direct and indirect owners, related-party payments and accumulated earnings. It should distinguish tax payments from information filings: a low final liability does not establish that there is nothing to file.
Begin with the status you hold
A U.S. citizen relocating abroad generally remains within the federal worldwide tax system. A residence permit in another country does not switch that off. Relief mechanisms and treaties may reduce double taxation, but their conditions and limits must be analysed.
A non-citizen needs a review of green-card status, substantial presence, treaty positions and the date any U.S. tax residence ends. Immigration abandonment and tax termination should not be assumed to occur automatically together.
When expatriation rules matter
The IRS expatriation framework concerns citizens relinquishing citizenship and long-term residents ending the relevant residence status. Covered-expatriate tests include a net-worth threshold, a periodically adjusted tax-liability test and certification of prior tax compliance, with exceptions and detailed rules.
The potential charge can involve a deemed disposal; pensions, deferred compensation and trusts have separate provisions. An investment portfolio total alone cannot establish the result. The analysis should happen before irreversible status decisions.
Moving abroad and expatriation are different events
A US citizen who moves overseas ordinarily remains subject to worldwide US income-tax and reporting rules. A green-card holder does not necessarily end US tax residence merely by spending a year abroad or allowing a physical card to expire. The termination date and any treaty position require careful analysis.
The expatriation regime applies to certain citizens relinquishing citizenship and certain long-term residents ending qualifying permanent-resident status. It is not a general tax imposed on every foreign visitor departing after a work assignment.
Covered-expatriate status has several independent tests
The IRS describes a net-worth test of USD 2 million or more, an indexed average income-tax-liability test and a certification test concerning compliance for the preceding five tax years. The income-tax threshold is indexed, so the departure-year figure must be used. Meeting one test can matter even if another is not met, and statutory exceptions have their own conditions.
The mark-to-market framework has an indexed exclusion and distinct treatment for certain deferred compensation, tax-deferred accounts and trust interests. A simple percentage of net worth is not a reliable exit-tax estimate. Form 8854 and the final-year filing position need to be coordinated with the immigration or nationality event.
Assets retained after the move require a second model
Review continuing US real estate, company ownership, pensions, investment accounts and business activity. Nonresident income tax, withholding, estate tax and state domicile can remain relevant after federal income-tax residence ends. A former resident should not assume every US asset becomes equivalent to an ordinary foreign bank deposit.
Before transferring assets or changing beneficiaries, compare income, gift and estate consequences in both countries. Keep acquisition costs, market values, ownership documents and the final tax-residence analysis. The departure project should specify which accounts and entities continue, which filings remain annual and who receives notices.
Moving to the US changes the owner’s tax scope
US citizens and resident aliens generally enter the worldwide-income system. Residence can arise through the green-card test or the substantial-presence test, with exceptions and treaty issues. The substantial-presence calculation is weighted across three calendar years, not simply a six-month rule for the current trip.
Before the move, review foreign companies, trusts, retirement accounts, investment funds and unrealised gains. An arrangement efficient for a foreign nonresident can become inefficient or reporting-intensive after US residence begins. Immigration counsel and the cross-border tax team should agree the sequencing.
Banking and estate planning deserve separate decisions
A US bank account can provide access to dollar payment infrastructure, but a fintech interface and an insured bank deposit are not the same thing. Check the legal account holder, institution, deposit coverage and payment functions required by the business. Ownership and funds evidence must fit the activity.
A nonresident who is not a US citizen can have estate-tax filing exposure from US-situated assets. The IRS identifies a USD 60,000 filing threshold for the relevant gross estate; that is not a universal allowance or a statement that every asset below it is risk-free. Direct US shares and property require particular review.
Foreign companies and income attribution
CFC ownership attribution, Subpart F and other current-inclusion rules can apply to U.S. shareholders; individual and corporate outcomes differ.
Departure, migration and continuing obligations
Expatriation rules target covered citizens and long-term residents ending status; simply moving abroad is not the same event.
Sources & research notes16 references
Sources supporting this guide. Research draft awaiting editorial review.
- IRS — resident-alien status, green-card and substantial-presence tests
- IRS — weighted three-year substantial-presence test and exceptions
- IRS — Form 5471 instructions
- IRS — permanent federal individual bands and 2026 inflation adjustments
- IRS — capital gains and losses
- IRS Publication 551: cost and adjusted basis
- IRS Revenue Procedure 2010-19: Canadian departure-tax treaty election
- IRS Notice 2009-85, section 3.D: limited expatriation basis rule
- IRS Publication 519: resident-alien taxation
- IRS — Expatriation tax
- IRS — US tax residence
- IRS — Nonresident taxation
- IRS — Nonresident estates
- FDIC — Understanding deposit insurance
- IRS — Service-income source
- IRS — Effectively connected income