You'll Pay If You Give Up U.S. Citizenship

IMO, the laws are reasonable. If you were German Citizen, made huge profit on your OC real estate flip, the tax is 50% I believe.
 
[quote author="irvine123" date=1214813210]IMO, the laws are reasonable. If you were German Citizen, made huge profit on your OC real estate flip, the tax is 50% I believe.</blockquote>
I would totally agree with you if the assets were actually sold after you renounced citizenship, but the law that was passed levies the tax whether the asset is sold or not. In other words, you pay a tax on unrealized gains simply because you give up your passport. Congress did this to pre-empt the massive transfer of wealth outside of the country to evade taxes, but I'd be interested to see it challenged in a court. It seems like a violation of the Equal Protection clause of the 14th Amendment because no one else has to pay taxes on unrealized gains.
 
[quote author="Nude" date=1214802082]So I have until 12/31/2008 to become a citizen of Luxembourg? Awesome.</blockquote>


Sorry, you have to have resided there for 10 years to apply for naturalization.
 
[quote author="irvine123" date=1214813210]IMO, the laws are reasonable. If you were German Citizen, made huge profit on your OC real estate flip, the tax is 50% I believe.</blockquote>


In your example, US government is entitled to the tax, that is true regardless of ones citizenship. But German government shouldn't tax on that transaction because the deal did not happen in Germany. US is the only developed nation to tax its citizen on their oversea income, which is the part that makes no sense.
 
[quote author="tourbillon" date=1215089507] US is the only developed nation to tax its citizen on their oversea income, which is the part that makes no sense.</blockquote>


True. However, if you live overseas for more than 330 days in a 12 month period or as a bona fide resident for the entire calendar year, you can qualify to exclude your foreign wage up to $85,700 (indexed for inflation). In addition, you can claim foreign tax credit on your U.S. return for foreign taxes paid on the portion (foreign wage) not excluded by the 85K limit. Thus, preventing double taxation.
 
I doubt this new law will affect IHBers since we are all waiting to buy in Irvine ;) ... Nevertheless, here are some technical details of this law if anyone is insterested.



* * * *



Who Is Subject to the Exit Tax?



In the terms of the new law, a ?covered expatriate? is subject to the exit tax. A covered expatriate is a U.S. citizen who gives up his/her citizenship, or a permanent resident (?greencard? holder) who gives up his/her greencard, after having held it in at least eight of the prior 15 years. The conditions for such former citizens or greencard holders to be considered a covered expatriate are:



1) Their net worth is $2 million or more on the expatriation date, or



2) Their average U.S. federal income tax liability for the five-year period ending before the year of expatriation exceeds $139,000 (2008 amount, indexed for inflation), or



3) They fail to certify to the U.S. Internal Revenue Service (the ?IRS?) that they have been in compliance with U.S. federal tax obligations for the past five years.



The exit tax applies to covered expatriates if their date of expatriation is on or after June 17, 2008.
 
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