Given the especially contentious election cycle, many people have stated that if their opposing party’s candidate wins, they’re seriously thinking about leaving the country. And in point of fact, the number of people who renounce their U.S. citizenship actually has been on the rise in the past 15 years, though it is still a fairly low number in total.
However, the reality is that for those with a substantial net worth – in excess of $2M of total assets – and/or those who have an especially high income, their renunciation of citizenship can subject them to the so-called “Covered Expatriate” rules, which include a deemed disposition tax that can cause the individual’s entire net worth to become immediately taxable upon leaving… including triggering all unrealized capital gains, and the instant deemed liquidation of all their IRAs!
In this guest post, Raoul Rodriguez – a specialist in cross-border financial planning (particularly between the US and Mexico) – discusses the tax issues involved in determining whether someone actually would be a Covered Expatriate if they decide to renounce their U.S. citizenship, the deemed disposition exit tax and other tax complications that may arise, and the planning opportunities that are available to at least try to mitigate the consequences.
So whether you have a client who is seriously talking about leaving the U.S. if the “wrong” candidate wins the presidential election, or you simply have clients who wistfully suggest they “might” someday leave, hopefully this article will be helpful in getting you up to speed about how the rules actually work… just in case it ever does become necessary to know!
