Giving up U.S. citizenship or a green card from Chile: the exit tax

Who this applies to

• U.S. citizens who formally renounce at a U.S. embassy or consulate, including the Embassy in Santiago.
• Long-term green card holders: anyone who held a green card in at least 8 of the last 15 tax years, and gives it up by filing Form I-407, has it revoked, or claims treaty residence in Chile to be taxed as a nonresident.

Moving to Chile does not by itself end U.S. tax status. A green card that was never formally surrendered can still make you a U.S. tax resident, which is a common surprise for people who returned to Chile years ago.

The three tests for a "covered expatriate"

The exit tax applies only to covered expatriates. You are one if any of these is true on the date you expatriate:

• Net worth of $2 million or more, counting worldwide assets including property in Chile and your AFP.
• Average annual U.S. income tax over the five prior years above $211,000 for 2026.
• You cannot certify on Form 8854 that you met all U.S. tax obligations for the five prior years.

The third test catches people who would otherwise be fine. Someone with modest assets who skipped filings becomes a covered expatriate only because the paperwork is missing. Getting those five years in order before renouncing is the single most valuable step.

Born with both nationalities

People who became U.S. citizens and Chilean citizens at birth, and who still live in Chile, have a special exception. If they were not U.S. residents for more than 10 of the last 15 years, the net worth and income tests do not make them covered expatriates. They still need the five-year compliance certification.

For those who never knew they had to file, the IRS has offered relief procedures for certain former citizens with modest income and assets, which allow catching up without penalties as part of renouncing.

How the exit tax works

A covered expatriate is treated as if they sold all their worldwide assets at fair market value on the day before expatriating. Gains above an exclusion of $910,000 for 2026 are taxed on the final return. Some items have their own rules:

• IRAs and similar accounts are treated as fully distributed.
• U.S. pensions and deferred compensation can be subject to 30% withholding on future payments instead.
• Gifts and inheritances later given by a covered expatriate to U.S. persons, such as children living in the U.S., can be taxed to the recipient at the top estate tax rate.

The process, step by step

1. Review the last five years and file anything missing: returns, FBARs, Forms 8938, 5471 or 8621.
2. Value your assets on both sides to see where you stand on the $2 million test.
3. Renounce or surrender: citizens attend an appointment at the U.S. Embassy in Santiago and later receive a Certificate of Loss of Nationality. Green card holders file Form I-407.
4. File the final return for the year, usually a dual-status return, with Form 8854 attached.

Chile allows dual nationality, so renouncing U.S. citizenship does not affect Chilean citizenship. You must hold another nationality, as the U.S. will not leave a person stateless.

Before you decide

For most people living in Chile, staying compliant costs far less than they fear: the foreign tax credit usually leaves no U.S. tax to pay. Renouncing is a personal decision with lasting effects on travel, family and inheritance. We can show you the numbers both ways, and a U.S. immigration attorney can advise on the non-tax side.