24 Oct 2023
Don’t Leave Me This Way. The Ramifications of Permanently Leaving the U.S. Tax System
The exit tax implications for certain covered expatriates in choosing to permanently leave the U.S.’s worldwide taxation system are economically unpleasant. The IRC applies an exit tax to the net unrealized gains on the covered expatriate’s worldwide assets (fair market value of the assets determined on the day prior to expatriation). I.R.C. § 877A. The rules do not require a formal sale; however, the rules deem a sale of worldwide assets at fair market value to occur, with net gain in excess of an applicable exclusion amount ($821,000 for 2023) exempt from the exit tax.
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Watch this video by treatise author Rufus Rhoades on the tax ramifications of relocating abroad on a temporary basis. The general foreign income exclusion set forth in I.R.C. § 911(a) is indexed to $120,000 for 2023. A foreign housing exclusion may apply, and foreign tax credits also may reduce the U.S. tax burden to the temporary expatriate.
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- Real Estate Transactions. IRS publishes the amounts of unused housing credit carryovers allocated to qualified states under I.R.C. § 42(h)(3)(D)for calendar year 2023. Rev. Proc. 2023-32, 2023-41 I.R.B. 1064.
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