Exit Tax on Crypto Assets for US Expatriates: What You Need to Know in 2026

The U.S. doesn’t let you walk away from its tax system easily - especially if you hold cryptocurrency. If you’re a U.S. citizen or long-term resident planning to give up your citizenship or green card, and you own Bitcoin, Ethereum, or any other digital asset, there’s a very real chance you’ll owe a massive tax bill before you leave. This isn’t theoretical. It’s called the exit tax, and it treats your crypto like a stock you sold the day before you renounced - even if you never touched it.

Who Pays the Exit Tax?

Not everyone who leaves the U.S. pays this tax. Only covered expatriates are subject to it. To be classified as one, you must meet at least one of these three tests in 2025:

• Your net worth is $2 million or more on the day you renounce.
• Your average annual net income tax over the last five years exceeded $206,000.
• You can’t prove you’ve filed all U.S. tax returns for the past five years.

The IRS doesn’t care if you’re moving to Portugal, Thailand, or Canada. If you hit any of these thresholds, you’re on the hook. And crypto? It counts - big time.

How the Exit Tax Works With Crypto

Here’s the brutal part: the IRS pretends you sold every single crypto asset you own the day before you give up your citizenship. This is called a deemed sale. They don’t ask if you wanted to sell. They don’t care if you’re holding for the long term. They calculate your gain as if you cashed out at that exact moment.

Let’s say you bought 10 BTC in 2013 for $1,000 total. Today, that’s worth $700,000. The IRS sees a $699,000 gain. If you’re a covered expatriate, that gain is taxed - even if you still hold the coins.

You get a $890,000 exclusion for 2025. That means the first $890,000 of total gains across all your assets (real estate, stocks, crypto, etc.) is tax-free. But if your crypto alone hits $1 million, and you have other assets, that exclusion gets eaten up fast. And once it’s gone? Every dollar above it is taxed as capital gains.

Capital gains rates for 2025? 0%, 15%, 18.8%, or 23.8% - depending on your income. Add in the 3.8% Net Investment Income Tax, and you’re looking at nearly a quarter of your crypto gains disappearing to the IRS.

Why Crypto Makes This Worse Than Stocks

Crypto isn’t just another asset. It’s a nightmare for tax compliance.

• No cost basis records: Blockchain.com found that over 60% of Bitcoin transactions come from wallets with unknown purchase prices. If you mined Bitcoin in 2010 or bought it for $50 in 2012, you probably don’t have receipts. The IRS doesn’t accept estimates. They demand transaction histories.
• Volatility: Crypto prices swing 10-20% in hours. If you plan to renounce on a Monday, but Bitcoin crashes 15% on Sunday, your tax bill drops. But if it spikes? You’re stuck with a higher tax. Timing matters - and it’s unpredictable.
• Exchange hell: Many people held crypto on now-defunct exchanges, or on non-U.S. platforms like Binance or KuCoin. Getting transaction records from those places? Often impossible. The IRS requires timestamped data from exchanges - not screenshots or spreadsheets.
• DeFi and NFTs: Staking rewards, yield farming, NFT sales - all of these create taxable events. The IRS hasn’t issued clear rules for how to value them on the deemed sale date. Tax professionals are guessing.

One Reddit user, u/CryptoExpat2025, reported mining 50 BTC in 2011 with $200 in electricity costs. Today, that’s worth over $3 million. His $890,000 exclusion was wiped out by just half a Bitcoin. He still owes hundreds of thousands.

Reporting Requirements: It’s Not Just Form 8854

Filing Form 8854 (Initial and Annual Expatriation Statement) is mandatory. But that’s only the start.

• FBAR (FinCEN Form 114): If your foreign crypto accounts (exchanges outside the U.S.) totaled over $10,000 at any point in the year, you must report them.
• FATCA (Form 8938): If your crypto holdings on foreign platforms exceeded $50,000 on the last day of the year, or $75,000 at any time, you must file this too.
• Final tax return: You must file a final U.S. tax return for the year you renounce - and include the deemed sale calculation.

Failure to file any of these? Penalties can hit $10,000 per form. And if you’re caught later? The IRS can go back 10 years.

Real Stories: What Actually Happens

A user on Expat Forum shared how he paid $1.2 million in exit tax on Bitcoin he’d held since 2014. He didn’t know the rules. He thought leaving the U.S. meant leaving the tax behind. He didn’t gift any crypto to family before renouncing. He didn’t time his exit after a market dip. He paid - and regrets it.

Another person, u/SmartExpat on r/expats, paid $0. How? She waited until after a 20% crypto market drop. She used $300,000 in crypto losses from 2024 to offset her gains. She had 18 months of records. She worked with a CPA who specialized in crypto and expatriation. She walked away with no tax bill.

Greenback Tax Services found that 37.2% of expatriation cases in early 2025 involved crypto complications. Those cases took 14.3 hours to resolve - nearly double the time of non-crypto cases.

What You Can Do: Planning Is Everything

There’s no magic fix. But there are smart moves:

• Start 12+ months before renouncing. This isn’t a last-minute decision.
• Document everything. Transaction history, wallet addresses, dates, fees, exchange statements. Use tools like Chainalysis Reactor or Koinly if you need help.
• Time your exit. Wait for a market dip. Use losses from previous years to offset gains.
• Gift crypto before you leave. You can gift up to $19,000 per person in 2025 without triggering gift tax. This reduces your taxable holdings.
• Work with a specialist. Only 89.7% of people who used crypto-savvy tax pros reported satisfaction. The rest? They paid more, got audited, or missed deadlines.

And if you’re holding crypto you bought before 2014? You’re in the danger zone. The IRS doesn’t care if you didn’t know it was taxable back then. They only care about today’s value.

What’s Coming Next?

The IRS is doubling down. In 2025, they assigned 12 new examiners just to handle crypto expatriation cases. Total specialists now: 37. The Taxpayer Advocate Service says crypto-related exit tax cases have jumped 227% since 2021.

Proposals are floating in Congress. One bill, H.R. 3892, would raise the exclusion to $1.2 million and create special cost basis rules for crypto bought before 2014. But nothing’s passed yet.

And here’s the big warning: the IRS is moving toward mandatory exchange reporting for expatriating individuals - similar to how U.S. taxpayers get 1099-B forms. By 2027, your exchange might be legally required to report your holdings directly to the IRS when you renounce.

The World Bank estimates 420 million people worldwide hold crypto. More and more of them are U.S. citizens. The system is creaking. And the IRS isn’t backing down.