Since June 27, 2024 German law has permitted multiple citizenship. A U.S. citizen who naturalizes in Germany keeps the U.S. passport unless he or she chooses to give it up, and a person born with both citizenships has never had to choose. Whether to give up U.S. citizenship has therefore become a question of U.S. tax and compliance alone, and the answer turns on one classification, covered expatriate status, and on one date, the expatriation date.
Section 877A of the Internal Revenue Code treats every asset of a covered expatriate as sold at fair market value on the day before the expatriation date, taxes the net gain above an exclusion of $910,000 for 2026, deems retirement accounts distributed, and, through section 2801, taxes your later gifts and bequests to U.S. family at 40 percent. Covered status is decided by three tests: net worth of $2,000,000 or more, average annual net income tax above $211,000 (2026) for the five preceding years, or failure to certify five years of tax compliance on Form 8854. Any one of the three suffices.
This post is written for the U.S. citizen who lives in Germany, whether born with both citizenships or naturalized, and for the citizen who plans to move to Germany, naturalize and renounce; Part V addresses the German citizen who returns after years on a green card. Figures are the 2026 figures, and statuses are stated as of September 2026. A companion post, How Germany Treats the U.S. Exit Tax When a Covered Expatriate Moves to Germany, covers the German side of the deemed sale in detail.
Part I. The expatriation date and how it is fixed
As a citizen you relinquish citizenship, for tax purposes, on the day you renounce before a U.S. consular officer, or on the day you furnish to the Department of State a signed statement that you relinquished citizenship by an earlier act, such as naturalization in Germany with the intention of giving up U.S. citizenship, provided in each case that the Department later issues a certificate of loss of nationality (section 877A(g)(4)). The tax date relates back to the oath or the statement, not forward to the certificate; if you naturalized years ago with the intention of relinquishing, the tax date is the day your statement reaches the Department, and the deemed sale is measured on the values of that year.
Naturalization under § 10 StAG requires five years of lawful habitual residence and the other statutory conditions, and since June 27, 2024 the previous citizenship no longer has to be given up. Renunciation is made in person before a U.S. consular officer at a post in Germany under section 349(a)(5) of the Immigration and Nationality Act, at a fee reduced from $2,350 to $450 with effect from April 13, 2026; the tax date is the day of the oath. Relinquishment by naturalization under section 349(a)(1) takes effect only if you overcome, by a signed statement, the Department’s presumption that a citizen who naturalizes abroad intends to keep U.S. citizenship (22 C.F.R. § 50.40); the tax date is the day of the statement. Table 1 sets the two timelines side by side.
Table 1. Nationality-law and tax timelines
| Step | Nationality law | U.S. tax law |
|---|---|---|
| Application for German citizenship | § 10 StAG: five years of lawful habitual residence and the other requirements; U.S. citizenship may be kept | No tax consequence; you remain a U.S. citizen taxed on worldwide income, with the convention’s rules for U.S. citizens resident in Germany (Art. 23(5)) |
| Naturalization in Germany | German citizenship acquired; U.S. citizenship retained unless relinquished with the requisite intention | No expatriation unless a signed statement of relinquishment is later furnished |
| Renunciation appointment at a U.S. consular post in Germany | Oath under INA § 349(a)(5); fee $450 since April 13, 2026; loss effective on the oath, subject to approval | Expatriation date is the date of the oath; deemed sale measured on the day before; Form W-8CE due within 30 days |
| Signed statement of relinquishment furnished to the Department of State (naturalization route) | Loss under INA § 349(a)(1) dates from the naturalization | Expatriation date is the date the statement is furnished; deemed sale measured on the day before |
| Certificate of loss of nationality issued | Documentary evidence of the loss; needed by German banks under the FATCA agreement to set aside a U.S. place of birth | Confirms the earlier tax date retroactively; Form 8854 filed with the return for the year of the expatriation date |
| Later visits to the United States | Visa Waiver Program or visa as a German citizen; Reed Amendment exposure (8 U.S.C. § 1182(a)(10)(E)) | Nonresident alien taxation of U.S.-source income; the substantial presence test applies to each later year |
Part II. The three tests, the two exceptions and the compliance cure
You are a covered expatriate if, on the expatriation date, any one of three tests is met (section 877A(g)(1)). The tax liability test asks whether your average annual net income tax for the five taxable years ending before the expatriation date exceeds $211,000 (2026); net income tax is the total tax less the foreign tax credit, so for a citizen in Germany the test often depends on the credit rather than on wealth, and the tax on a joint return counts in full for each spouse. The net worth test asks whether your net worth on the expatriation date is $2,000,000 or more, worldwide, assets less liabilities, with pensions, German ones included, at present value; the figure has not been indexed since 2004, and a house in Munich, a company pension and a portfolio can reach it. Each spouse is measured separately.
The certification test is failed if you do not certify on Form 8854, under penalties of perjury, compliance with all federal tax obligations for the five preceding taxable years. An expatriate who never files Form 8854 has not certified and is covered whatever the balance sheet shows. It is the only test entirely within your control, and it is controlled only before the date. Two exceptions excuse the first two tests but never certification: a person who became at birth a citizen of both countries, who on the expatriation date is still a German citizen taxed as a resident of Germany and who has been a U.S. resident in not more than 10 of the last 15 taxable years; and a person who relinquishes citizenship before age 18½ after not more than 10 taxable years of U.S. residence. A naturalized German cannot use the first exception.
The compliance cure therefore comes first. The streamlined foreign offshore procedures cure non-willful failures without penalty for a person who meets the non-residency condition, as a citizen living in Germany ordinarily does, as long as no examination has begun. The Relief Procedures for Certain Former Citizens, open without a termination date as of September 2026, allow a former citizen with no filing history, a net worth below $2,000,000 and a six-year aggregate tax of $25,000 or less to file six years of returns with Form 8854, escape covered status and owe no tax or penalty for those years. Table 2 summarizes.
Table 2. Covered expatriate tests and exceptions
| Test or exception | Standard (2026) | Note |
|---|---|---|
| Tax liability test | Average annual net income tax for the five preceding taxable years above $211,000 | Tax after the foreign tax credit, not income; a joint return’s tax counts in full for each spouse |
| Net worth test | Net worth of $2,000,000 or more on the expatriation date, worldwide, assets less liabilities | Unindexed since 2004; pensions at present value; each spouse measured separately; a gift to a non-citizen spouse is deductible only up to $194,000 |
| Certification test | Certification on Form 8854 of five years of compliance with all federal tax obligations, information returns and FBARs included | No Form 8854, no certification; cure through the streamlined procedures before the date or, for former citizens, the Relief Procedures |
| Dual citizen from birth | Citizen of both countries at birth; still German and taxed as a German resident on the date; U.S. resident in not more than 10 of the last 15 taxable years | Excuses the first two tests only; not available to naturalized Germans or to green card holders |
| Minor | Relinquishment before age 18½; U.S. resident for not more than 10 taxable years | Same limits; citizens only |
| Relief Procedures for Certain Former Citizens | Relinquishment after March 18, 2010; no filing history; below the tax liability threshold; net worth under $2,000,000; six-year aggregate tax of $25,000 or less; non-willful | Six years of returns with Form 8854; no tax or penalty; not a covered expatriate; no social security number required; former citizens only, not green card holders |
Part III. The deemed sale of your assets
If you are a covered expatriate, all your property is treated as sold on the day before the expatriation date for its fair market value (section 877A(a)), and the net gain is reduced by an exclusion of $910,000 for 2026, allocated among the gain assets pro rata and available once in a lifetime. You are treated as owning everything that would have been in your gross estate had you died on that day as a citizen, together with the assets of any grantor trust, the house, company shares and portfolio in Germany included, all valued in dollars under the estate tax valuation principles of section 2031. Because the deemed sale occurs while you are still a citizen, the gain is also subject to the 3.8 percent net investment income tax, against which the Code allows no foreign tax credit; the Federal Circuit held on August 31, 2026 that a tax convention does not require one either.
Two basis rules matter. Your U.S. basis in each asset is adjusted by the full deemed gain or loss, so that a later actual sale is not taxed twice in the United States; Germany is not bound by this adjustment. And property you held on the day you first became a U.S. resident is treated, for the mark-to-market tax only, as having a basis of not less than its fair market value on that day (section 877A(h)(2)); the step-up removes pre-immigration appreciation from the base and is available to a naturalized citizen and to a long-term resident alike. A person born a U.S. citizen has no step-up: the entire appreciation since acquisition is in the base, including the appreciation that accrued while you lived in Germany and that Germany will tax again on the eventual sale. You may elect, asset by asset, to defer the tax on an asset until it is disposed of (section 877A(b)), against security and interest; that is a financing decision for an illiquid GmbH or real property, not a saving.
Part IV. Your pensions, retirement accounts and trust interests
Deferred compensation is removed from the deemed sale and divided into two regimes by one question: can the United States still collect at source when the compensation is eventually paid? An eligible item is one whose payor is a United States person and to which you deliver Form W-8CE, notifying the payor of your covered status and irrevocably waiving any treaty reduction of withholding, within 30 days of the expatriation date; it is not accelerated, and the payor withholds 30 percent of each taxable payment for the life of the plan. For a resident of Germany the bargain is expensive: Article 18(1) of the income tax convention allocates pensions to Germany alone, so that a former citizen resident in Germany would otherwise receive U.S. plan payments free of U.S. tax; the waiver replaces that exemption with a 30 percent gross tax, and Germany, which taxes the payments as its own, credits under Article 23(3)(b) only U.S. tax paid in accordance with the convention.
Every other item is ineligible: the present value of your accrued benefit is treated as received on the day before the expatriation date and taxed at ordinary rates. Your German occupational pension, whether a Direktzusage, a Direktversicherung, a Pensionskasse or a Pensionsfonds, is an ineligible item, because no procedure has been published for a foreign payor to elect into the eligible regime: its present value is included in your income in the year of expatriation without any payment to you, and Germany later taxes the actual pension in full without regard to the U.S. inclusion. A U.S. plan without a timely Form W-8CE is ineligible too, and an immediate inclusion at U.S. rates may cost less than a 30 percent withholding for the life of the plan that Germany will not credit. Both cost more than distributions or conversions taken before the expatriation date, while Article 18(1) and Article 23(5)(b) still coordinate the two taxes.
An IRA and the other tax-deferred accounts of section 877A(e) are treated as distributed in full on the day before the expatriation date, a traditional IRA as ordinary income in full. Germany then taxes the actual payments under its own rules, without credit for the U.S. tax on the deemed distribution. The mitigation is before the date: distributions or Roth conversions while you are a U.S. citizen resident in Germany, when Germany taxes the distribution under Article 18(1) and the United States credits the German tax under Article 23(5)(b). The assets of a revocable trust or other grantor trust are marked to market as if you held them directly. A beneficial interest in a nongrantor trust is not; instead the trustee must withhold 30 percent of the taxable portion of every distribution to you for the rest of your life (section 877A(f)), which Germany, taxing the distributions as its own, will not credit. Distributions, a decanting that removes you as a beneficiary or the valuation election on Form 8854 all belong before the date.
Part V. If you are a German citizen returning after green card years
If you never held U.S. citizenship but lived in the United States as a lawful permanent resident, the regime reaches you as a long-term resident once you held the green card in at least 8 of the 15 taxable years ending with the year in which the status ends; a year in which you were treated as a resident of Germany under the convention, without waiving treaty benefits, does not count (section 877(e)(2)). The status ends when you file Form I-407, when it is revoked or determined to have been abandoned, or, in the route most often overlooked, when you claim treaty residence in Germany on Form 1040-NR with Form 8833 attached (section 7701(b)(6)). With eight or more qualifying years that filing is an expatriating act, dated from the first day of treaty residence; do not file a treaty-based nonresident return until the full covered expatriate analysis has been run.
Three features distinguish your position from that of a citizen. You cannot use the dual citizen or minor exceptions, and the Relief Procedures are not addressed to you; the streamlined procedures, completed before the date, are your route to certification. You have the step-up of section 877A(h)(2) for the assets you held on the day you first became a U.S. resident. And you can synchronize the dates: because the claim of treaty residence in Germany itself ends your status, your arrival in Germany, your treaty residence and your expatriation date can fall on one day, so that the value the United States assesses and the value Germany uses on arrival coincide, the linkage rule of § 17 Abs. 2 Satz 3 EStG operates on an assessed tax, and the election of Article 13(6) of the convention becomes available for the whole balance sheet. If you surrender the card before moving, only the lower U.S. value is linked and the election is not available.
Part VI. A worked example
The example uses assumed values and simplified rates: deemed gains taxed at 20 percent plus the 3.8 percent net investment income tax, ordinary income at 37 percent, German tax on portfolio gains at 26.375 percent, no U.S. state tax and a constant exchange rate. A was born in the United States, moved to Munich on July 1, 2020, naturalized in Germany on February 3, 2026 while keeping U.S. citizenship, and renounces before a consular officer in Frankfurt on October 1, 2026; the deemed sale is measured on September 30, 2026. A’s net worth exceeds $2,000,000 and A is not a dual citizen from birth, so A is a covered expatriate. A’s assets are listed in Table 3; the U.S. portfolio was acquired in 2012 and was worth $3,000,000 on arrival in Germany, and the GmbH shares were acquired in 2022, after arrival. The table compares holding the portfolio through the expatriation date with selling it on September 1, 2026, while A is still a U.S. citizen resident in Germany.
Table 3. Worked example: U.S. citizen resident in Germany since 2020, renunciation October 1, 2026 (U.S. dollars)
| Item | Route 1: portfolio held through the expatriation date | Route 2: portfolio sold on September 1, 2026 |
|---|---|---|
| U.S. portfolio (cost 2,000,000; value 4,600,000) | Deemed gain 2,600,000; no step-up, because A was born a citizen | Actual gain 2,600,000; Germany taxes 685,750; the United States credits the German tax under Art. 23(5)(b), leaving net investment income tax of 98,800 |
| 15 percent of a German GmbH (cost 540,000; value 1,400,000) | Deemed gain 860,000 | Deemed gain 860,000 |
| Exclusion (2026) | 910,000, allocated pro rata to the two gains | 860,000, absorbing the GmbH gain in full |
| Net gain taxed in the deemed sale | 2,550,000: tax at 20 percent 510,000, plus net investment income tax 96,900 | None |
| Traditional IRA (400,000) | Deemed distributed; 400,000 ordinary income | Same |
| Roth IRA (150,000; distributions would be qualified) | Deemed distributed; no tax | Same |
| 401(k) plan (700,000; U.S. payor) | Form W-8CE with waiver by October 31, 2026: not accelerated; 30 percent withholding on each later payment, taxed again by Germany without credit | Same; the alternatives are to omit the waiver and include the present value now, or to distribute before the date under Art. 18(1) and 23(5)(b) |
| German Direktzusage (present value 300,000) | Ineligible item: 300,000 ordinary income; Germany later taxes the pension payments in full | Same |
| U.S. federal tax for 2026 | 606,900 on the deemed sale plus 259,000 on 700,000 of ordinary income: 865,900 | 98,800 net investment income tax plus 259,000 on ordinary income: 357,800 |
| German tax on the portfolio appreciation | 685,750 on the later actual sale, from the historical cost, without credit for the U.S. tax | 685,750 in 2026 |
| Combined tax on the portfolio and the GmbH | 1,292,650 | 784,550 |
A’s portfolio is taxed twice on Route 1 because a person born a citizen has no step-up, Germany keeps the historical cost for portfolio securities, and § 34c Abs. 1 Satz 5 EStG and Article 23(5)(a) exclude any German credit for a U.S. tax imposed in an earlier year on a gain that Article 13(5) allocates to Germany. Realizing the gain before the date, while the convention still coordinates the two taxes, saves $508,100 on the assumed figures and leaves the exclusion free for the GmbH. The GmbH is the residual cost: acquired after arrival, it obtains no linkage under § 17 Abs. 2 Satz 3 EStG, the Article 13(6) election is unavailable because the deemed sale does not coincide with A’s move in 2020, and the U.S. tax on its appreciation, to the extent not sheltered by the exclusion, is a final cost.
Part VII. Germany’s treatment of the deemed sale
Germany levies no tax on the deemed sale, gives no credit for the U.S. tax on it, and taxes your later actual sales from its own acquisition cost. Whether the appreciation the United States taxes is taxed a second time in Germany depends on three German rules, one treaty provision and the order of your dates. For shareholdings of at least one percent, § 17 Abs. 2 Satz 3 EStG replaces your acquisition cost with the value the departure State used in computing a tax comparable to the German exit tax of § 6 AStG, if you held the shares when unlimited German tax liability began, but not above the gemeiner Wert at arrival. It is a linkage to the U.S. value, not a step-up, and it presupposes a tax actually assessed in the departure State (Bundesfinanzhof, judgment of October 26, 2021, IX R 13/20), which only a covered expatriate can show. Portfolio securities within § 20 EStG keep their historical acquisition cost, so the appreciation the United States has taxed is taxed again on the actual sale, at 25 percent plus the solidarity surcharge, without credit. Privately held real property is not taxed on sale after ten years of ownership (§ 23 EStG), so the exit tax on a house held longer is a final cost rather than a prepayment. The treaty provision is the election of Article 13(6) of the income tax convention, under which a person taxed by one State on a deemed sale on ceasing to be its resident may elect to be treated in the other State as having sold and reacquired the property at fair market value at that time; it reaches the portfolio, but it presupposes an assessed tax and a deemed sale that coincides with the change of residence.
The order of the dates therefore decides which rule can help you. A green card holder returning to Germany can place the arrival, the treaty residence claim and the expatriation date on one day, so that both the linkage and the election operate on an assessed U.S. tax. A citizen who has lived in Germany for years and renounces afterward is in the weakest position: the linked value is capped at the arrival value, and the appreciation between arrival and expatriation is taxed twice, because § 34c Abs. 1 Satz 5 EStG confines the German credit to tax on the income of the same year and Article 23(5)(a) confines it to tax the United States may impose otherwise than by reason of citizenship. For such a citizen with substantial holdings an actual sale before the expatriation date is usually the cleaner course, because Article 23(5)(b) secures the U.S. credit for the German tax on that sale. A citizen planning the move from the United States avoids the gap by realizing before leaving, or by renouncing first and moving afterward.
Part VIII. The income tax convention after expatriation
While you are a U.S. citizen resident in Germany, the United States taxes you on worldwide income under the saving clause, Germany taxes you as its resident, and Article 23(5) coordinates the two: Germany credits only the U.S. tax the United States may impose other than by reason of citizenship, and the United States credits the German tax on the remainder. After the expatriation date you are a resident of Germany and nothing else. The ten-year clause for former citizens in Article 1(4)(b) was written for the alternative tax of section 877(b), which no longer applies to post-2008 expatriations; it is dormant, but your treaty claims on Form W-8BEN should be documented with care. Pensions and U.S. social security benefits are taxable only in Germany (Article 18(1), (5)); social security is not a deferred compensation item, so the waivers of section 877A do not touch it, whereas for your U.S. plans the allocation is overridden by the waiver you give on Form W-8CE. Gains on property other than real property and business property are taxable only in Germany (Article 13(5)), so the United States does not tax your later sales of securities.
Part IX. Estate and gift taxes in both countries
After the expatriation date you are, for U.S. estate and gift tax purposes, a nonresident who is not a citizen, taxed on U.S.-situs property only, with a unified credit of $13,000, the equivalent of a $60,000 exemption; lifetime gifts of U.S. intangibles are not taxed. The estate and gift tax convention is a domicile-type convention, with situs exceptions for real property and business property, and the estate of a German domiciliary is allowed a pro rata share of the unified credit available to a citizen’s estate (Article 10(5)). While you are still a U.S. citizen living in Germany, Article 4(3) deems a citizen of one State only, domiciled in both, to be domiciled in the State of citizenship for up to ten years; the ten-year rule ceases to apply once you hold both citizenships, and once you hold only the German one you are a German domiciliary. Article 11(3) gives the German credit for U.S. tax on the property the United States may tax under the situs articles.
Germany taxes you as an Inländer from the day of arrival: your transfers on death and gifts are subject to German inheritance and gift tax on the worldwide property, wherever the recipient lives, and a German citizen who leaves Germany remains an Inländer for five years (§ 2 Abs. 1 Nr. 1 ErbStG). The allowances are EUR 500,000 for a spouse and EUR 400,000 for each child in ten years, with rates in tax class I of 7 to 30 percent. A gift from you in Germany to a child in the United States is therefore taxed in Germany to the child, with you jointly liable, and, if you are a covered expatriate, to the child again under section 2801, with a reduction only for the German gift tax paid on that transfer. Table 4 compares the positions.
Table 4. Estate and gift taxes before and after the expatriation date
| Transfer | While you are a U.S. citizen resident in Germany | After the expatriation date (covered expatriate) |
|---|---|---|
| Your estate, United States | Worldwide estate taxable; basic exclusion $15,000,000 (2026); marital deduction for a citizen spouse, QDOT for a non-citizen spouse; Art. 4(3) may treat you as U.S.-domiciled for up to ten years | U.S.-situs property only; unified credit $13,000, raised pro rata under Art. 10(5); the former-citizen reservation of Art. 11(1)(a)(iii) dormant |
| Your estate, Germany | Worldwide, as an Inländer; allowances EUR 500,000 (spouse) and EUR 400,000 (child); credit under Art. 11(3) for U.S. tax on U.S.-situs property | Same |
| Your gifts to U.S. children, United States | Gift tax on worldwide gifts within the $15,000,000 basic exclusion and the $19,000 annual exclusion; outside section 2801 | Section 2801 tax of 40 percent on the child above $19,000 a year, reduced by German gift tax paid on the transfer; U.S. gift tax only on U.S.-situs tangibles and real property |
| Your gifts to U.S. children, Germany | Gift tax on the child, allowance EUR 400,000 in ten years | Same |
| Your bequests to U.S. children | Estate tax as above; outside section 2801 | Section 2801 tax of 40 percent on the child unless the property is reported on a timely Form 706-NA; whether German inheritance tax reduces it is unsettled |
| Transfers to your spouse | U.S. marital deduction (citizen spouse) or $194,000 annual limit (non-citizen spouse, 2026); German allowance EUR 500,000 and the tax-free Zugewinnausgleich | Section 2801 exception to the extent a marital deduction would have been allowed had you been a citizen; German rules unchanged |
Part X. Section 2801: your gifts and bequests to U.S. family
Covered status does not expire, and for a family with U.S. members its most important consequence arrives after you have left. Section 2801 imposes on a U.S. citizen or resident who receives a gift or bequest from a covered expatriate a tax at the highest estate tax rate, currently 40 percent, on the value received in the calendar year above $19,000 (2026). The tax is the recipient’s, and it is reduced by any gift or estate tax paid to a foreign country on the same transfer: German Schenkungsteuer paid by your child on a gift from you reduces it, but whether the German Erbschaftsteuer, an inheritance tax levied on the heir, is an estate tax for this purpose is not settled. Final regulations were published on January 14, 2025 and apply to gifts and bequests received on or after January 1, 2025; your U.S. recipient reports on Form 708, due on the fifteenth day of the eighteenth month after the close of the year of receipt, so that the first returns, for receipts in 2025, are due June 15, 2027. Gifts reported on your timely filed Form 709, property reported on a timely filed Form 706-NA, transfers to charity and transfers to your spouse within the marital deduction are excepted.
Covered status is determined once, on the expatriation date, and holds at all times afterward, and the burden of proof sits with your recipient, who may obtain your return information from the IRS only with your authorization and otherwise faces a rebuttable presumption that you are a covered expatriate. A gift completed while you are still a citizen is not a covered gift, whatever your later status, and it is made with the full basic exclusion of $15,000,000 for 2026. For a family with U.S. children or grandchildren, avoiding covered status altogether is often worth more than any asset-level planning, because the exit tax is paid once and section 2801 prices every future transfer at 40 percent beside the German gift tax, which applies before and after the date alike.
Part XI. The exit-year return, Form 8854 and Form W-8CE
The year of expatriation is reported on a dual-status return: Form 1040-NR is the return, and Form 1040 is attached as a statement for the resident period through the day before the expatriation date, carrying the mark-to-market gain, the pension inclusions and the deemed account distributions. Form 8854 is attached to that return, and every expatriate files it, covered or not; a Form 8854 not filed, or filed late or incomplete, carries a penalty of $10,000 (section 6039G), and it is filed again each year while a deferral, an eligible item or a nongrantor trust interest remains. Form W-8CE goes to the payor of each deferred compensation item, the custodian of each tax-deferred account and the trustee of each nongrantor trust within 30 days of the expatriation date, or by the day before the first distribution if earlier; it is not sent to the IRS, and a U.S. plan without a timely notice and waiver is an ineligible item taxed at present value. Table 5 sets out the calendar.
Table 5. Compliance calendar
| When | Step |
|---|---|
| At the outset | Run the three tests on current figures, the foreign tax credit included; screen the last five years for missing returns, Forms 8938 and 3520 and FBARs; if you hold a green card, count the years and the treaty positions; identify the U.S. residency starting date, if any, and the German arrival date |
| Before the expatriation date | Complete the compliance cure; complete gifts to U.S. family and spousal transfers; realize gains and take distributions that the convention coordinates while you are a citizen resident in Germany; obtain appraisals as of the anticipated day before the date; inventory pensions, accounts and trust interests with payor identities; decide the eligible or ineligible route for each U.S. plan; model the deferral election |
| Expatriation date | Oath before a consular officer in Germany, or the signed statement of relinquishment, or Form I-407, or the commencement of treaty residence; deemed sale measured on the preceding day |
| Within 30 days after the expatriation date (or the day before the first payment, if earlier) | Form W-8CE to each payor, custodian and trustee |
| Within 60 days after receipt of Form W-8CE | Payor or custodian advises the present value or the account balance on the day before the expatriation date |
| On receipt of the certificate of loss of nationality | Copy to German banks; Form W-8BEN to U.S. banks, brokers and payors, claiming the convention rates as a resident of Germany |
| Due date of the return for the expatriation year, with extensions | Dual-status return (Form 1040-NR with Form 1040 statement); Form 8854 with the certification, the step-up election and the valuation election with its letter ruling, if any; deferral agreement request; final FBAR and Form 8938 for the resident period |
| Each later year while a deferral, an eligible item or a nongrantor trust interest remains | Annual Form 8854 with Form 1040-NR |
| The German return for the year of arrival or of expatriation | German income tax return with the U.S. income of the year; the IRS transcript of the expatriation year, Form 8854 and the valuation kept for the § 17 Abs. 2 Satz 3 EStG file |
| June 15, 2027, and the fifteenth day of the eighteenth month after each later year of receipt | Form 708 by each U.S. recipient of a covered gift or bequest received in the preceding calendar year |
Part XII. Practical steps
- Fix the order of your dates before anything else. They decide whether Germany credits the appreciation the United States taxes; a green card holder can place arrival, treaty residence and expatriation on one day, a citizen planning the move can renounce before leaving, and a citizen already in Germany should realize what can be realized before the date.
- Pass the certification test first. Five compliant years are a precondition for every expatriate; use the streamlined procedures before the date, or the Relief Procedures if you have never filed and qualify.
- Run the three tests on current figures and manage the net worth test. The $2,000,000 line is unindexed and measured for each spouse separately; completed transfers and disciplined valuation can hold you under it, if done well before the date and with the German gift tax in view.
- Build the valuation file under both standards. Appraise every material asset as of the anticipated day before the expatriation date and, if you first came to the United States as a nonresident, as of the residency starting date; obtain a German valuation of a German company as well.
- Decide the route for each pension and account before the date. Your German occupational pension will be included at present value; for a U.S. plan choose between Form W-8CE with the waiver, immediate inclusion, and distributions or conversions taken before the date.
- Resolve trust exposure before the date. Distribute, decant or obtain the valuation ruling while you are still a United States person; afterward every distribution carries 30 percent withholding that Germany will not credit.
- Complete gifts to U.S. family before the date. A gift completed while you are a citizen is outside section 2801; afterward every gift and bequest to a U.S. person is taxed to the recipient at 40 percent, net of German gift tax.
- Sequence the German nationality steps with the tax steps. Naturalization no longer costs you the U.S. passport; the renunciation appointment fixes the tax date, so schedule it after the valuation, the cure, the gifts and the pre-date sales are complete.
- File the exit package completely and keep filing. Dual-status return, Form 8854, Form W-8CE notices, the final FBAR and Form 8938, Forms W-8BEN, and the annual Form 8854 while a deferral, an eligible item or a trust interest remains; keep the IRS transcript of the expatriation year in the German file for the day you sell.
Conclusion
Section 877A taxes your balance sheet on a date, and the date is yours to choose. Every consequence described above applies only to a covered expatriate, and covered status is the one element that responds to work done in advance: the certification test is passed by compliance completed before the date, the net worth test is managed by completed transfers and valuation, the exceptions protect dual citizens from birth and minors who can certify, and the date itself is elective. Because you live in Germany or intend to, the two conventions and § 17 Abs. 2 Satz 3 EStG, together with the order of your dates, decide whether the exit tax is a final cost or a prepayment. The work is therefore done before the consular appointment; expatriation is irreversible, and covered status, addressed early enough, is in most cases avoidable.
Authorities
I.R.C. §§ 877(a)(2), (e)(2) and (h), 877A(a) to (h), 1411, 2101 to 2107, 2501, 2523(i), 2801, 6039G, 7701(b)(6); Notice 2009-85; Notice 97-19; Rev. Proc. 2025-32 (2026 figures: $211,000 average annual net income tax, $910,000 exclusion amount, $19,000 annual exclusion, $194,000 non-citizen spouse exclusion); T.D. 10027 (final section 2801 regulations, January 14, 2025); Forms 8854, W-8CE (Rev. October 2025), W-8BEN, 8833, I-407, 1040-NR, 709, 706-NA, 8938, 3520 and 708; the streamlined filing compliance procedures and the Relief Procedures for Certain Former Citizens; Christensen v. United States, No. 24-1284, and Bruyea v. United States, No. 25-1563 (Fed. Cir. August 31, 2026). Immigration and Nationality Act § 349(a)(1) and (5); 22 C.F.R. § 50.40; Schedule of Fees for Consular Services, 91 Fed. Reg. 12296 (March 13, 2026); 8 U.S.C. § 1182(a)(10)(E). Staatsangehörigkeitsgesetz §§ 4 and 10, as amended by the Gesetz zur Modernisierung des Staatsangehörigkeitsrechts (BGBl. 2024 I Nr. 104, in force June 27, 2024) and the Sechstes Gesetz zur Änderung des Staatsangehörigkeitsgesetzes (BGBl. 2025 I Nr. 256, in force October 30, 2025). Convention between the United States and the Federal Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital of August 29, 1989, as amended by the Protocol of June 1, 2006: Articles 1(4) and (5), 4, 13(5) and (6), 18(1) and (5), 21(1), 23(3) and (5). Convention between the United States and the Federal Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes on Estates, Inheritances and Gifts of December 3, 1980, as amended by the Protocol of December 14, 1998: Articles 4(3), 10(5), 11(1)(a)(iii) and 11(3). Agreement between the United States and Germany to Improve International Tax Compliance and with respect to FATCA of May 31, 2013, Annex I, § II.B.4. §§ 17 Abs. 2 Satz 3 and 4, 19, 20 Abs. 4, 22 Nr. 5, 23 Abs. 1 and 34c Abs. 1 Satz 5 EStG; § 6 Abs. 1 and 3 AStG; §§ 2, 14, 15, 16, 19, 20 and 21 ErbStG; Bundesfinanzhof, judgments of October 26, 2021, IX R 13/20, and of June 25, 2025, X R 23/22.
The firm is led by Caroline Esche Ashford, PhD, JD. A graduate of Columbia University Law School, she is a dual-qualified attorney whose practice focuses on German-American estate planning and the cross-border taxation and administration of estates and trusts, including expatriation planning under sections 877A and 2801 for U.S. citizens and green card holders who settle in Germany. Dr. Ashford is also licensed to practice law in Germany; she is a member of the Munich bar. She advises in German, English and French.
Ashford International Law PC. Washington, Los Angeles, Munich.
Email: info@internationalestatelaw.com
Web: germanyusalawtaxfinance.com and internationalestatelaw.com
This article is intended for general educational purposes and does not constitute legal or tax advice, nor does it create an attorney-client relationship. Reading it does not make anyone a client of the firm, and no action should be taken on it without advice on the particular facts. The statutes, treaty provisions, decisions, procedures, thresholds and figures described are stated as of September 2026 and are subject to change; a U.S. citizen or green card holder in Germany, or planning the move, should obtain advice from qualified counsel in both countries before any step that fixes the expatriation date is taken.
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