A guide for United States citizens and long-term green card holders who give up their status and settle in Germany, and for Germans returning home after years in the United States: how the deemed sale under section 877A works, why Germany does not recognize it, the two routes by which the gain already taxed in the United States is kept out of the German tax base, the conditions attached to each route, and the steps to take before the expatriation date.
A covered expatriate is treated by the United States as having sold everything he or she owns on the day before the expatriation date. The tax on that fictitious sale is paid once, and the expatriate leaves the United States tax system. Germany, where many of these individuals settle, does not recognize the fiction: the shares and the securities account are still owned, still carry their original acquisition cost, and are taxed on the full gain when they are actually sold. Unless one of two relief provisions applies, the appreciation that accrued before the move is taxed twice, once in the United States on the deemed sale and once in Germany on the real one. This post explains the two provisions, the conditions each attaches, and the timing point on which both depend. The law is stated as of September 2026. The United States side of the same move, the covered expatriate tests, pensions and retirement accounts, section 2801 and the exit-year filings, is covered in the companion post Renouncing U.S. Citizenship from Germany: Covered Expatriate Status and the Section 877A Exit Tax.
Part I. The deemed sale under section 877A
Section 877A of the Internal Revenue Code applies to a covered expatriate: a citizen who relinquishes United States citizenship, or a long-term resident (a green card holder in at least eight of the fifteen taxable years ending with the year of expatriation, section 877(e)(2)) who gives up that status, and who meets one of three tests on the expatriation date. The tests and the 2026 figures (Rev. Proc. 2025-32) are set out in the table. An individual who meets none of them, or who falls within the exceptions for certain dual citizens from birth and for minors (section 877A(g)(1)(B)), pays no exit tax; as Part III shows, that person also receives no relief in Germany.
| Test (section 877(a)(2)) | 2026 figure | Comment |
|---|---|---|
| Average annual net income tax for the five preceding years | More than $211,000 | Indexed each year |
| Net worth on the expatriation date | $2,000,000 or more | Not indexed; worldwide assets at fair market value |
| Certification of five years of full compliance on Form 8854 | Required | Failure to certify makes the individual a covered expatriate regardless of income or net worth |
| Exclusion amount (section 877A(a)(3)) | $910,000 | Reduces the total deemed gain; allocated across all appreciated assets in proportion to their gain (Notice 2009-85) |
For a covered expatriate, all property is treated as sold for its fair market value on the day before the expatriation date, and the gain, reduced by the exclusion amount, is taxed in that year (section 877A(a)). The expatriation date is the day of the renunciation oath before a consular officer (section 877A(g)(4)); for a green card holder it is the day lawful permanent resident status ends, which includes the day the individual begins to be treated as a resident of Germany under the tax treaty and claims that position on Form 8833 (section 7701(b)(6)). Payment of the tax on any asset can be deferred until the asset is actually sold, but only against adequate security, with interest, and with an irrevocable waiver of treaty rights that would prevent collection (section 877A(b)). Retirement accounts are not marked to market: an IRA is treated as distributed in full on the day before expatriation, and a 401(k) or pension, in the usual case, becomes subject to a 30 percent withholding on later payments (section 877A(d) and (e)). One consequence outlasts the expatriation: gifts and bequests from a covered expatriate to United States citizens or residents are taxed in the recipient’s hands under section 2801 (Form 708).
Part II. Why Germany taxes the same gain again
Germany taxes the actual sale of an asset by a resident and measures the gain from the historical acquisition cost. A holding of at least one percent in a corporation, wherever organized, is taxed under § 17 EStG (Einkommensteuergesetz, the Income Tax Act) at the personal rate on 60 percent of the gain (§ 3 Nr. 40 Buchst. c EStG). Shares and securities below that threshold are taxed under § 20 Abs. 2 EStG at the flat rate of 25 percent plus the solidarity surcharge, again from the original cost (§ 20 Abs. 4 EStG). Real property sold within ten years of acquisition falls under § 23 EStG. None of these provisions treats the section 877A deemed sale as a sale, and none of them resets the acquisition cost on arrival.
The exit tax cannot be credited against the later German tax. A foreign tax is credited only to the extent it falls on the income of the same assessment period (§ 34c Abs. 1 Satz 5 EStG); the exit tax falls on the year of expatriation, the German tax on the year of sale. The treaty does not help: gains on shares are taxable only in the state of residence (Art. 13 Abs. 5 of the Germany-United States income tax treaty), so a tax the United States levies on a German resident by reason of citizenship alone is one Germany need not credit (Art. 23 Abs. 5). After the expatriation date the United States no longer taxes the actual sale of shares by the former citizen or green card holder, now a nonresident alien; only United States real property, and shares in a company holding mainly such property, remain within reach under FIRPTA. Absent relief, everything that appreciated before the expatriation date is taxed twice. German law offers one relief provision for substantial shareholdings, and the treaty a second, broader one, though only where the deemed sale is the consequence of the departure from the United States.
Part III. Route one: the German value linkage for substantial shareholdings, § 17 Abs. 2 Satz 3 EStG
For holdings of at least one percent, German law provides for the person who arrives from a country with an exit tax. If the shareholder proves that the shares were already his or hers when unlimited German tax liability began, and that the appreciation up to that date was subjected, under the statutes of the departure state, to a tax comparable to the German exit tax of § 6 AStG (Außensteuergesetz, the Foreign Transactions Tax Act), the value which the departure state used in computing its tax replaces the acquisition cost, but not above the German fair market value (gemeiner Wert) of the shares (§ 17 Abs. 2 Satz 3 EStG). The provision is a value linkage (Wertverknüpfung), as the Bundesfinanzhof calls it: the German acquisition cost is linked to the value the departure state used, it is not stepped up to the fair market value at arrival. Four points follow.
First, section 877A is a comparable tax. It taxes the unrealized appreciation of the shares on the occasion of the shareholder’s departure from the United States tax system, which is what § 6 AStG does on departure from Germany; the citizenship trigger, the coverage of all assets, the exclusion amount and the deferral election are differences of design, not of function. No published decision or administrative statement deals with section 877A specifically, so the point must be made and documented in each case.
Second, the tax must actually have been assessed. The Bundesfinanzhof, Germany’s federal tax court, held in 2021 (judgment of October 26, 2021, IX R 13/20) that the appreciation has “been subjected” to the foreign tax only where the departure state has issued an assessment computing and fixing the tax; a letter merely determining the value of the shares was not enough. Payment is not required, so the deferral election under section 877A(b) does not cost the shareholder the German linkage. For a United States expatriate the assessment consists of the final return with Form 8854 and its mark-to-market computation, together with the IRS account transcript showing the tax assessed; these should be obtained in the year of expatriation, not reconstructed years later. An expatriate who is not a covered expatriate has no assessment and therefore no linkage, and the same result is likely where the total deemed gain stays below the exclusion amount and no tax is computed at all. Where the exclusion amount merely reduces the tax, the statute takes the value the United States used, not the taxed portion of the gain, and the wording supports a linkage to the full value; the German tax office may argue otherwise, and the point is undecided.
Third, the linked value is the lower of two values: the fair market value the United States used, converted into euro at the rate of that date, and the German gemeiner Wert on the date German tax liability began, determined under § 11 BewG (the Valuation Act) from stock exchange prices or, for a private company, from arm’s-length sales within the preceding year or a recognized valuation method. Where a United States appraisal applied minority or marketability discounts, the linked value is the discounted figure. Exchange rate movements between the two dates and the sale form part of the German gain.
Fourth, the provision does not apply where a German exit tax assessed on the shareholder’s own earlier departure from Germany has lapsed because the shareholder returned within seven years, the period in force since 2022 (§ 17 Abs. 2 Satz 4 EStG in conjunction with § 6 Abs. 3 AStG). This is the situation of a German who moved to the United States with a substantial shareholding, held a green card for at least eight years, and comes home within the window: the German exit tax disappears, the shares keep their historical cost, and the section 877A tax on the appreciation of the American years is not relieved by this provision. The treaty election is then the only route.
Part IV. Route two: the treaty election, Art. 13 Abs. 6 of the income tax treaty
Since the Protocol of 2006 the treaty has its own provision. An individual who, on ceasing to be a resident of one of the two states, is treated under that state’s law as having sold property and is taxed there on that basis may elect to be treated in the other state as if he or she had sold and reacquired the property, immediately before ceasing to be a resident of the first state, for its fair market value at that time (Art. 13 Abs. 6). The treaty takes precedence over domestic law (§ 2 AO), and the election is broader in four respects. It covers every asset the United States deemed sold, not only holdings of one percent or more, so it is the only route for a brokerage portfolio taxed under § 20 EStG, which has no domestic linkage. It leads to the fair market value, not to the lower of two values. It does not require that unlimited German tax liability began on the same day, which matters for the returning German who kept a German dwelling throughout the American years and never ceased to be liable to German tax. And it is not switched off by the seven-year return rule. It shares one limit with the domestic provision, the individual must actually have been taxed in the United States on the deemed sale, and it has a limit of its own. Both the trigger and the value are tied to a single event, the end of residence in the departure state: the deemed sale must be the consequence of ceasing to be a resident of the United States (in the German text, of the Wegzug), and the reacquisition value is the value immediately before that event. For a green card holder whose status ends at the move the two coincide. For a citizen the provision does not fit. Citizenship is not a residence criterion under Art. 4, and Germany treats a United States citizen as a resident of the United States only while he or she keeps a substantial presence, a permanent home or a habitual abode there (paragraph 2 of the Protocol to the treaty). A citizen who has lived in Germany for years ceased to be a resident of the United States on the move, when nothing was deemed sold; the deemed sale on the later renunciation is triggered by the loss of citizenship, an event the provision does not mention. The election is therefore not available to that citizen, whatever the assets. The treaty with Canada, by contrast, extends its election to an individual who is treated at any time as having sold property, wording under which the section 877A deemed sale of a citizen resident in Canada is generally thought to qualify; the German treaty was not drafted that way.
Part V. The timing point: when the expatriation date and the move do not coincide
Both routes look to the moment the individual left the United States for Germany: the domestic linkage is capped at the value on arrival, and the treaty election presupposes a deemed sale caused by the departure and values the assets immediately before it. Section 877A values them on the day before the expatriation date. Where the departure and the expatriation date are the same day, the relief is complete: the United States taxes the appreciation up to the move, Germany the appreciation after it. Where they differ, a slice of the gain, or in the citizen’s case the whole portfolio, is taxed in both countries, and the outcome depends on who the expatriate is.
A green card holder can align the two dates. Claiming treaty residence in Germany on Form 8833 for the year of the move ends lawful permanent resident status for tax purposes and fixes the expatriation date at the move (section 7701(b)(6)); alternatively the card is surrendered on Form I-407 at that time. A green card holder who moves but keeps filing as a United States resident for several years, and only then surrenders the card, is close to the position of the citizen described next: the domestic linkage stops at the value on arrival, and whether the treaty election reaches the later deemed sale is an open point (see the table below).
A citizen who has lived in Germany for years before renouncing cannot align them, and for that citizen the two routes part company. The treaty election is not available, because the deemed sale on renunciation is not the consequence of ceasing to be a resident of the United States (Part IV). The domestic linkage remains available for holdings of one percent or more, but only up to the value on arrival: the move fixed the German value, the renunciation, years later, fixes the value the United States taxes, and the appreciation between arrival and renunciation is taxed in the United States in the year of renunciation and in Germany in the year of sale, with no credit in either direction. A brokerage portfolio, for which the domestic provision does nothing, keeps its historical cost, and the whole of its appreciation is taxed again in Germany. Two things can be done. The first is to renounce as close to the move as possible; consular appointments take months, and the expatriation date is the date of the oath, not the date the Certificate of Loss of Nationality is issued. The second, for a citizen long resident in Germany with an appreciated portfolio or shareholding, is to sell before the expatriation date: Germany taxes the actual sale as the state of residence (Art. 13 Abs. 5), the United States taxes it as the state of citizenship and credits the German tax under Art. 23 Abs. 5, and the deemed sale that follows finds only cash. For the portfolio this is the only course.
A German returning home after green card years faces the reverse gap and the domestic bar described in Part III. The United States taxes only the appreciation of the American years, because a long-term resident’s basis is stepped up to the value on the day United States residence began (section 877A(h)(2)). Germany, once the old exit tax has lapsed under § 6 Abs. 3 AStG, taxes the gain from the original cost. Only the treaty election, made in the German return for the year of sale with the American assessment in hand, removes the American years from the German gain.
| Situation | German acquisition cost after relief | Appreciation taxed twice |
|---|---|---|
| Green card holder, treaty residence claimed or card surrendered at the move | Value at the move (both routes) | None |
| Green card holder who surrenders the card years after the move | Shareholdings: value at the move (§ 17 Abs. 2 Satz 3 EStG). Treaty election: open, because the United States treated the individual as a resident until the surrender while the treaty treated him or her as a resident of Germany from the move | Move to surrender, unless the election is accepted; ending the status at the move avoids the question |
| Citizen resident in Germany who renounces later | Shareholdings of one percent or more: value at the move (§ 17 Abs. 2 Satz 3 EStG). Portfolio and other assets: historical cost; the treaty election is not available | Shareholdings: move to renunciation. Portfolio: the whole appreciation, unless sold before the expatriation date |
| Green card surrendered before the move to Germany | Value at surrender (§ 17 route); the treaty election is doubtful where the deemed sale preceded the departure | None for substantial shareholdings; for a portfolio the pre-surrender appreciation, if the election is refused; the appreciation between surrender and arrival is taxed in Germany only |
| German returning within seven years of leaving Germany | Historical cost under German law; value at departure from the United States under the treaty election | American years, unless the treaty election is made |
| Expatriate who is not a covered expatriate | Historical cost | Nothing taxed twice, but all pre-move appreciation is taxed in Germany |
Part VI. A worked example
A citizen holds five percent of a United States corporation, acquired in 2015 for $500,000. She moves to Germany on March 1, 2024, when the shares are worth $2,000,000, renounces on September 15, 2026, when they are worth $2,600,000, and sells in 2028 for $3,000,000. The shares are her only appreciated asset, so the whole exclusion amount is set against them. The figures are kept in dollars for readability; the German computation is made in euro at the exchange rates of the respective dates.
| Item | No relief | § 17 Abs. 2 Satz 3 EStG, renunciation in 2026 | Expatriation date at the move |
|---|---|---|---|
| Deemed gain in the United States | $2,100,000 | $2,100,000 | $1,500,000 |
| Taxed in the United States after the $910,000 exclusion | $1,190,000 | $1,190,000 | $590,000 |
| German acquisition cost | $500,000 | $2,000,000 (lower of $2,600,000 and the value on arrival) | $2,000,000 |
| German gain on the 2028 sale | $2,500,000 | $1,000,000 | $1,000,000 |
| Taxable in Germany at 60 percent | $1,500,000 | $600,000 | $600,000 |
| Appreciation taxed in both countries | $1,500,000 | $600,000 | None |
Without relief, the $1,500,000 that accrued during the American years is taxed in Germany on top of the American exit tax. With the domestic linkage, the double charge shrinks to the $600,000 that accrued between the move and the renunciation. Had the expatriation date coincided with the move, as it does for a green card holder who claims treaty residence on arrival, nothing would be taxed twice and the exit tax itself would be lower. Had the shareholder sold in 2026 before renouncing, Germany would have taxed the actual gain from the stepped-up cost and the United States would have credited the German tax.
Part VII. Assets other than substantial shareholdings
| Asset | German tax on a later sale | Relief route |
|---|---|---|
| Shareholding of one percent or more | Personal rate on 60 percent of the gain (§ 17 EStG) | § 17 Abs. 2 Satz 3 EStG or the treaty election |
| Brokerage portfolio, funds, shares below one percent | 25 percent flat rate plus surcharge (§ 20 Abs. 2 EStG); shares acquired before 2009 are outside the regime | Treaty election only, and only where the expatriation date is the end of United States residence; otherwise none |
| Real property | § 23 EStG within ten years of acquisition; United States real property stays taxable in the United States under FIRPTA and is relieved under the treaty | Treaty election for German and third-country property, on the same condition |
| IRA, 401(k), pensions | Taxed as pension income when paid (Art. 18 and 18A of the treaty) | Not marked to market; separate rules under section 877A(d) and (e) |
A brokerage portfolio is often the largest item marked to market, and Germany has no domestic linkage for it at all. For the green card holder whose status ends at the move, the treaty election, with the American assessment as proof, keeps the pre-move appreciation out of the German gain; it is claimed in the German return for the year of the first sale from the account. For the citizen who renounces after years in Germany the election is not available (Part IV), the portfolio has no relief route, and the sale before the expatriation date described in Part V is the answer. Shares acquired before January 1, 2009 are outside the German capital gains regime altogether (§ 52 Abs. 28 Satz 11 EStG; fund units bought before 2009 follow a separate transitional rule), so for those positions there is nothing to relieve. Retirement accounts are a different subject: the deemed distribution of an IRA on expatriation and the withholding on later 401(k) or pension payments interact with the German taxation of the same payments in ways this post does not cover; they are treated in Part IV of the companion post on renouncing U.S. citizenship from Germany. The German inheritance and gift tax consequences of the move are also separate; they are treated in the post on the ten-year rule of the estate tax treaty.
Part VIII. Steps before the expatriation date
- Determine covered expatriate status early. The tests are applied on the expatriation date; net worth includes worldwide assets at fair market value, and the compliance certification requires five clean years, which may call for a corrective filing before expatriation rather than after.
- Fix the sequence of dates. A green card holder claims treaty residence or surrenders the card at the move. A citizen renounces as close to the move as consular scheduling permits; a citizen long resident in Germany sells appreciated positions, the portfolio above all, before the oath, since no relief route reaches them afterward.
- Value the assets on both dates under both standards. The American appraisal fixes the exit tax; the German gemeiner Wert on the date of arrival caps the domestic linkage. A private company needs a valuation report that will survive a German audit years later.
- Keep the assessment file. Form 8854 with its asset-by-asset computation, the final return, and the IRS account transcript for the year of expatriation are the evidence the German tax office will require; a value without an assessed tax is not enough.
- Decide on the deferral election with both systems in view. Deferral does not cost the German relief, but it requires security, carries interest, and waives treaty protection against collection.
- Claim the relief in the German return for the year of sale. The domestic linkage for holdings of one percent or more; the treaty election for everything else where the expatriation date is the end of United States residence, and for the returning German whose exit tax has lapsed.
- Review portfolios and retirement accounts separately. Identify pre-2009 positions, decide whether to realize gains before the expatriation date, and obtain advice on IRAs and 401(k) plans under section 877A and the treaty before the date is fixed.
Conclusion
Germany does not recognize the section 877A deemed sale, and it credits nothing for the exit tax. The pre-move appreciation escapes German tax only through the domestic value linkage for substantial shareholdings, capped at the value on arrival, or through the treaty election, which presupposes a deemed sale caused by the end of United States residence, the green card holder’s case and not the citizen’s; both require an American tax actually assessed. The expatriate who arranges the dates, values the assets on the right day and keeps the assessment file pays each country once on its own period; the expatriate who does not pays twice on the years in between, and the citizen who renounces after years in Germany pays twice on the whole appreciation of a portfolio unless it is sold before the date.
Authorities
I.R.C. §§ 877(a)(2) and (e)(2), 877A(a) to (h), 2801, 7701(b)(6); Notice 2009-85; Rev. Proc. 2025-32 (2026 figures: $211,000 average annual net income tax, $910,000 exclusion amount); Forms 8854, 8833, I-407, W-8CE and 708. Convention between the Federal Republic of Germany and the United States of America 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: Art. 4 Abs. 1, Art. 13 Abs. 5 and 6, Art. 23 Abs. 5, and paragraph 2 of the Protocol to the Convention. § 17 Abs. 2 Satz 3 and 4 EStG; § 3 Nr. 40 Buchst. c EStG; § 20 Abs. 2 and 4 EStG; § 23 EStG; § 34c Abs. 1 Satz 5 EStG; § 52 Abs. 28 Satz 11 EStG; § 6 Abs. 1 and 3 AStG; § 11 BewG; § 2 AO. Bundesfinanzhof, judgment of October 26, 2021, IX R 13/20 (assessment in the departure state required); Bundesfinanzhof, judgment of January 24, 2012, IX R 62/10 (currency conversion in computing the § 17 EStG gain).
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 the tax consequences of expatriation from the United States for individuals 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, thresholds and figures described are stated as of September 2026 and are subject to change.
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