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Would you Renounce Your U.S. Citizenship? It’s Not as Easy as You May Think.

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According to a recent survey, nearly one in three expatriates are seriously considering renouncing their U.S. citizenship (source). Renouncing citizenship is a complicated process, and that is why More Than Money Radio invited Azam Rajan, Foreign Legal Consultant with Bordera Tax and Immigration Law, to share his expertise on the show.

Over the past several years, Rajan’s team has seen a growing trend of expats giving up their U.S. citizenship. And the top reason is tax.

Many of our clients and listeners are U.S. citizens living in Canada. All American citizens are required to file a tax return in the U.S. regardless of where they live, work, or how long they have been away from the States. However, American taxpayers do have the ability to either claim a credit for taxes they pay in a foreign country or exclude foreign income from U.S. taxes (source). While these options are designed to help them avoid, or at least mitigate, double taxation, they can make their tax situation significantly more complicated. 

Even common transactions like selling your home becomes more tricky when you are a U.S. citizen living in another country. In Canada, your primary residence is exempt from capital gains tax. However, the U.S. caps their exemption in this situation at $250,000. Rajan says that many of his American clients bought homes in Canada decades ago and the capital gain they will realize when they sell will be far greater than the exemption.

And for expats who are hoping to fly under the radar? The Foreign Account Tax Compliance Act (FATCA), or “compliance on steroids” as Rajan calls it, will stand in their way. FATCA requires foreign financial institutions to report the assets owned by their American account holders to the U.S. government. That not only means that expats must file complicated taxes in two countries, but it can also handcuff them when it comes to estate planning.

When a U.S. citizen passes away, their estate tax is based on value; however, the IRS currently gives an exemption to estates worth less than $13.61 million, which means that very few actually end up paying the tax (source). The bad news? According to Rajan, that exemption is set to decrease on January 1, 2026 to $5 million adjusted to inflation. For many of his clients, that decrease is going to be a big problem going forward and one that will require proper tax and legal advice to find the right option. 

If you are an American thinking seriously about giving up your U.S. citizenship, it is important to realize that there is no one-size-fits-all answer. For example, if you are in your retirement years with no plans to return to the States and you want to avoid the hassle of filing two tax returns, Rajan says that giving up your citizenship may be a good option for you. Some entrepreneurs need the flexibility to work on either side of the border. Rajan suggests maintaining their U.S. citizenship and working closely with tax and wealth advisors to ensure they stay compliant. 

Whatever your personal situation, it is crucial to get the proper legal and tax advice as you consider your options.

Want to learn more about how tax can impact your retirement? Attend one of our upcoming seminars!

Register for Calgary here.

Register for Lethbridge here.

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

David Popowich and Faisal Karmali are Investment Advisors with CIBC Wood Gundy in Calgary. The views of David Popowich, Faisal Karmali, and Foreign Legal Consultant, Azam Rajan, do not necessarily reflect those of CIBC World Markets Inc.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change

Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.

If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.

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