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

Written By Ryan Fulton Tagged As exit tax crypto US expatriate crypto tax crypto exit tax 2026 IRS crypto tax renouncing US citizenship crypto

What Is the U.S. Exit Tax on Crypto Assets?

If you’re a U.S. citizen or long-term resident planning to give up your status, the IRS doesn’t let you walk away without settling your tax bill-even on assets you haven’t sold. This includes cryptocurrency. The exit tax, officially called the Expatriation Tax under Section 877A of the Internal Revenue Code, treats you as if you sold all your worldwide assets the day before you renounce. That means your Bitcoin, Ethereum, NFTs, and even that old wallet with 100 Dogecoin from 2017 are all subject to capital gains tax based on their value at the moment you walk away.

The IRS doesn’t treat crypto as currency. It treats it as property. That’s been the rule since 2014 (IRS Notice 2014-21), and it hasn’t changed. So when you exit, every coin you own gets marked to market. If you bought Bitcoin for $50 in 2013 and it’s worth $70,000 today, you owe tax on $69,950 of gain-even if you never touched it.

Who Actually Pays the Exit Tax?

Not everyone who renounces pays this tax. Only "covered expatriates" do. You’re a covered expatriate if you meet any one of these three criteria in 2025:

Your net worth is $2 million or more on the day you renounce.
Your average annual net income tax over the past five years was more than $206,000.
You didn’t file all your U.S. tax returns for the last five years-or you can’t prove you did.

Most people who renounce don’t hit these thresholds. But if you hold significant crypto, even a modest portfolio can push you over the line. A single Bitcoin bought early can easily trigger the $2 million net worth test. And because crypto prices swing wildly, your net worth can jump overnight.

How the Exit Tax Works on Crypto

The math is simple in theory, messy in practice. Here’s the step-by-step:

List every crypto asset you own: Bitcoin, Ethereum, Solana, stablecoins, NFTs, even tokens from defunct exchanges.
Find the fair market value (FMV) of each on the day before you renounce. Use exchange data-CoinGecko, CoinMarketCap, or your exchange’s historical price feed. Daily averages won’t cut it. The IRS wants timestamps.
Subtract your cost basis. That’s what you paid for it, plus fees. This is where most people struggle. If you mined BTC in 2011 or bought it on BitInstant in 2013, you likely don’t have records.
Net all gains and losses across all your crypto. Losses from one coin can offset gains from another.
Subtract the $890,000 exclusion (2025 amount). This applies to your total net gain across all assets, not just crypto.
Pay capital gains tax on what’s left. Rates range from 0% to 23.8%, depending on your income and whether the Net Investment Income Tax (NIIT) applies.

Example: You have $1.5 million in crypto with a $300,000 cost basis. Your net gain is $1.2 million. Subtract $890,000. You owe tax on $310,000. At 20% capital gains + 3.8% NIIT, that’s $75,180 in taxes-even if you never sold a single coin.

A man sorts crypto records under a lamp as a giant calculator shows a massive tax bill, in retro comic art.

Why Crypto Makes This So Hard

Crypto isn’t stocks or real estate. It’s messy.

First, cost basis. Blockchain.com found that 61.3% of Bitcoin transactions in 2023 came from wallets with unknown acquisition costs. If you bought BTC on a now-defunct exchange or used a hardware wallet you forgot the password to, the IRS doesn’t care. You still need to prove what you paid. Many turn to blockchain analysis tools like Chainalysis Reactor-costing $1,000-$5,000 per case.

Second, timing. Crypto prices can swing 15% in a single hour. The IRS requires exact FMV at the exact moment before expatriation. If you file on a Friday and the market crashes Saturday, you can’t claim a lower value. You’re locked in.

Third, reporting. If your crypto is on a foreign exchange like Binance or Kraken, and the total value of all your foreign financial accounts (including crypto wallets) exceeds $10,000 at any point in the year, you must file an FBAR (FinCEN Form 114). If it’s over $50,000 on year-end, you file Form 8938 under FATCA. Miss one, and penalties can hit $10,000 per form-per year.

What Happens If You Don’t File?

Renouncing your citizenship doesn’t erase your tax obligations. The IRS still expects you to file Form 8854-the Initial and Annual Expatriation Statement-with your final tax return. If you skip it, you’re not officially a non-U.S. person. You’re a "covered expatriate by default," even if you didn’t meet the thresholds. That means you’re still taxed on future U.S.-source income, and you can’t re-enter the U.S. as a non-resident without triggering tax consequences.

Worse, the IRS has ramped up enforcement. In FY 2025, they assigned 37 dedicated examiners to crypto expatriation cases-up from just 10 in 2021. They’re cross-referencing blockchain data with passport renunciation records. If you held $500,000 in crypto and never filed Form 8854, you’ll get a letter. And it won’t be polite.

Real Stories: What People Are Actually Paying

Reddit threads and expat forums are full of horror stories-and wins.

One user, u/CryptoExpat2025, mined 50 BTC in 2011. His cost basis? $200 in electricity. On the day he renounced, BTC hit $68,000. His gain: $3.4 million. After the $890,000 exclusion, he owed tax on $2.5 million. His bill: over $600,000. He said: "I didn’t realize the IRS treats mined crypto like a lottery ticket you didn’t cash in."

Another, u/SmartExpat, held $1.8 million in crypto but used 2024 losses from a failed altcoin to offset gains. He timed his renunciation after a 20% market dip. He filed Form 8854 with perfect records. His exit tax? $0.

Greenback Tax Services reports that 37.2% of expatriation cases in Q1 2025 involved crypto complications. The average time to resolve? 14.3 hours. For non-crypto cases? 8.7 hours.

A hero holds Form 8854 atop a mountain of crypto coins, battling IRS and analysts in vintage comic style.

How to Plan Ahead

If you’re thinking about renouncing, don’t wait until the last minute. Start 12-18 months out.

Document everything: Exchange statements, wallet addresses, transaction IDs, fee receipts. Use tools like Koinly, TokenTax, or CryptoTrader.Tax to auto-track your basis.
Consider gifting. You can gift up to $19,000 per person in 2025 without gift tax. Move some crypto to family members before you renounce. That reduces your taxable base.
Time your exit. Renounce after a market dip. Use losses from previous years to offset gains. Don’t renounce during a bull run.
Work with a specialist. 89.7% of users who hired tax pros with crypto and international expertise reported satisfaction. General CPAs often miss crypto nuances.
Don’t rely on your exchange. Most don’t provide historical data beyond 1-2 years. You need your own records.

What’s Changing in 2026?

The IRS is not standing still.

Notice 2025-41, issued in May 2025, now requires DeFi and staking rewards to be valued at the "most liquid market available" on the deemed sale date. That means if you held ETH on Lido or staked on Coinbase, you can’t just use the spot price-you need to account for yield and liquidity discounts.

The Treasury Department lists "specific rules for crypto cost basis in expatriation" as a Tier 1 priority. Expect new guidance in 2026.

There’s also a bill in Congress: H.R. 3892, the Expatriation Tax Modernization Act. It proposes raising the exclusion to $1.2 million and creating a special cost basis rule for crypto acquired before 2014. That could help early adopters-but it’s not law yet.

And by 2027, experts predict the IRS will require crypto exchanges to report expatriating users’ holdings-just like they report 1099-Bs for domestic traders.

Bottom Line

The U.S. exit tax on crypto isn’t going away. It’s getting sharper. If you hold crypto and plan to renounce, you’re not just leaving a country-you’re settling a tax bill on paper gains you never cashed out. The $890,000 exclusion helps, but it’s not a shield. For early adopters, it’s a drop in the ocean.

Know your numbers. Document your history. Time your move. And don’t go it alone. This isn’t DIY territory. One mistake can cost you six figures. The IRS isn’t bluffing. They’ve got the tools. They’ve got the data. And they’re watching.

Do I owe exit tax if I only hold a few thousand dollars in crypto?

Only if you meet one of the three covered expatriate tests. If your net worth is under $2 million, your average tax bill over five years was under $206,000, and you’re compliant with filings, then no-even if your crypto is worth $500,000. The exit tax only applies to gains above the $890,000 exclusion, and only if you’re classified as a covered expatriate.

Can I avoid the exit tax by moving my crypto to a non-U.S. exchange before renouncing?

No. Moving crypto to a foreign exchange doesn’t change the IRS’s view of ownership. The deemed sale applies to all your worldwide assets, regardless of where they’re stored. But if the total value of your foreign accounts (including crypto wallets) exceeds $10,000, you’ll need to file an FBAR. Not filing that carries its own penalties.

What if I can’t prove my crypto cost basis?

The IRS doesn’t accept "I don’t remember" as an answer. You must use reasonable methods to estimate your basis. That could mean using the earliest known price for the coin, blockchain analysis tools, or even a third-party appraisal. If you can’t prove it, the IRS may assume your basis is $0-meaning your entire portfolio value becomes taxable gain. That’s how people end up paying taxes on $10 million in crypto with $0 basis.

Does the exit tax apply to NFTs and DeFi tokens?

Yes. The IRS treats NFTs and DeFi tokens as property, just like Bitcoin and Ethereum. If you own them on the day before you renounce, they’re included in the deemed sale. Valuation can be tricky for illiquid NFTs-you may need an independent appraisal. DeFi assets now require valuation at the "most liquid market available," per IRS Notice 2025-41.

Will I still owe U.S. taxes after renouncing?

After renouncing, you’re no longer a U.S. person for tax purposes. But if you’re a covered expatriate, you may still owe tax on certain U.S.-source income for 10 years, like dividends from U.S. stocks or rental income from U.S. property. The exit tax itself is a one-time event, but ongoing U.S. income is still taxable. Also, if you re-enter the U.S. as a resident within 10 years, you could be taxed again on your global income.

There are 10 Comments

Prateek Chitransh

So let me get this straight - you pay taxes on crypto you never sold, just because you decided to leave the US? That’s not taxation, that’s emotional blackmail with a spreadsheet. And the IRS expects you to dig up 2013 transaction logs from a wallet you lost the password to? 😅
Michelle Slayden

The legal framework surrounding expatriation and digital asset taxation is both constitutionally defensible and economically rational. The IRS’s position, grounded in Notice 2014-21 and codified under Section 877A, reflects a coherent interpretation of property rights and fiscal jurisdiction. One cannot simultaneously claim the benefits of U.S. citizenship and evade its correlative obligations.
christopher charles

Bro. If you’re thinking about renouncing, DO NOT wait until the last minute. I’ve seen so many people panic and then get hit with a $300k bill because they didn’t track their basis. Use Koinly. Save your receipts. Even if you think you’re ‘just holding’ - the IRS doesn’t care. It’s property. Period. I’m not joking. This isn’t a suggestion. It’s survival.
Vernon Hughes

The system is broken. People who mined Bitcoin in 2011 are now being asked to pay taxes on gains they never realized. That’s not tax policy. That’s punishment for foresight. The IRS isn’t collecting revenue. It’s collecting resentment.
Alison Hall

If you have crypto and are thinking of renouncing - start documenting NOW. Seriously. Your future self will thank you.
Amy Garrett

i just found out my 2017 eth purchase was on an exchange that shut down in 2019… so now i have to guess my basis? like… how?? this is insane. why does the irs hate early adopters??
Haritha Kusal

I’m from India and I’ve been watching this whole thing. It’s wild how the US treats crypto like a lottery ticket you forgot to cash. But honestly? If you’re rich enough to have crypto worth millions, maybe you should just pay the tax. It’s not about the money - it’s about the principle.
Mike Reynolds

I had a friend who renounced last year. He had $1.2M in crypto, bought it all between 2016-2018. Used losses from his failed NFT collection to offset gains. Filed Form 8854 with every transaction ID. Paid $0. It’s possible. Just don’t wing it.
dayna prest

So the IRS wants you to pay taxes on digital ghosts? The same people who couldn’t figure out how to print a tax form in 1995 are now chasing blockchain metadata? This isn’t governance. It’s performance art. The IRS is the main character in a dystopian sitcom called 'Crypto: The Tax Nightmare'.
Brooklyn Servin

I work in crypto compliance and I can tell you - this is just the beginning. The IRS has AI tools now that can trace wallet clusters across 12 different blockchains. They’re cross-referencing renunciation records with on-chain activity. If you think you can hide, you’re already caught. Don’t be the guy who gets a certified letter from the IRS with your name and a Bitcoin address. That’s not a tax notice. That’s a death sentence.