Tax Planning When Moving Back to Your Home Country

Moving Back Home: Your US Tax Obligations Do Not End Automatically

Returning to your home country is an exciting transition, but your US tax obligations do not disappear the moment you board the plane. Proper planning in the months before and after your departure can save you thousands of dollars and prevent serious compliance problems.

Your Final US Tax Year: Dual-Status Alien

In the year you leave the US and abandon residency, you are a dual-status alien. Your tax return covers two periods:

• Resident period: January 1 through the date you formally abandon residency - you report worldwide income
• Nonresident period: from your departure through December 31 - you report only US-source income

You file a regular Form 1040 for the resident period, with Form 1040-NR attached for the nonresident period (or one combined dual-status return). You cannot use the standard deduction during the nonresident period.

Formally Abandoning Your Green Card: Form I-407

To legally end your permanent resident status, you must complete Form I-407 (Record of Abandonment of Lawful Permanent Resident Status). You can do this:

• At a US embassy or consulate in your home country
• At a US port of entry when departing
• By mailing the form to USCIS

Simply moving away and not using the green card does not formally abandon it. Until you file Form I-407, the IRS may still consider you a US resident for tax purposes, continuing your worldwide reporting obligation.

Exit Tax: Do You Qualify?

If you held a green card for 8 or more of the last 15 years, you may be subject to the exit tax as a long-term resident. The exit tax rules are covered in detail in our post on renouncing residency. In summary:

• You are a covered expatriate if your net worth exceeds $2 million, your average annual tax exceeded $190,000 (2024), or you cannot certify 5 years of compliance
• Covered expatriates face a mark-to-market deemed sale of worldwide assets on the day before expatriation
• Form 8854 must be filed with your final return

What to Do With Your Retirement Accounts

This is one of the most consequential decisions when leaving the US:

Check the tax treaty between the US and your home country. Many treaties (including the US-Brazil treaty) have specific provisions for pension income that can reduce withholding.

State Tax Obligations

Most states stop taxing you once you establish domicile elsewhere, but California, New York, and a few others have aggressive rules. California in particular:

• May argue you are still a California resident if you maintain strong ties (property, family, bank accounts, business interests)
• Can tax you on California-source income even after you leave (rental income, business income)
• Has no time limit on asserting residency if you did not file a return

Before leaving, file a final state return and document the date your domicile changed.

Close or Maintain US Accounts?

You do not need to close US bank accounts when you leave. However, you must continue to report them:

• FBAR (FinCEN 114): required if aggregate foreign account balances exceed $10,000 - note that once you are a nonresident, your US accounts become the "domestic" accounts and your home country accounts become "foreign"
• FATCA (Form 8938): required if specified foreign financial assets exceed thresholds

If you have US rental property after leaving, you must continue filing US returns and withholding rules change (30% withholding on gross rental income for nonresidents, unless you elect to be taxed on net income).

Plan Before You Leave

The best time to address these issues is before you depart, not after. Key steps:

1. File all outstanding US returns to certify compliance
2. Get valuations on all significant assets (for exit tax calculation if applicable)
3. Review your retirement account strategy
4. Inform your employer and benefits administrators
5. File a final state return documenting your change of domicile
6. Submit Form I-407 to formally abandon your green card

Know Your Obligations Before You Go

Moving back home can trigger more US tax obligations than you expect. Run the free 5-minute diagnostic to get a personalized overview of what you need to file before and after your departure.