The State Department’s $450 administrative fee is the cheapest line on the bill for Americans renouncing US citizenship. The lasting cost sits with the Internal Revenue Service. Section 877A’s exit tax treats unrealized gains as if sold the day before departure. Section 2801 chases gifts and bequests from former citizens for decades after. Wealth advisors writing in the trade press say expatriations rose roughly 102% in early 2025 from the prior quarter. Most prospective expatriates plan only for the fee.

The fee dropped, the tax bill didn’t

The State Department’s renunciation fee dropped from $2,350 to $450 on April 13, 2026, a roughly 81% cut responding to years of complaints that the prior figure priced out lower-income citizens abroad. The fee covers administrative processing of a Certificate of Loss of Nationality at a US embassy or consulate. The cheaper fee changes the headline number. It does not change the IRS bill that follows.

For Americans with appreciated assets, retirement accounts or business interests, the fee is rounding error compared with what the Internal Revenue Service (IRS) can claim under Section 877A. For Americans with modest assets, it can be the entire transaction. Both groups still file Form 8854 to formally close out their US tax accounts.

Moving abroad is not expatriation

A core misunderstanding, advisors say, is that simply relocating overseas reduces or ends US tax obligations. The United States is one of only two countries that tax based on citizenship rather than residence, so US citizens remain liable for federal income, estate and gift tax on worldwide income and assets no matter how long they live abroad. Living in Lisbon doesn’t change that. Filing in Lisbon doesn’t either.

Expatriation in the legal sense occurs only when a citizen formally renounces or a long-term green-card holder gives up permanent residency. Either route requires completing the IRS filings. Until Form 8854 is filed, the agency continues to treat the individual as a US taxpayer even after immigration authorities have processed their departure. Skip that step and the obligation persists.

The exit tax and Section 877A

The exit tax under Section 877A operates as a deemed sale of an expatriate’s assets the day before they renounce. The IRS treats real estate, brokerage accounts, business interests and certain retirement accounts as if sold at fair market value. It then taxes the gain between cost basis and current value, even though no actual sale takes place.

The regime targets covered expatriates. Section 877A defines a covered expatriate as someone meeting any of the following on the date of expatriation:

• Net worth threshold: $2 million or more in worldwide assets.
• Income threshold: average annual net income tax above an inflation-adjusted figure, set at $206,000 for 2025.
• Compliance failure: inability to certify five years of US tax compliance on Form 8854.

Cash sits outside the deemed-sale base. Real estate, equities, partnership interests and certain trust holdings sit inside. Concentrated equity, a startup stake or a vacation home in Florence can each push the bill into six or seven figures.

Pre-exit restructuring, gifting strategies and entity planning are how covered expatriates reduce the bite. The work has to happen before the renunciation date. After Form 8854 is filed, the deemed sale is locked in.

Section 2801 and the inheritance tail

US tax exposure can survive expatriation through the next generation. Under Section 2801, gifts or bequests from covered expatriates to US persons trigger a 40% transfer tax, paid by the US recipient rather than the former citizen.

The IRS released Form 708 and final Section 2801 regulations in January 2026, more than 17 years after Congress enacted the provision in the 2008 HEART Act. The form applies to transfers received on or after Jan. 1, 2025. For 2025 and 2026, the annual exclusion is $19,000 per recipient. Recipients must file Form 708 and pay the tax by the 15th day of the 18th month after the calendar year of the gift.

For globally scattered families, the rule forces a new mapping exercise. Where the heirs live, where they might move and what foreign gift or estate tax has already been paid all change the final exposure.

Where dual citizenship complicates the picture

Holding multiple passports is not itself a taxable event. Problems emerge when tax residency overlaps. A US citizen who settles in Spain can face income and capital gains taxation in both jurisdictions, and something as routine as buying a vacation home in Greece can trigger additional liabilities once residency thresholds are crossed or the property is later sold.

For Americans renouncing US citizenship, the second passport is what makes the step legally possible at all. Consular officers will not process a Certificate of Loss of Nationality that would render the applicant stateless. The question is which second passport, and under whose tax rules.

Tax tails in Germany, the UK and France

Destination countries carry their own claims on former residents long after departure. Former residents of Germany may face German tax obligations for up to five years after leaving under the country’s extended-limited tax liability rules. The United Kingdom’s April-to-April tax year and split-year rules can complicate when and how new arrivals are taxed. The UK also poses risk for US trust structures: a sole trustee moving there can cause a domestic US trust to become taxable in the UK and treated as a foreign trust for US purposes.

France is viewed as particularly hostile to common US trust structures, including revocable living trusts, with potential tax exposure when any of the grantor, beneficiary or trustee resides there. French inheritance tax rates can climb as high as 60%, depending on the relationship between donor and recipient. Each jurisdiction layers on top of the IRS exit tax. None of them care about the State Department fee.

What this means for Americans weighing renunciation

The cheaper consular fee changes the headline math. It does not change the underlying calculation. For covered expatriates, Section 877A and the inheritance reach of Section 2801 still account for the bulk of the cost. For non-covered expatriates, the planning is lighter, but Form 8854 still has to be filed correctly, on time, with the right basis figures and asset valuations.

Renouncing US citizenship has gotten less expensive at the embassy window. It has not gotten less expensive at the IRS, the destination-country tax authority, or the estate-planning desk. Americans who plan only for the $450 are planning for the smallest part of the bill.