Exit Tax on Crypto Assets for US Expatriates: What You Need to Know in 2025

What the U.S. Exit Tax Means for Your Crypto When You Give Up Citizenship

If you’re a U.S. citizen or long-term resident planning to renounce your status, and you own cryptocurrency, you’re facing one of the most complex tax traps in modern finance. The U.S. doesn’t just tax you while you’re a citizen-it taxes you the day before you walk away. This is called the expatriation tax, and it treats your crypto like it was sold at market value, even if you never touched it.

For 2025, the IRS has set the exclusion threshold at $890,000. That means the first $890,000 in net capital gains across all your assets-crypto, stocks, real estate, everything-is tax-free. But if your crypto alone is worth $2 million, and you bought it for $50,000? You’re on the hook for tax on $1.95 million in gains. And the IRS doesn’t care that you never sold it. They treat it like you did.

Who Actually Pays This Tax?

Not everyone who renounces pays the exit tax. Only covered expatriates do-and you’re one if you meet any one of these three rules:

• Your net worth is $2 million or more on the day you renounce
• Your average annual U.S. income tax over the last five years was over $206,000 (2025 threshold)
• You didn’t file all your U.S. tax returns for the past five years

Most people who renounce don’t hit these marks. But if you hold crypto and bought early-say, Bitcoin at $100 in 2013-you’re far more likely to qualify. That $100 investment could be worth $60,000 today. Multiply that by 10 BTC, and you’re already over the $2 million net worth line.

How the IRS Calculates Your Crypto Tax Bill

The IRS doesn’t ask you what your crypto is worth. They demand proof. Here’s how they do it:

1. List every crypto asset you own: Bitcoin, Ethereum, Solana, NFTs, stablecoins-even small altcoins
2. Find the fair market value (FMV) in USD on the day before you renounce
3. Subtract your cost basis: what you paid for it, plus fees
4. Add up all your gains and losses across all assets
5. Subtract the $890,000 exclusion
6. Tax the remainder at capital gains rates: 0%, 15%, 18.8%, or 23.8%

Example: You own 3 BTC bought in 2014 for $1,200 total. On the day before you renounce, BTC is at $110,000. Your gain is $328,800. You also have $200,000 in stock gains. Total net gain: $528,800. That’s under $890,000. You pay $0.

But if you have 10 BTC at $110,000? Gain is $1,098,800. Add $100,000 in stock gains? Total: $1,198,800. Minus $890,000 exclusion? You owe tax on $308,800. At 23.8%, that’s $73,500 in taxes-on paper gains.

The Real Nightmare: Cost Basis Chaos

The biggest problem? Most people don’t know what they paid for their crypto.

Blockchain.com found that 61.3% of Bitcoin transactions in 2023 came from wallets with no documented cost basis. If you mined BTC in 2011 with your laptop, or bought a few coins on BitInstant in 2012, you likely have no records. The IRS doesn’t accept “I think I paid $50.” They want transaction IDs, exchange statements, wallet addresses, timestamps.

That’s why tax pros are turning to Chainalysis Reactor and other blockchain forensic tools-$500 to $2,000 per asset-to reconstruct history. If you can’t prove your basis, the IRS assumes it’s $0. That means your entire current value is taxable gain.

One Reddit user mined 50 BTC in 2011. Electricity cost $200. The IRS treated his basis as $200. His FMV was $5.5 million. He owed tax on $5.4998 million. The $890,000 exclusion barely mattered.

What About Crypto on Foreign Exchanges?

If your crypto is on Binance, Kraken, or any non-U.S. exchange, you’re not just dealing with the exit tax. You’re also triggering two other reporting rules:

• FBAR (FinCEN Form 114): If your total foreign financial accounts (including crypto wallets) were over $10,000 at any point during the year, you must file this. Fines for missing it: up to $10,000 per violation.
• FATCA (Form 8938): If your foreign assets exceed $50,000 on the last day of the year (or $75,000 at any time), you file this with your tax return. Crypto counts.

The IRS considers crypto held on foreign platforms as a “financial account.” That means they’re watching. And if you didn’t file these forms in past years, you’re already in trouble-even before you renounce.

Why This Is Worse Than Taxes on Stocks or Real Estate

Stocks have clean records. Real estate has deeds and appraisals. Crypto? It’s a wild west.

• Volatility: A 20% swing in a day can turn your $880,000 gain into a $1.05 million gain-and blow past the exclusion.
• No IRS guidance: The IRS hasn’t clarified how to value DeFi tokens, staking rewards, or NFTs for exit tax. Tax pros are guessing.
• No step-up in basis: If you inherit crypto, you don’t get a reset basis like you do with stocks. The IRS treats it as if you bought it at the original cost.
• Double taxation risk: Countries like Germany or Portugal don’t tax crypto gains. But the U.S. still does. You can’t claim foreign tax credits on exit tax.

And unlike stocks, you can’t just wait to sell. The deemed sale happens whether you like it or not.

What People Are Doing About It

Some expats are finding ways out:

• Timing the renunciation: Renounce after a market dip. One user paid $0 exit tax on $1.8 million in crypto by waiting for a 30% drop.
• Gifting crypto: Give BTC to family members before renouncing. Gifts under $19,000 per person (2025 limit) avoid gift tax. This reduces your holdings.
• Using losses: If you sold crypto at a loss in 2024, you can use those losses to offset gains in your deemed sale.
• Hiring specialists: 89.7% of users who worked with crypto-savvy tax advisors reported satisfaction. General CPAs often miss the nuances.

But here’s the catch: You can’t fix this last-minute. Planning needs to start 12 to 18 months before renunciation. That’s how long it takes to gather records, run valuations, and adjust holdings.

What’s Coming Next

The IRS isn’t slowing down. In 2025:

• They hired 12 more crypto examiners-now 37 specialists focused on exit tax cases.
• Exit tax cases with crypto have grown 227% since 2021.
• Passport renunciation delays are now averaging 217 days for crypto cases-75 days longer than non-crypto cases.

And Congress is talking about change. H.R. 3892, the Expatriation Tax Modernization Act, proposes:

• Raising the exclusion to $1.2 million in 2026
• Creating a special cost basis rule for crypto bought before 2014

But that’s not law yet. Right now, the rules are harsh, and they’re being enforced.

What You Should Do Right Now

If you’re thinking about renouncing U.S. citizenship and hold crypto, here’s your action list:

1. Don’t wait. Start now-even if you plan to renounce in 18 months.
2. Collect every transaction history: exchanges, wallets, mining records, fee receipts.
3. Use a tool like TaxBit, Koinly, or Chainalysis to reconstruct cost basis.
4. Calculate your net worth and average tax liability over the last five years.
5. Consult a tax advisor who specializes in both international tax and cryptocurrency.
6. Consider gifting or selling down holdings before renouncing.
7. File all past tax returns-even if you didn’t before. The IRS will check.

The exit tax isn’t about punishing people. It’s about closing a loophole. But for crypto holders, it’s a minefield. The IRS knows your assets are volatile, your records are messy, and you might not even realize you’re a covered expatriate until it’s too late.

Don’t find out the hard way. Start documenting. Start planning. And don’t assume the $890,000 exclusion will save you. If your crypto is worth more than $1 million, it won’t.