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The “8-year rule” for exit tax applies primarily to U.S. citizens as well as long-term residents who decide to renounce their citizenship or green card. This rule is not specific to New York state taxes. However, it is usually confused with exit tax thanks to the implications for expatriation tax.
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This rule is a component of the Expatriation Tax, under U.S. federal law. It applies to certain individuals as presented below:
In case any of the following criteria are met, individuals might be subject to expatriation tax:
In the case of an exit tax, certain assets are treated as if they were sold on the day before individuals are expatriated. The tax applies to any unrealized capital gains that exceed a certain amount determined for exclusion (e.g., $821,000 in 2024, adjusted for inflation).
The 8-year rule is unrelated to New York’s so-called “exit tax.” New York focuses on part-year resident and capital gains taxes when individuals relocate out of state. On the other hand, the 8-year rule is a federal measure designed for expatriation matters.
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