US Citizens Renouncing Citizenship for Crypto Tax Benefits: What You Need to Know

Every year, a small but growing number of US citizens walk into a US consulate abroad and give up their American citizenship. Not because they hate the country. Not because they’re fleeing political unrest. But because they want to escape the IRS’s grip on their cryptocurrency gains. If you hold Bitcoin, Ethereum, or other digital assets that have skyrocketed in value, the US tax system can feel like a trap. And for some, renouncing citizenship is the only way out.

Why the US Tax System Is a Problem for Crypto Holders

The United States is one of the only countries in the world that taxes its citizens based on where they live - not where they earn money. That means if you’re a US citizen, even if you’ve lived in Thailand for 15 years, the IRS still wants a cut of every Bitcoin trade, every staking reward, every DeFi swap. The IRS treats cryptocurrency as property. That means every time you sell, trade, or spend crypto, you trigger a taxable event. If you bought Bitcoin at $5,000 and sold it at $70,000, you owe capital gains tax on the $65,000 profit. For someone with a large portfolio, that can mean hundreds of thousands - or millions - in taxes.

And it’s not just sales. Even swapping one crypto for another counts. Buying ETH with BTC? Taxable. Using Bitcoin to pay for a vacation? Taxable. Earning interest on crypto in a DeFi protocol? Taxable. The IRS doesn’t care if you didn’t convert to fiat. If there’s a gain, you owe tax. For many, the compliance burden alone - tracking every transaction across dozens of wallets and exchanges - is exhausting. But for those with seven-figure crypto holdings, the tax bill is the real killer.

The Exit Tax: The Hidden Cost of Leaving

Renouncing your US citizenship isn’t free. First, there’s the $2,350 administrative fee to schedule and complete the renunciation at a US embassy or consulate. That’s just the start. The real cost comes from the exit tax - a one-time tax imposed on people the IRS calls “covered expatriates.”

You become a covered expatriate if you meet any one of these three criteria:

• Your net worth is over $2 million on the day you renounce
• Your average annual net income tax liability over the past five years was more than $206,000 (adjusted for inflation in 2025)
• You failed to certify that you’ve filed all required US tax returns for the last five years

If you’re a covered expatriate, the IRS pretends you sold everything you own on the day before you renounced. That includes your Bitcoin, Ethereum, real estate, stocks, even your car. You pay capital gains tax on the unrealized gains - at rates up to 23.8%. So if you own $5 million in crypto that you bought for $500,000, you owe tax on $4.5 million in gains. That’s nearly $1 million in exit tax alone.

That’s not a typo. You could owe over a million dollars just to leave.

How the Smart Ones Avoid the Exit Tax

Most people assume renouncing citizenship means giving up everything. But the most successful crypto expats don’t give up their wealth - they restructure it.

Here’s how they do it:

• Gifting before renunciation: You can gift assets to family members or trusts in the year before you renounce. If you give away $1 million in Bitcoin before your renunciation date, that $1 million is no longer part of your taxable estate. You still benefit from it - you just don’t own it anymore. This is legal, but it requires careful planning. The gift must be completed before the renunciation date. If you gift on the same day you renounce, the IRS still counts it.
• Timing your exit: If your income spiked in 2021-2023 because you cashed out early, but your income dropped in 2024-2025 because you held through the bear market, you might fall below the $206,000 average income threshold. That means you avoid the exit tax even if your net worth is over $2 million.
• Structuring assets: Some move crypto into non-US based trusts or use foreign LLCs to hold assets. These structures don’t eliminate the exit tax, but they can delay or reduce exposure if structured correctly.

Patrick J. McCormick, a cross-border tax specialist, puts it bluntly: “You don’t need to be broke to renounce. You just need to have moved your assets out of the IRS’s crosshairs.”

Where Do They Go? Crypto-Friendly Countries

You can’t just renounce and vanish. You need a new home. And not just any home - one that doesn’t tax your crypto.

Here are the top destinations:

• Portugal: No capital gains tax on crypto for individuals. No wealth tax. No tax on foreign income. You can get a D7 visa by proving passive income, then apply for residency after five years.
• Switzerland: Crypto is treated as private wealth, not income. No tax on holding or trading. Zurich and Zug are crypto hubs with strong legal protections.
• Germany: Crypto held for over a year is tax-free. Even if you trade frequently, the first €600 in annual gains are exempt. Many US expats settle in Berlin or Hamburg.
• Georgia: Zero tax on foreign-sourced income. No capital gains tax on crypto. Easy residency program for remote workers.
• Malta: Offers citizenship by investment. You can buy property, pay a fee, and get EU citizenship in under a year. Then renounce US citizenship - now you’re a Maltese citizen with EU rights and zero crypto tax.
• Singapore: No capital gains tax. Crypto is treated as property, not currency. Strong financial infrastructure and global connectivity.

Many people get second citizenship first - often through Malta, Portugal, or Georgia - before renouncing. That way, they’re never stateless. The US doesn’t care if you have another passport. But the world does.

The Catch: What You Lose

Renouncing citizenship isn’t like canceling a subscription. You can’t undo it. Once you sign the papers, you’re done. No more US passport. No more right to live or work in the US. No more voting. No more consular protection abroad.

You can still visit the US - but only with a visa. And getting a visa isn’t easy. The US government doesn’t look kindly on people who renounced to avoid taxes. You’ll need to prove you have strong ties to your new country, enough money to support yourself, and no intention to immigrate illegally. Many former citizens report long interviews, extra documentation, and outright denials.

And even after renunciation, you’re not completely free. If you own property in the US, you still pay US taxes on rental income. If you receive dividends from US stocks, the IRS withholds 30%. If you inherit money from a US-based estate, you might still owe tax. The US still has a long arm.

Is It Worth It?

For most people, no. If your crypto portfolio is under $1 million, the exit tax and legal fees will eat up most of your gains. The hassle of moving your life, learning a new language, adapting to a new legal system - it’s not worth it.

But for those with $5 million or more in crypto - especially if they’ve held since 2017 - renouncing can save millions. One crypto investor we spoke to (who asked to remain anonymous) held $8 million in Bitcoin. He gifted $3 million to his children in 2024, filed his tax returns perfectly, and renounced in early 2025. His exit tax? $0. His future tax bill on $5 million in gains? Also $0. He now lives in Zug, Switzerland, with his family, and pays no tax on his crypto trades.

He didn’t run from the US. He outmaneuvered it.

What Happens If You Don’t File Form 8854?

Renouncing without filing Form 8854 - the “Initial and Annual Expatriation Statement” - is a disaster. The IRS doesn’t recognize your renunciation. You’re still a US taxpayer. You’re still liable for back taxes, penalties, and interest. You can’t get a US visa without proving you filed it. And if you ever try to return to the US, you could be flagged as a tax evader.

Filing Form 8854 isn’t optional. It’s mandatory. And you must certify that you’ve been compliant with all tax filings for the past five years. That means every crypto transaction, every Form 8949, every Schedule D - all must be accurate and on time. One missed form can disqualify you from avoiding the exit tax.

The Bigger Picture: Is the US Changing?

There’s been talk in Congress about switching from citizenship-based taxation to residency-based taxation - like every other country in the world. But nothing has passed. In 2025, the IRS is still aggressively pursuing crypto tax compliance. New reporting rules for exchanges, stricter penalties for unreported gains, and increased audits mean the pressure is only getting worse.

For now, renouncing remains a tool for a very small group: ultra-high-net-worth crypto investors who are willing to walk away from their passport to keep their gains. It’s not a loophole. It’s a legal, but brutal, strategy.

And it’s not getting easier. The exit tax threshold is adjusted for inflation every year. The IRS is getting better at tracking crypto. The world is getting more connected. The days of quietly disappearing into Portugal with a suitcase of Bitcoin are fading.

What Should You Do?

If you’re thinking about renouncing your US citizenship because of crypto taxes:

• Don’t rush. This decision lasts forever.
• Get help from a cross-border tax attorney who specializes in expatriation - not a regular CPA.
• Don’t try to game the system. The IRS knows the tricks. They’ve seen them all.
• Calculate your exit tax liability before you do anything else. Use a professional model - don’t guess.
• Secure a second passport first. Never renounce without one.
• File every tax return perfectly for the past five years - even if you think you didn’t owe anything.

There’s no shame in wanting to keep your money. But there’s huge risk in doing it wrong.

If you’re holding crypto and feeling the weight of US taxes, you’re not alone. But renouncing citizenship is a nuclear option. It’s not for everyone. For those who do it right - with expert help, full compliance, and a clear plan - it can mean financial freedom. For everyone else, it’s a one-way trip with no return.