My father is a green card holder and my mother is a US citizen. My father wants to give up his green card and stays in China. What tax implication should he consider?
He has 1/3 interest in a US property and some savings accounts. Oversea property is just a small condo in China plus some small monthly retirement income.
After he gives up the green card, will my mother and he still file joint return?
Your father may be subject to the new "exit" tax when he gives up his green card. The exit tax applies to US citizens relinquishing their citizenship or long-term resident giving up their green card. Your father would be consider a long-term resident if he held the green card for 8 years out of the past 15 years.
Even if your father is a long-term resident, the exit tax would only apply if his next worth is $2 million or more, or his (your parents', since they filed jointly) average net income tax for the past 5 years is more than $145,000. If he meets one of these, then he is considered a covered expatriate and subject to the exit tax. The exit tax is based on the tax he would pay if he sold all his assets they day before gave up his green card. He is allowed an exemption of about $626,000.
If he is a covered expatriate, there are also estate and gift tax consequences.
Regardless whether your father is subject to the exit tax or not, he must file Form 8854 with his last US tax return. Unless he gives up his green card on 12/31, he will have separately a Form 1040NR and attach a 1040 for the period prior to giving up his green card.
Your parents may no longer file joint returns as your father will file a 1040NR if he has any US source income.
I agree with the prior attorney's remarks and would note that he recited the rules very well. Here are a few points of clarification to make the rules above a bit more clear:
Expatriation Tax ("Exit" Tax)
The Expatriation Tax is ONLY due if one of the following is true:
1) His income is more than $145,000k for the last 5 years (not likely), OR
2) His net worth is over $2,000,000, OR
3) He fails to file form 8854 and certify that you've complied with all tax laws for the last 5 years (watch out for this one).
The situations above are not that likely (but watch out for number 3), and even if one of them does happen, there is an exemption of $626k. Here's how it works
Figuring the Tax
If the conditions above are met, then you owe tax in the year you gave up your residency based on the following based on your facts:
1) The Sale of the 1/3 interest in the U.S. Property
2) The Sale of the U.S. Savings Accounts
Figure the tax by taking the fair market value of the above and subtracting his "adjusted basis" in the property. If this total is less than $626,000, he doesn't owe any expatriation tax.
Form 8854
More important is filing form 8854 because a failure to file can lead to the tax above. The form is here:
http://www.irs.gov/pub/irs-pdf/f8854.pdf
and the instructions here:
http://www.irs.gov/pub/irs-pdf/i8854.pdf
10 Year Lookback
Then, after you have given up your green card, there is a 10 year lookback period, in which if he is present in the United States for a period of 30 days or more, he will be treated as a U.S. citizen for tax purposes and taxed on your worldwide income for that year. Certain exceptions may apply since he is a green card holder and will become a citizen of China upon relinquishment of the green card in this case.
1040NRs
He must then file a U.S. tax return using form 1040-NR for any U.S. tax that he would otherwise have to pay.
Mother and Father Filing a Joint Return
After he gives up the green card, it is unwise for him and your mother to file a joint return because she as a U.S. citizen is taxed on her worldwide income and he is only taxed on his U.S. sourced income. By filing a joint return, she may force him to pay more tax than he otherwise might have to pay. Therefore, she should file "Married filing separate" (if they are still married) instead of "Married filing joint."
Legal disclaimer: The above information is not legal advice and should not be relied upon as legal advice. No representations are made in the above communication nor may any information contained herein be used in a court of law as a representation upon which you may rely.
I agree with the other attorneys. If your father gives up his green card he can still be subject to US taxes for a period of time on his worldwide income.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.
