In a major, but yet-to-be-enacted legislative effort, the U.S. government is seeing movement regarding the burden of Citizenship-Based Taxation (CBT) on Americans living abroad. While a shift has been strongly advocated by Donald Trump, the core system of worldwide taxation remains in place.
For tax professionals, it’s important to gain an understanding of what the removal of U.S. expat taxes will mean for clients living abroad should the proposed reforms materialize. In this article, we’ll review the most recent Residence-Based Taxation (RBT) proposal, current U.S. tax law, and discuss how Harness can help tax advisors prepare clients for potential changes.
Key Takeaways
- The introduction of the “Residence-Based Taxation for Americans Abroad Act” (H.R. 10468 in the 118th Congress) was a major political signal, however, the bill expired in January 2025 and has not been enacted.
- The U.S. continues to use Citizenship-Based Taxation (CBT). Qualifying citizens must still report their worldwide income to the IRS.
- Current tax relief provisions, like the Foreign Earned Income Exclusion (FEIE) (up to $130,000 for Tax Year 2025), remain the primary way for most expats to reduce their U.S. tax liability to zero.
- If an RBT bill is reintroduced and passed, high-net-worth individuals who elect into the system would likely face an exit tax on their unrealized gains, with the rules still to be fully defined.
- A major policy shift to RBT is still highly uncertain, but it remains a key goal for expat advocacy groups to be included in future tax legislation.
Table of Contents
- The current US expatriate tax landscape
- The foundation of Trump’s expatriate tax reform
- The proposed departure tax and important exemptions
- Key benefits for US expatriate clients
- Implementation timeline and political landscape
- Limitations and considerations in the proposal
- Preparing expatriate clients for potential changes
- How Harness can help
The current US expatriate tax landscape
The U.S. has not removed expat taxes, but the political and legislative effort to shift to Residence-Based Taxation (RBT) is the most serious it’s been in decades. Unlike virtually every other nation, American citizens face tax obligations on their worldwide income, regardless of where they call home or earn their living. This system of taxation creates layers of complexity that most countries abandoned decades ago.
The administrative burden on expatriates goes well beyond filing annual tax returns. U.S. citizens abroad must manage an intricate web of reporting requirements, including Foreign Bank Account Reports (FBARs), Foreign Account Tax Compliance Act (FATCA) disclosures, and potential double taxation scenarios. While foreign tax credits offer some relief, their application often requires sophisticated planning and detailed record-keeping.
Current relief measures, such as the Foreign Earned Income Exclusion (FEIE), provide limited assistance. While expatriates can exclude up to $130,000 of foreign earnings in 2025, this provision leaves unearned income fully exposed to U.S. taxation. The result is a complex calculation that typically requires professional assistance.
Perhaps most troubling, FATCA’s reach extends beyond mere reporting obligations. Many foreign financial institutions have responded to its requirements by simply closing their doors to American citizens. This creates practical challenges that affect everything from basic banking services to retirement planning, effectively turning U.S. citizenship into a liability for many Americans abroad.
The foundation of Trump’s expatriate tax reform
At the heart of the proposed reforms lies the Residence-Based Taxation for Americans Abroad Act, introduced by Representative Darin LaHood in December 2024. This major piece of legislation allows U.S. citizens to elect nonresident status, fundamentally changing their tax relationship with the United States.
So how would this election work? Qualifying individuals would need to demonstrate a five-year history of tax compliance and maintain genuine foreign residency. This approach balances the desire for relief with the need to prevent abuse of the system.
In a significant departure from current requirements, electing nonresident status would eliminate many arduous reporting obligations. The annual requirement to file FBARs, Form 8938 for foreign financial assets, and Form 5471 for interests in foreign corporations would no longer apply. This streamlining alone represents a massive reduction in compliance costs, complexity, and anxiety.
Perhaps most importantly, the legislation addresses one of the most pressing practical challenges facing Americans abroad. To help solve this problem, a new certificate of non-residency program would allow expatriates to finally prove their FATCA-exempt status to foreign financial institutions. This simple document could reopen doors that have been closed to Americans for over a decade.
The proposed departure tax and important exemptions
The legislation’s treatment of high-net-worth individuals reflects a more balanced approach to tax policy. Those whose assets exceed the current estate tax exemption of $13.99 million would face a mark-to-market exit tax when electing nonresident status. This provision makes sure that accumulated wealth doesn’t escape U.S. taxation entirely.
That said, the bill’s architects haven’t ignored practical concerns. Retirement accounts, tax-deferred savings vehicles, and real property—both domestic and foreign—receive protection from the departure tax. This carve-out acknowledges the role these assets play in basic financial security.
Long-term expatriates receive special consideration under the proposal. Those who have maintained tax residency abroad for at least three of the past five years earn a complete exemption from the departure tax. This provision recognizes that many Americans abroad have already built lives and tax relationships with their adopted countries.
The legislation also addresses the specific circumstances of “accidental Americans”—those who acquired citizenship through birth but have never maintained substantial U.S. ties. Individuals who have not resided in the U.S. since age 25 or since FATCA’s 2010 implementation would avoid exit taxation regardless of their net worth.
Key benefits for US expatriate clients
The elimination of worldwide taxation would be a major shift for Americans abroad with minimal United States connections. For many, complex annual filing requirements would give way to a simpler system focused solely on United States-source income. This alone could dramatically reduce compliance costs and worry.
Banking discrimination against Americans has become a painful reality under FATCA. The proposal directly confronts this issue through explicit anti-discrimination provisions, reopening access to normal financial services that many expatriates have been denied.
The proposed system would also unlock tax treaty benefits typically unavailable to United States citizens. Most tax treaties include a “saving clause” that preserves U.S. taxing rights over its citizens. To bypass this limitation, the proposal allows expatriates to elect nonresident status, reducing double taxation scenarios.
Americans born abroad would also gain relief under the new system. Rather than wrestling with complex compliance requirements from birth, they would automatically receive nonresident treatment until actively establishing United States residency.
Implementation timeline and political landscape
While Trump’s endorsement of expatriate tax reform is significant, the legislative journey to law remains a complex one. The LaHood bill must be reintroduced in the new congressional session, beginning the legislative process anew.
What’s particularly interesting about the bill is that support for expatriate tax reform transcends traditional party lines. Over multiple congressional sessions, both Republican, Democratic, and independent representatives have introduced similar legislation, recognizing the burden current policies place on Americans abroad. When considering the bill’s future, this bipartisan foundation may considerably strengthen its prospects for passage.
Assuming successful passage in 2025, implementation would likely target tax year 2026 at the earliest, allowing the necessary breathing room for Treasury regulations and IRS guidance on the matter.
Limitations and considerations in the proposal
Despite its sweeping reforms, the legislation maintains worldwide estate and gift taxation for United States citizens abroad. This retention creates important planning considerations for expatriate clients, particularly those with substantial assets, complex family situations, or spanning multiple jurisdictions.
The proposal’s silence regarding green card holders is a notable gap. These permanent residents face identical tax challenges to citizen expatriates, however, they receive no relief under the current proposal. It’s an omission that could create planning complications for mixed-status families.
When it comes to foreign tax residency, clients who elect nonresident status must maintain genuine foreign tax homes or risk retroactive reversal of their election. Such reversals could trigger penalties, complex recalculations, and past tax obligations.
Even with these reforms, elected nonresident status would not sever all tax-related citizenship consequences. Electing individuals would remain United States citizens, potentially subject to future legislative changes. Ongoing monitoring of U.S. tax law will, therefore, remain essential.
Preparing expatriate clients for potential changes
Thorough compliance records have never been more important. Tax advisors need to make sure clients maintain comprehensive documentation for the previous five years, allowing them to qualify for nonresident election should the legislation pass.
For high-net-worth clients, the prospect of departure tax means careful planning. Current asset valuations, potential recognition events, and timing strategies all need to be addressed as proactive planning now could significantly impact the tax cost of electing nonresident status.
Foreign residency documentation also requires specific attention. Housing contracts, utility bills, and local tax filings create a paper trail that could prove highly valuable for qualifying under the new system.
Some financial decisions merit postponement until legislative clarity emerges, however. The timing of major transactions (e.g., selling a highly appreciated asset), taking retirement account distributions (as these may be treated differently under RBT), or investment restructuring should be carefully coordinated. Postponing these events allows the client to proceed with full clarity once the new tax rules are codified.
How Harness can help
The potential elimination of expat taxes will be a major event that will require tax advisors to be well prepared—and quickly. Harness‘s community of tax professionals provides the collective intelligence needed to decode new legislation, share best practices for compliance and documentation, and collaborate on proactive planning strategies.
No matter how the RBT Act fares in Congress, our peer-driven network provides tax advisors with the support and insights they need to confidently advise clients. Get started with Harness and turn regulatory uncertainty into a competitive advantage.
Disclaimer:
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