Liquidating US Investments Before Returning: Key Cross-Border Taxes

Americans and foreign professionals preparing to depart the United States 🇺🇸 are being urged to plan the sale of U.S. stocks, bonds, and mutual funds with care, as the timing of when they liquidate can change their tax bill in both countries. Tax advisers say many departing investors could reduce U.S. taxes by selling after they leave and become a non-resident alien for tax purposes, because U.S. law generally does not impose capital gains tax on non-resident alien sales of stocks and bonds. The strategy, however, must be weighed against tax rules in the destination country, the terms of any tax treaty, and brokerage policies that may restrict accounts once clients move abroad.

Core rule and U.S. tax consequences

At the core is a simple rule with large impact: once someone is a non-resident alien, gains from selling U.S. stocks and many bonds are typically not taxed by the U.S. That timing advantage can be lost if investors unwind positions while still U.S. residents, since residents pay capital gains tax on profits.

• Short-term gains (assets held one year or less) are taxed at ordinary income rates ranging from 10% to 37%.
• Long-term gains face lower rates of 0%, 15%, or 20%, depending on income levels.

For many households, the difference between short- and long-term rates can be thousands of dollars, especially in volatile markets when investors need to rebalance or exit positions quickly before moving.

Timing a sale around tax residency status can materially change the U.S. tax bill.

Destination-country taxation and treaties

A well-timed sale in the U.S. does not end the story.

• Some countries tax worldwide gains immediately upon becoming a resident.
• Others exempt foreign gains or have special transitional rules (e.g., step-up in basis).
• Tax treaties may prevent double taxation, but they often contain exceptions and timing traps.

VisaVerge.com advises cross-border taxpayers to review treaty terms line by line before acting, since a move that reduces U.S. tax could create a higher bill overseas if the destination country taxes the same gain in the year of arrival.

Brokerage logistics and account access

Brokerage policies add another important layer of risk.

• Several U.S. brokers restrict services or close accounts when a client’s address changes to a foreign country.
• Investors who wait to liquidate until after leaving face the risk that a broker could freeze trading, block new orders, or require full account closure.
• If accounts include retirement assets (e.g., IRAs), forced distributions could be taxable and may also trigger early-withdrawal penalties if not handled properly.

Action item: departing clients are advised to confirm in writing whether their brokerage allows trading as a non-U.S. resident and under what conditions.

If the answer is no, consider these options:

1. Liquidate before moving.
2. Transfer assets in-kind to a broker that supports non-residents.
3. Restructure holdings to avoid forced sales.

Mutual funds: special considerations

Mutual funds can complicate timing because distributions and sales are treated differently.

• Fund distributions can include:
  • Dividends
  • Capital gains
  • Return of capital
• Return of capital is not taxed immediately; instead, it reduces your adjusted cost base, which increases the taxable gain when you later sell.

Selling a mutual fund triggers capital gains tax based on the difference between sale price and your adjusted cost base. Those moving abroad should map out the sequence of distributions and sales, because a payout received before departure could be taxed differently than a sale after departure.

Expatriation and the exit tax

For individuals who formally cut ties with the U.S. tax system, another set of rules applies.

• Those who give up U.S. citizenship or surrender a long-term Green Card may face an exit tax if they’re “covered expatriates.”
• U.S. law treats worldwide assets as if sold at fair market value the day before expatriation, which can trigger capital gains tax even without an actual sale.
• Individuals planning expatriation must file a final U.S. return and attach Form 8854, certifying tax compliance and reporting expatriation details.

Relevant IRS links:
– Form 1040
– Form 8854
– IRS page on United States Income Tax Treaties

Common mistakes advisers see

• Selling everything in a hurry before boarding a plane, which often locks in a U.S. capital gains tax bill that could have been avoided by waiting until non-resident status.
• Assuming the destination country will not tax gains realized shortly after arrival. New residents can be surprised when a U.S.-tax-free sale becomes fully taxable locally, sometimes at higher rates.

Practical planning steps (checklist)

1. Confirm your U.S. and foreign tax residency dates — tax status determines which country can tax gains.
2. Get broker policies in writing: can you keep the account open, place trades, and receive distributions as a non-U.S. resident?
3. Track holding periods and cost basis. Selling a position one day before it becomes long-term can increase the U.S. tax rate substantially.
4. Sequence transactions:
   • Consider liquidating most taxable investments after non-resident alien status begins.
   • Close or transfer accounts that cannot remain open after the move.
5. If expatriating, study exit tax rules early and plan to file the final return with Form 8854.
6. Review new country’s tax rules and treaty terms to see whether gains will be taxed locally and to what extent relief is available.
7. File required U.S. forms and keep thorough records of sales, distributions, and cost basis for both countries.

Policy and tax context — summary points

• The preferred window for many taxable sales is after departure (non-resident alien), because the U.S. generally does not levy capital gains tax on non-residents for stocks and bonds.
• Mutual funds: return of capital reduces cost base and can increase tax due on a later sale.
• Expatriation: “covered expatriates” may be subject to a deemed sale (exit tax).
• Brokerage policies can force action; retirement accounts are especially sensitive.
• Destination-country rules vary widely; treaties may help but are not a guarantee.

According to VisaVerge.com, a careful cost-benefit review that weighs local rates, treaty benefits, and liquidation timing can help keep the total tax bill lower across both countries. Model several scenarios:

• Sell now as a U.S. resident.
• Sell after becoming a non-resident alien.
• Stagger sales across tax years to manage brackets, mutual fund distributions, and foreign reporting.

Human and financial stakes

For families, the human side of this planning can be stressful. People often sell assets to fund housing, schools, or a new business abroad. A poorly timed sale can shrink those plans.

With a simple timeline and a few calls to a broker and a tax professional, many find they can preserve more of their savings. The key is to:

• Decide what to liquidate before leaving.
• Decide what to hold until after non-resident alien status begins.
• Understand how local taxes will treat both the gains and the cash once it arrives.

The broad message: plan the timing, confirm the rules in both countries, and do not rely on assumptions. The U.S. rules on capital gains tax for residents and the typical non-taxation of gains for non-resident aliens can work in your favor, but only if coordinated with brokerage operations and the tax laws where you’re headed.