Pre-Immigration Tax Planning: What to Do Before Getting a US Green Card

If you are considering a move to the United States on a green card, pre-immigration tax planning is the single most important financial exercise you will undertake. It determines whether you preserve your wealth or write avoidable checks to the IRS for tens of millions of dollars. The US is one of the few countries that taxes based on citizenship and residency, not just where income is earned. The moment you get that green card (or trip the Substantial Presence Test), the IRS wants to know about every bank account, investment, business, and trust you own, anywhere on the planet. The strategies below are perfectly legal, widely recognized, and available exclusively in the pre-immigration window. That window closes the day you become a US tax resident, and there is no reopening it.

Why Pre-Immigration Planning Matters

The US tax system draws a hard line at your residency starting date. Before that date, you are a non-resident alien and the IRS generally has no jurisdiction over your foreign-source income. After it, every dollar you earn anywhere in the world is taxable at rates that can exceed 50% when you combine federal, state, and the 3.8% Net Investment Income Tax.

You become a US tax resident through one of two tests. The Green Card Test makes you a tax resident from the day you receive lawful permanent resident status. The Substantial Presence Test counts your days in the US over a three-year lookback period: current-year days, plus one-third of last year's days, plus one-sixth of the year before that. Hit 183, and you are a US tax resident whether you intended it or not.

There are virtually no adverse consequences to engaging in tax planning before you immigrate. The US tax code was constructed with the implicit understanding that people would arrange their affairs to minimize their tax burden. Planning before entering the jurisdiction is entirely legal. Failing to do so is essentially donating money to the US Treasury.

For an analysis of the opposite trajectory, where someone is leaving the US and facing the exit tax, see our guide to the US exit tax.

Step-Up in Cost Basis

This is the single most valuable pre-immigration strategy, and it is not close.

The US taxes capital gains on the difference between the sale price and the asset's historical cost basis. If you bought property abroad for $2 million twenty years ago and it is now worth $20 million, the IRS sees $18 million in taxable gain when you sell. It does not matter where or when the appreciation occurred.

A step-up in basis eliminates this problem by triggering a realization event before your residency starting date. You structure a transaction the US tax code treats as a sale or exchange (resetting the basis to current fair market value) but which is simultaneously ignored or exempt in your home country.

Consider a concrete example. Mr. X and Mr. Y each own foreign property purchased for $10 million, now worth $200 million. Mr. X structures a sale to a wholly owned foreign entity before immigrating, resetting his basis to $200 million. Mr. Y does nothing. Years later, both properties reach $250 million and both men sell.

• Mr. X pays tax on $50 million of post-immigration appreciation: roughly $10 million at 20%
• Mr. Y pays tax on the full $240 million of appreciation: roughly $48 million

That is $38 million in legal tax savings from one pre-move transaction.

Execution requires independent, qualified appraisals for all major assets conducted 12 to 24 months before the move. The IRS scrutinizes related-party transactions, so meticulous documentation and arm's-length pricing are non-negotiable. This strategy also integrates with "check-the-box" regulations, where filing an election to treat a foreign corporation as a disregarded entity triggers a deemed liquidation at fair market value, stepping up the inside basis without incurring US tax (provided the election is effective before residency begins).

Accelerating Income

Income earned while you are a non-resident alien from foreign sources is invisible to the IRS. Income received after you become a US resident is fully taxable. The logic follows naturally: accelerate income into the pre-residency period and defer deductible expenses until after.

For executives with deferred compensation, bonuses earned abroad but paid after establishing US residency are fully taxable. Stock options exercised after the move generate compensation income at ordinary rates up to 37%, plus state taxes. The fix is straightforward: accelerate all bonuses and exercise unvested stock options while you are still a non-resident alien.

For owners of foreign corporations, extracting accumulated earnings is equally urgent. If you immigrate holding equity in a foreign corporation with significant retained earnings, any dividend distributions made as a US resident are fully taxable. If that corporation sits in a non-treaty jurisdiction like the UAE, dividends will not qualify for the preferential 20% rate and will instead hit 37%. Declare a large dividend, stripping out all historical earnings while you are still outside the US tax net. The extracted cash can then be held personally or lent back to the corporation through a formalized debt instrument, entering the US as tax-free principal rather than taxable income.

On the flip side, if you hold underwater assets, defer those realizations until after you become a US resident. Those losses become a valuable tax shield against future capital gains.

Foreign Trusts: The Grantor Trust Trap

The US tax code contains punitive provisions designed to prevent immigrants from using offshore trusts to shelter assets from US taxation, and this is an area where pre-immigration planning is absolutely essential.

The core mechanism is the "five-year rule" under IRC Section 679. If you transfer property to a foreign trust and then establish US residency within five years, the trust is classified as a "pre-immigration trust." Regardless of when the transfer actually occurred within that window, you are deemed to have transferred the property on the exact date you become a US resident. The deemed transfer amount includes all undistributed net income accumulated since the original transfer.

If the trust has at least one US beneficiary, you become the grantor and deemed owner of the trust assets for US tax purposes. While you were a non-resident, grantor status meant the trust's offshore earnings were tax-free. The moment you become a US resident, you are personally liable for US tax on the trust's worldwide income at the highest marginal rates.

The statute covers both direct and indirect transfers. You cannot gift cash to a foreign relative and have them fund the trust. The IRS intermediary rules under Treasury Regulation Section 1.679-3(c) collapse the transaction and treat you as the direct funder. The interaction with IRC Section 684 makes it worse: if the trust lacks US beneficiaries, the deemed re-transfer triggers a mark-to-market exit tax on all unrealized appreciation.

The most reliable mitigation is chronological: fund the foreign trust and wait more than five full calendar years before establishing US residency. If that timeline is not feasible, consider domesticating the trust into a favorable US jurisdiction (Delaware, South Dakota, or Nevada) before your move.

PFIC Cleanup

If there is one area of the US tax code that routinely devastates immigrant portfolios, it is the Passive Foreign Investment Company regime. A foreign corporation is classified as a PFIC if 75% or more of its gross income is passive (income test) or 50% or more of its assets produce passive income (asset test). In practice, this captures nearly all foreign mutual funds, ETFs, unit trusts, and investment-linked insurance products.

Under the default Section 1291 treatment, gains on PFIC shares are prorated over your entire holding period, taxed at the highest marginal rate for each prior year, and hit with a daily-compounding interest charge. The effective tax rate can exceed 100% of your gain, actually eating into your original principal.

Pre-immigration cleanup strategies include:

1. Complete divestment: Liquidate all PFIC holdings before your residency starting date. The IRS has no claim to pre-residency gains, making this the cleanest option by far
2. Mark-to-Market election: File a Section 1296 election in your first year of US residency to pay ordinary income tax on unrealized gains annually, avoiding the punitive compounding interest
3. Qualified Electing Fund election: File under Section 1295 in year one to include the pro-rata share of PFIC earnings annually, preserving favorable capital gains rates

For a deeper look at how holding company structures can trigger PFIC classification, see our guide on CFC rules by country.

Entity Restructuring

Upon acquiring US residency, any foreign corporation you own is evaluated under the Controlled Foreign Corporation rules. If you hold more than 10% of a foreign corporation's voting power or total value, and US shareholders collectively own more than 50%, it becomes a CFC on your exact residency starting date.

Under Subpart F, your pro-rata share of the CFC's passive income is taxed currently, whether or not the corporation distributes cash. Under the GILTI regime, nearly all active operating income exceeding a statutory 10% return on depreciable tangible assets is also taxed currently. For service-based or technology businesses with minimal physical infrastructure, essentially all operating income gets swept into the GILTI net. Individual US shareholders pay tax on GILTI at ordinary rates up to 37%, plus state taxes and NIIT, with no default ability to claim indirect foreign tax credits.

The standard defense is to file IRS Form 8832 (the check-the-box election) before your residency starting date, treating the foreign corporation as a disregarded entity (if wholly owned) or partnership (if multi-member). This bypasses CFC rules, Subpart F, and GILTI entirely. If checking the box is not viable, a Section 962 election lets you be taxed on Subpart F and GILTI inclusions as if you were a domestic corporation, unlocking the 21% flat rate and 80% indirect foreign tax credit. Note that CFC status is now triggered immediately (the old 30-day grace period has been eliminated), so restructuring must be completed before you cross the border.

5-Year Gift Strategy

The US transfer tax system (estate tax, gift tax, and generation-skipping transfer tax) catches many families off guard, particularly those coming from jurisdictions where inheritance taxes are nominal or nonexistent. While non-resident aliens are only taxed on transfers of US-situs property, US domiciliaries face a 40% federal estate tax on worldwide assets.

The legislative landscape shifted with the One Big Beautiful Bill Act, which permanently increased the unified exemption to $15 million per individual ($30 million for married couples) effective January 1, 2026, with annual inflation indexing starting in 2027.

For families whose net worth exceeds the $30 million threshold, pre-immigration gifting remains essential. As a non-resident alien, you can make unlimited, tax-free lifetime gifts of non-US-situs property and US intangible property without consuming any unified exclusion. US intangible property includes stock in publicly traded US corporations, municipal bonds, and equity interests in US LLCs or partnerships.

This creates what practitioners call the "intangible conversion" strategy. If you directly own tangible US real estate, gifting it triggers a 40% gift tax. But if you first transfer the property into a foreign holding corporation or US LLC (with an appropriate seasoning period of at least one year), the holding converts from tangible asset to intangible equity. You can then gift the intangible units to your heirs or an irrevocable trust, completely free of US gift tax, before establishing US domicile.

One important caveat: remember the 5-year rule under IRC Section 679. While outright gifts to non-US persons are clean, transferring assets to a trust within five years of moving triggers the grantor trust trap discussed above. For families below the permanent $30 million OBBBA threshold, the math often favors including assets in the US taxable estate at death to secure a full step-up in cost basis under IRC Section 1014, since the estate tax liability will be zeroed out by the exemption anyway.

Timing Considerations

Every strategy discussed here shares one non-negotiable requirement: execution before the residency starting date. But the specific friction points vary depending on where you are coming from.

For UK residents, the key timing issue is aligning entity classifications. UK Limited Liability Companies are treated as opaque corporations by HMRC but as transparent flow-through entities by the IRS. Moving without filing protective check-the-box elections causes timing mismatches that result in lost Foreign Tax Credits and double taxation.

For Canadian residents, the friction point is the departure tax. Under Canadian law, ceasing residency triggers a deemed disposition of all property at fair market value. The US-Canada Treaty (Article XIII(7)) allows a matching step-up for US purposes, but serious timing mismatches occur with Canadian mutual funds and TFSAs, which the US treats as PFICs or grantor trusts. Liquidate these before crossing the border. For more detail, see our guide on Canada's departure tax.

For UAE residents, the focus is overcoming the "zero-tax myth." Because the UAE imposes no personal income or capital gains tax, there are zero foreign tax credits to offset the incoming US tax liability. The UAE's Corporate Tax regime (9% on juridical entities) also means that foundations held without restructuring may be classified as foreign trusts under US law, triggering the Section 679 grantor trust trap or CFC anti-deferral regimes.

What This Means for Your Move

Pre-immigration tax planning is a sequential discipline where the immigration date is an immovable deadline. Basis step-ups, PFIC liquidations, income acceleration, entity restructuring, and trust planning all need to be completed before your physical presence triggers the statutory residency algorithms. These opportunities exist only on one side of the residency starting date. Engaging qualified cross-border advisory services to map the precise timeline of physical presence, visa issuance, and asset restructuring is the foundation everything else is built on.