Pre-Immigration Tax Planning: What to Do Before Becoming a U.S. Resident

Why the timing of planning matters more than almost anything else

The moment a foreign national becomes a U.S. resident for tax purposes, the United States asserts the right to tax their worldwide income — and eventually their worldwide estate. Assets, structures, and investments that were perfectly efficient before residency can become tax nightmares the day after. The window for effective pre-immigration planning closes the moment residency begins, and many of the most valuable strategies cannot be implemented retroactively. For high-net-worth individuals planning to move to the United States, pre-immigration planning is not optional — it is essential.

When does U.S. tax residency begin?

For income tax purposes, U.S. residency generally begins on the first day the individual is present in the United States as a lawful permanent resident (green card holder), or on the first day they meet the substantial presence test — 183 days calculated under a weighted three-year formula. Residency can also begin on the "residency starting date" determined under specific first-year election rules. Identifying the exact date of residency commencement is the starting point for all pre-immigration planning.

For estate and gift tax purposes, the relevant standard is domicile — not tax residency. A foreign national who establishes a U.S. domicile (presence in the U.S. with the intent to remain indefinitely) becomes subject to U.S. estate and gift tax on their worldwide assets, potentially even before they have filed a single U.S. income tax return. This distinction between income tax residency and estate tax domicile is critically important and frequently overlooked.

Cleaning up the foreign asset structure before arrival

One of the most important pre-immigration steps is a thorough review and restructuring of the immigrant's existing foreign assets and entities. Investments held in foreign mutual funds will become PFICs — subject to punishing anti-deferral rules — the moment U.S. residency begins. Foreign corporations owned by the incoming resident may become CFCs, triggering Subpart F and GILTI inclusion obligations. Foreign trusts created for legitimate estate planning purposes in the home country may trigger complex U.S. grantor trust rules and reporting obligations on Forms 3520 and 3520-A.

Where possible, restructuring these holdings before residency begins — liquidating PFICs, restructuring foreign entities, or distributing trust assets — can eliminate years of compliance complexity and significant potential tax liability.

Basis step-up planning

U.S. income tax is imposed on gain — the difference between the amount realized on a sale and the asset's tax basis. For a pre-immigration investor, the basis in foreign assets is generally their cost. But if the asset has appreciated significantly since purchase, a large taxable gain may be lurking. One key pre-immigration strategy is to sell and repurchase appreciated assets before U.S. residency begins — establishing a new, higher tax basis at fair market value while still outside the U.S. tax system. This "basis step-up" can eliminate the tax cost of years of pre-immigration appreciation.

Gift and inheritance tax planning before U.S. domicile is established

A foreign national who has not yet established U.S. domicile is subject to U.S. gift tax only on gifts of tangible U.S.-situs property. Gifting foreign assets — including shares of foreign companies, foreign real estate, and foreign financial accounts — before domicile is established can transfer significant wealth outside the U.S. transfer tax system entirely. Once U.S. domicile is established, worldwide assets become subject to U.S. estate and gift tax, and this window closes permanently.

If you or a family member is planning to move to the United States, the time to begin planning is now — not after the visa is approved. Our international private client attorneys work with incoming residents and their advisors to structure a clean entry into the U.S. tax system. Contact us to schedule a pre-immigration planning consultation.