Returning to the United States After Years Abroad

Re-Entry Is a Tax Residency Event

Returning to the United States is not just a physical move.
It is a tax residency event.

For US tax purposes, residency is determined by:

• citizenship,
• green card status,
• substantial presence.

US citizens

Remain US tax residents regardless of where they live. However, returning to the US typically:

• increases interaction with domestic reporting systems,
• changes how income is sourced,
• affects access to deductions and exclusions.

Green card holders

May re-enter as US tax residents depending on:

• whether the green card was retained,
• treaty positions taken while abroad,
• time spent outside the U.S.

Foreign nationals

May re-establish US tax residency by:

• meeting the Substantial Presence Test, or
• holding a green card again.

Residency status on re-entry drives everything else.

What Happens to Foreign Income When You Return

When US tax residency applies:

• worldwide income becomes reportable,
• regardless of where it is earned,
• regardless of where it is paid.

Foreign income may include:

• employment income earned abroad,
• business income,
• rental income from foreign property,
• foreign investment income,
• pension distributions.

Key point:

• income earned after US residency resumes is generally taxable in the U.S.
• income earned before residency may still affect reporting, depending on timing.

The year of return often requires careful attention.

The Year of Return: Split-Year and Transitional Issues

The year someone returns to the US is often not cleanly divided.

Issues may include:

• split-year residency,
• partial-year exclusions,
• timing of income recognition,
• overlapping reporting regimes.

Foreign income earned earlier in the year may:

• still need to be reported,
• interact with exclusions or credits,
• affect overall tax liability.

The mechanics vary by individual situation.

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Foreign Bank Accounts and Reporting on Re-Entry

One of the first areas affected by re-entry is foreign account reporting.

Once US tax residency applies, individuals may need to:

• report foreign bank accounts,
• disclose account balances,
• file informational forms even if no tax is due.

Key regimes include:

• FBAR (FinCEN Form 114),
• FATCA Form 8938.

These filings are separate from income tax and often resume immediately upon re-entry.

Foreign Investments and PFIC Exposure on Return

Investments accumulated abroad may include:

• foreign mutual funds,
• UCITS ETFs,
• local investment platforms,
• insurance-linked investment products.

When US tax residency resumes:

• certain foreign pooled investments may be treated as PFICs,
• additional reporting may apply,
• tax treatment can differ significantly from local rules.

Many people are unaware that:

• investments that were tax-efficient abroad may be problematic under US rules,
• PFIC exposure often begins upon re-entry, not acquisition.

Cost Basis: Why Documentation Matters More on Return Than on Exit

Cost basis records often fade into the background while living abroad.

On re-entry:

• historical purchase prices matter again,
• currency conversion matters,
• improvements and reinvestments matter,
• incomplete records can complicate reporting.

This applies to:

• foreign shares,
• property,
• business interests,
• inherited assets.

Re-entry often exposes documentation gaps that were irrelevant abroad.

Foreign Property and Rental Income After Return

Foreign property held during time abroad does not disappear on re-entry.

For US tax residents:

• rental income becomes reportable,
• expenses may be deductible under US rules,
• depreciation may apply,
• currency conversion is required.

Selling foreign property after re-entry may trigger:

• US capital gains tax,
• interaction with local taxes,
• foreign tax credit considerations.

The timing of sales relative to re-entry is often decisive.

Foreign Pensions and Retirement Plans on Re-Entry

Foreign pensions are frequently misunderstood on return.

Common types include:

• UK pensions,
• European occupational schemes,
• Australian superannuation,
• Asian provident funds,
• Middle Eastern end-of-service benefits.

On re-entry:

• distributions may be taxable in the U.S.,
• treaty rules may apply,
• reporting may be required even without distributions,
• classification matters.

Foreign retirement planning often needs to be re-evaluated once US residency resumes.

Why Returning Is a Planning Moment, Not an Administrative Step

Returning to the US is a reset point.

It affects:

• how assets are classified,
• how income is taxed,
• how future decisions are treated,
• how retirement is structured.

People who treat re-entry as a paperwork exercise often discover issues later that could have been anticipated.

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Why Re-Entry Planning Is Often Overlooked

Many people:

• plan extensively before leaving the U.S.,
• plan extensively while abroad,
• but do not plan for the return.

This creates a blind spot where:

• foreign structures collide with US rules,
• reporting obligations resume unexpectedly,
• tax assumptions no longer hold.

Re-entry planning is not about urgency.
It is about awareness.

Capital Gains Issues That Arise on Re-Entry

One of the most common re-entry issues involves capital gains on assets acquired while living abroad.

When US tax residency resumes:

• the US generally taxes worldwide capital gains,
• cost basis is determined under US rules,
• there is no automatic reset of basis on re-entry.

This means that:

• gains accrued while living abroad may still be taxable when sold later,
• local country exemptions may not apply under US rules,
• currency movements can materially change the reported gain.

For many returning individuals, the timing of asset sales relative to re-entry becomes critical.

Selling Assets Before vs After Returning to the U.S.

The same asset can produce very different outcomes depending on when it is sold.

Selling before US tax residency resumes

• Gains may not be taxable in the U.S.
• Local country rules apply.
• US reporting may be limited or not required.
• Documentation remains important for future reference.

Selling after US tax residency resumes

• Gains are generally taxable in the U.S.
• Local country tax may still apply.
• Foreign tax credits may or may not offset US tax.
• Currency conversion into USD applies.

The decision is often not about “optimisation,” but about understanding consequences.

Foreign Trusts, Gifts, and Inheritances on Re-Entry

Foreign family arrangements that operated quietly abroad often come back into focus on re-entry.

Once US residency resumes:

• distributions from foreign trusts may become reportable,
• foreign gifts may trigger reporting thresholds,
• inherited assets may require valuation and documentation,
• Forms 3520 and 3520-A may apply.

Many individuals are surprised to learn that:

• prior foreign arrangements are not ignored simply because they pre-date re-entry,
• ongoing distributions can create new reporting obligations.

Re-Entry and Deferred Foreign Income

Some income earned abroad may not be realised until after returning to the U.S.

Examples include:

• deferred compensation,
• profit distributions from foreign businesses,
• trust distributions,
• delayed bonuses.

When such income is received after US tax residency resumes:

• US tax treatment may apply,
• sourcing rules may affect classification,
• treaties may influence outcomes.

Understanding when income is “realised” matters.

Re-Establishing US Accounts and Financial Infrastructure

Returning individuals often need to:

• reopen or update US bank accounts,
• re-establish brokerage relationships,
• update custodians with new residency status.

This process can:

• surface questions about source of funds,
• trigger compliance reviews,
• require explanation of foreign income or assets.

Clear records help smooth this transition.

State Tax Considerations on Re-Entry

Federal tax rules are only part of the picture.

State tax considerations may include:

• determining state residency,
• filing requirements upon return,
• sourcing of income,
• treatment of foreign income at the state level.

State rules vary widely and can materially affect outcomes.

Common Misconceptions About Returning to the U.S.

Some frequent assumptions that cause problems:

• “Everything resets when I move back.”
• “Foreign income earned abroad is no longer relevant.”
• “The IRS only cares about US assets.”
• “Foreign investments are treated the same as US ones.”
• “Reporting only matters if tax is due.”

These assumptions often lead to avoidable stress later.

Why Re-Entry Planning Is Not the Reverse of Exit Planning

Leaving the US and returning to the US are not mirror images.

Re-entry involves:

• reactivation of worldwide taxation,
• renewed reporting obligations,
• reassessment of foreign structures,
• integration of foreign assets into a US framework.

Planning for exit does not automatically prepare someone for re-entry.

Why Awareness Matters More Than Speed

Most re-entry issues are not caused by urgency.

They are caused by:

• lack of awareness,
• incomplete records,
• incorrect assumptions,
• delayed review of structures.

Early understanding allows decisions to be made deliberately rather than reactively.

Hypothetical Re-Entry Scenarios

The following scenarios are hypothetical and provided for educational purposes only. They do not represent actual clients or outcomes.

Scenario 1 - US Citizen Returning After a Long Overseas Assignment

An American citizen lived and worked overseas for more than a decade and accumulated foreign investments and a foreign pension. They later return to the US for family reasons.

Key considerations:

• Worldwide income becomes fully reportable again.
• Foreign investment structures may trigger PFIC considerations.
• Foreign pension distributions may be taxable under US rules.
• Reporting obligations resume immediately.
• Historical cost basis and currency conversion become relevant.

Scenario 2 - Former Resident Returning With Foreign Property

A former US resident returns after many years abroad and retains a rental property overseas.

Key considerations:

• Rental income is reportable in the U.S.
• Depreciation may apply under US rules.
• Capital gains may be taxable if the property is sold after re-entry.
• Foreign tax credits may reduce double taxation but require coordination.

Scenario 3 - Re-Entry After Using Foreign Trust Structures

An individual returns to the US while continuing to receive distributions from a family structure created abroad.

Key considerations:

• The structure may be treated as a foreign trust.
• Distributions may be reportable and taxable depending on classification.
• Forms 3520 and 3520-A may apply.
• Timing of distributions matters.

Scenario 4 - Foreign National Re-Establishing US Residency

A foreign national previously lived in the U.S., left for several years, then returned for employment.

Key considerations:

• US tax residency may restart under the Substantial Presence Test.
• Foreign income received after re-entry becomes reportable.
• Prior foreign arrangements may require review.
• State residency rules may apply.

Practical Checklist for Returning to the U.S.

Before or shortly after returning to the United States, individuals may wish to review:

• Their US tax residency status upon return.
• Timing of foreign income and asset sales.
• Historical cost basis documentation for foreign assets.
• Foreign bank account balances and reporting thresholds.
• Foreign investment exposure and PFIC considerations.
• Treatment of foreign pensions and retirement plans.
• Ongoing foreign trust or gift arrangements.
• State tax residency rules.
• Currency exposure and cash-flow planning.
• How foreign assets integrate with US retirement planning.

This checklist supports awareness and preparation, not decision-making.

How Skybound Wealth USA Assists With Re-Entry Planning

Skybound Wealth USA assists individuals with:

• understanding how US tax residency restarts on re-entry,
• evaluating how foreign assets and income are treated under US rules,
• coordinating re-entry considerations with long-term retirement planning,
• integrating foreign assets into U.S.-based financial structures,
• supporting discussions with tax professionals where appropriate,
• helping globally mobile families transition smoothly back into the US system.

Any recommendations depend entirely on individual circumstances.

Next Steps

If you are planning to return to the United States after years abroad, understanding how US tax and reporting rules apply in advance can reduce uncertainty and incorrect assumptions.

You may schedule a discussion with Skybound Wealth USA to review how re-entry considerations fit into your broader financial planning.

Important Disclosures

This material is provided for general informational purposes only and does not constitute personalised financial, tax, or legal advice. US tax and residency rules may change and vary by individual circumstances. Hypothetical examples are for illustration only and do not represent actual client outcomes. Past performance does not predict future results. Skybound Wealth USA is an SEC-registered investment adviser. Registration does not imply any specific level of skill or training. Please refer to Form ADV Part 2A, Part 2B, and Form CRS for full disclosures.