For those living abroad, how many generations can US citizenship be transferred for? It's complicated.
If at least one parent lived in the US for at least 5 years, 2 after the age of 14, children automatically derive citizenship from the parent, at birth. Although they aren't automatically documented as US citizens at birth, an application at the local US embassy or consulate for a Consular Report of Birth Abroad (CRBA) certifies baby as a US citizen. Government fees: $100.
In many instances the US embassy or consulate may ask for proof of a parent's physical presence in the US for the requisite time period. Especially if only one parent is a US citizen, and wasn't born in the US. Though if both parents were born in the US and lived there for a long period of time, most of the time proof is not required (the embassy has ways to verify this easily).
A passport and social security card can be applied for at the same time. There is no need to travel to the US for this process. The state department is in charge of this, and most expats take care of this application themselves.
However, if the US citizen parent(s) didn't live in the US for the above time period, children do not acquire citizenship automatically at birth.
A grandparent's physical presence in the US may be used as basis for a special application, called the Section 322 grandfather clause (Form N-600K). USCIS (United States Citizenship and Immigration Services) takes care of this process of naturalization.
Proof must be shown, certifying the grandparent's physical presence in the US. School records, medical records etc. may be used as evidence. The application is sent to USICS, and if it is approved, the US citizen parent whom the application is based on (not the grandparent) must travel to the US with the child for the final interview and granting of citizenship.
A certificate of citizenship is granted, and a passport and social security card may be applied for thereafter.
Government fees: $1170 per child. A fee waiver is available for low income households. For many, going through this process is financially beneficial over time, simply in order to receive the child tax credit for their child.
I have extensive experience helping clients through this tedious process; contact me if you need help applying for your child's US citizenship.
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