Puerto Rico Act 60 Tax Breaks, How to Get Citizenship

Puerto Rico Act 60 Tax Breaks, How to Get Citizenship

  • Becoming a resident of Puerto Rico is not difficult, but it requires strict rules to obtain tax benefits.
  • You must prove you are on the island and have your belongings with you.
  • You will also no longer be able to vote for representation in the US Congress or vote in presidential elections.

Puerto Rico has a lot to offer visitors and residents, with beautiful beaches, forests filled with abundant wildlife, a generally laid-back lifestyle, and even the city of San Juan, which is often compared to Miami.

And for those looking to move to the island full-time, it can come with some pretty sweet tax breaks.

Moving to Puerto Rico is easy for most Americans. As a US territory, if you are a US citizen, the door is open to you to live there, just like in any American state.

However, Act 60 provides financial incentives to entice Americans to move permanently to the island. If you qualify for Act 60, it includes a 4% income tax rate, a 75% property tax deduction and tax on capital gains accumulated while on the island.

To get the benefits of Act 60, you must be a so-called “bona fide” resident, and this comes with some strict rules.

Availability Test

To become a resident of Puerto Rico, you must do some of the normal things you do when you move to other states, such as registering to vote and getting a local driver’s license. However, there is an additional layer that you need to establish your presence on the island for tax benefits.

In other words, if you have never lived on the island, you cannot simply buy a house on the island and claim residency.

According to Puerto Rico regulations, there are several ways to create an “entity” on the island. The easiest is to show that you are in Puerto Rico more than half of the year – at least 183 days – or at least 183 days on average over 3 years, with a minimum of 60 days each year.

Skyline of Condado Beach, Puerto Rico.

The skyline of Condado Beach in San Juan, Puerto Rico.
Sean Pavone/Getty Images

If you spend less than 183 days in Puerto Rico, you may still be eligible if you can show that you spent no more than 90 days during the year in one of the 50 US states or the District of Columbia.

There are sometimes exceptions to the 183-day rule. For example, after Hurricane Maria devastated Puerto Rico in 2017, the IRS gave people up to 117 days of credit for damage if they were unable to return to the island.

‘Closer contact’ test

You also can’t have anything that’s considered a “closer connection” to a US state. These can be things or even personal relationships.

Sean Flynn, a semi-retired IT consultant, moved from Austin to Humacao, Puerto Rico in 2021. He told Business Insider that he didn’t move to the island for the tax breaks, but it certainly “sweetens the pot.” He explained that a “closer connection” with the mainland can be vague and defined on a case-by-case basis, but a few things are clear.

“It could be like a residence in Texas, and I’ve been there more than 30 days a year, which could be considered a closer connection to the mainland,” Flynn told Business Insider. “Also, if I was married and he didn’t claim residency and still apply for residency in Texas, that could be a problem.”

Flynn noted that the housing situation could be a problem for some wealthy mainlanders moving to Puerto Rico who want to keep a home in the United States and split their time. He notes that if they travel too much to the mainland, it could violate their mandate in Puerto Rico and, at the very least, subject them to closer scrutiny from the IRS.

Puerto Rican children.

If you want to take advantage of tax breaks in Puerto Rico, you can’t leave your children behind on the mainland.
Mark Rubens/Getty Images

Other things to consider, according to the government, are where the rest of your family lives, such as children, where you run your business, where your main bank is located and your personal belongings, including cars, furniture and clothing. , and jewelry.

None of these things are allowed to be in the mainland US if you want to “bona fide” claim Puerto Rican residency.

Being a conscientious resident can be costly

The government included a matching donation as part of Act 60 to ensure that people who take advantage of tax incentives to move to Puerto Rico are wealthy enough to help boost the local economy.

Puerto Rico requires people who sign up for the 15-year decree to make two separate donations of $5,000 each year to the government and two separate donations of $5,000 each year to charities on the island.

For most immigrants, moving to Puerto Rico for the tax benefits would only be worth it if they exceeded the required annual contribution amount. However, Ricky Santana, founder and managing partner of Colectivo Group, a Puerto Rico real estate firm that helps people move to the island, told Business Insider in a recent interview that some of his wealthy clients often donate more than the required minimum. .

Ricky Santana, Founder and Managing Partner of Colectivo Group

Ricky Santana, founder and managing partner of Colectivo Group, a firm that helps mainlanders move to Puerto Rico.
Colectivo Group

On the political level, you should also give up your representation in the US Congress and your vote in the US presidential elections. Puerto Rico has 23 representatives during the presidential election. Still, voting in the general presidential election in the United States only helps the people vote, not the electoral college.

On several occasions, including most recently in 2020, Puerto Ricans have voted in support of statehood, which would change the indigenous voting status. However, the US Congress has not acted on non-binding referendums forcing the island to remain a territory.

Moving to Puerto Rico can give some Americans the best of two great worlds—financial incentives in an island paradise. However, while it’s still the United States, those considering taking the plunge should note that there are some pretty strict rules to follow to prove you’re not just using the system.

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