How to Pay 0% on Capital Gains with Puerto Rico’s Act 60

What Is the Individual Investor Incentive?

Under Act 60 (formerly Act 22), qualifying individuals who establish bona fide residency in Puerto Rico can enjoy:

• 100% tax exemption on capital gains from assets acquired after becoming a resident
• No U.S. federal capital gains tax under IRC Section 933
• No Puerto Rico capital gains tax on qualifying income

⚠️ Gains on assets acquired before becoming a resident may still be partially taxable depending on sourcing and holding period.

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Who Qualifies for the 0% Rate?

To qualify, you must:

• Be a bona fide resident of Puerto Rico
• Have acquired the capital assets after becoming a resident
• Apply for and receive an Individual Investor Tax Exemption Decree from DDEC
• Make annual charitable donations totaling at least $10,000 to approved Puerto Rican nonprofits
• Purchase a residential property in Puerto Rico within two years of receiving the decree

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Capital Gains Timing: The Crucial Distinction

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What About Dividends and Interest?

Act 60 also offers powerful tax treatment for interest and dividends:

• Puerto Rico–sourced interest and dividends are 100% tax-exempt in both Puerto Rico and the U.S.
• �U.S.–sourced interest and dividends remain taxable in the U.S., even if you are a Puerto Rico resident

Example:

• Interest earned from a Puerto Rican bond = 0% tax in both PR & U.S.
• Dividends from U.S. stocks (e.g., Apple, Tesla) = Taxable by IRS, not by PR Treasury

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Examples of Qualifying Capital Gains

• Sale of publicly traded stocks
• Crypto assets acquired after relocation
• Startup equity or carried interest earned post-move
• NFTs, art, and collectibles
• Gains on real estate (if Puerto Rico–sourced)

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Residency Requirements: What the IRS Looks At

To become a bona fide resident, you must pass these three tests:

1. Presence Test – Spend 183+ days per year in Puerto Rico
2. Tax Home Test – Your primary business or professional activity is located in PR
3. Closer Connection Test – Your social, family, and financial ties are stronger in PR than anywhere else

Warning: Failure to pass these tests risks losing the tax benefits and triggering IRS audits.

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Common Pitfalls to Avoid

• Selling appreciated assets before becoming a resident
• Failing to meet the annual donation or property purchase requirements
• Keeping primary ties (home, bank accounts, family) in the mainland U.S.
• Assuming Puerto Rico residency without IRS-compliant evidence

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