Puerto Rico Capital Gains Tax: How the 0% Act 60 Rate Works
Puerto Rico is the only place a US citizen can legally pay 0% on capital gains, without renouncing citizenship.
Under Act 60's Individual Investor decree (Chapter 2, formerly Act 22), bona fide residents of Puerto Rico pay a 0% Puerto Rico tax rate on Puerto Rico source long term capital gains and dividends. Because IRC §933 keeps Puerto Rico source income off the federal return entirely, that 0% is the final number, not a starting point with an IRS bill layered on top. No other US jurisdiction can offer this, since Puerto Rico is the only place with a separate tax system operating inside US citizenship.
The window is closing. Under Act 38-2026 (HB 505), decree applications submitted on or after January 1, 2027 pay 4% on capital gains, dividends, and interest instead of 0%. Applications filed by December 31, 2026 lock in 0%, and existing decree holders are grandfathered. Applying this year versus next year is a swing of a full 4 percentage points on every dollar of future gain.
What It Takes to Actually Qualify for 0%
Three pieces have to line up. First is the decree itself. You apply for an Act 60 Individual Investor decree through Puerto Rico's DDEC, and once granted, it functions as a binding contract with the government, currently locked in through 2055.
Second is bona fide residency. You need to clear all three residency tests under IRC §937, laid out in IRS Publication 570: the presence test, generally 183 days physically on the island, the tax home test, and the closer connection test. Miss any one in a given year and that year's benefits disappear.
Here's how that plays out in practice. Suppose you relocate to San Juan on March 1, 2026. That leaves 306 days remaining in the year, and to satisfy the presence test you'd typically need at least 183 of those days on the island. If you only spend 160 days in Puerto Rico that year, you'd fail the presence test even with an active decree, meaning none of that year's gains would qualify for 0%. Each year stands alone, so a clean 2027 doesn't retroactively repair a failed 2026.
Third is Puerto Rico sourcing. Only gains that build up after your residency officially starts count as PR source income, and that's where the real planning work happens.
Why Your Existing Gains Don't Get a Fresh Start
Act 60 doesn't wipe out appreciation you already had before moving. Imagine you're holding a stock position bought years ago for $300,000 that's worth $2,300,000 the day you become a Puerto Rico resident. That $2,000,000 of built in gain existed before your move, so it stays US source and gets taxed at ordinary federal long term capital gains rates whenever you sell. Only appreciation above that $2,300,000 baseline is eligible for the 0% rate.
This is the piece people misunderstand most, and it's why timing drives everything else. The date you relocate, the date you sell, and how carefully the pre-move value is documented will decide whether this structure saves you seven figures or just adds paperwork. The same principle holds for stocks, crypto, business equity, or real property, though each has its own quirks for how sourcing is determined.
The Real Price Tag on Keeping the Decree
Maintaining the decree isn't free. Expect a $5,000 annual filing fee to the Government of Puerto Rico, plus a $10,000 annual charitable donation split between two approved nonprofits. You'll file IRS Form 8898 in the year you first establish residency, and from there it's ongoing annual paperwork on both sides: a federal Form 1040 carrying the §933 exclusion, a Puerto Rico Forma 482 with Hacienda, and a decree compliance report to DDEC. Applications from 2027 forward also face a six year lookback confirming prior non-residency, plus a requirement to register a primary residence on the island within two years.
As a general benchmark, this structure tends to pay off when you're expecting $500,000 or more in capital gains over five years. Between roughly $15,000 a year in fees and donations, plus compliance costs on both sides, total carrying costs typically land between $20,000 and $25,000 annually, or $100,000 to $125,000 across five years. If your projected gains sit well under $500,000, the tax savings might not cover those carrying costs. Above that threshold, the numbers usually work strongly in favor of the decree. We'll run the actual breakeven math for your situation on a free call.
Stocks, Crypto, and What Doesn't Qualify
Publicly traded shares and digital assets like crypto tend to work best here, since appreciation on personally held positions after your move can typically be sourced to Puerto Rico, as long as the pre-move value is properly recorded. Property sitting in the US stays US sourced no matter your residency status, so someone who owns a rental in Florida and later relocates will still owe federal tax on the entire gain when that property sells. Ownership stakes in a business are murkier and hinge on how the company is structured and where value is generated. A founder relocating ahead of a sale might source a portion of the post-move growth to Puerto Rico, but that comes down to where operations and leadership actually sit, not where the founder personally lives. When a significant chunk of your net worth sits in any of these categories, the sourcing analysis before you relocate is where the real outcome gets decided.
One Firm for Both Governments
Shahbaz & Associates CPAs manages both halves of an Act 60 engagement internally, handling the US federal return with the §933 exclusion, residency documentation and audit defense, plus the Puerto Rico Hacienda filings and compliance reporting. You're not stuck coordinating two separate firms trying to reconcile two tax authorities. The IRS has been scrutinizing Act 60 residency claims more heavily each year, pulling travel logs, utility statements, and lease documentation to test whether the presence test and closer connection test hold up. Building that documentation trail from the start, rather than scrambling after an audit letter arrives, usually determines whether you keep your 0% rate or owe it back with interest and penalties.
The Bottom Line
The Act 60 Individual Investor decree gives you a legitimate way to pay 0% on future capital gains while keeping your US citizenship intact, but it only covers appreciation from the day residency starts forward, and you have to clear the residency tests fresh every year to keep it. Nailing the timing of your relocation, documenting your pre-move value, and staying current on filings is what separates a structure that genuinely saves money from one that just piles on cost and complexity. With the rate climbing to 4% for anyone applying after 2026, the practical window to lock in today's benefit is narrower than the calendar might suggest.
Considering a Move to Puerto Rico? Get the Tax Strategy Right First
At Shahbaz & Associates CPAs, we help you figure out whether the Act 60 decree fits your gains picture, structure your move to maximize what qualifies as Puerto Rico sourced income, and manage the ongoing filings so you stay compliant year after year.
Book your free 30-minute consultation. No obligation. By the end of the call you'll know whether relocating makes sense given your gains, what the numbers look like after fees, and what the next 12 months should look like.
Frequently Asked Questions
Does Puerto Rico really have no capital gains tax? For Act 60 Individual Investor decree holders who qualify as bona fide residents, Puerto Rico sourced long term capital gains sit at 0% for decrees granted under rules effective through December 31, 2026, moving to 4% afterward. Without a decree, Puerto Rico residents pay standard Puerto Rico capital gains rates. The 0% comes from the decree specifically, not from simply living there.
Do I still pay the IRS on gains after I move? Not on income sourced to Puerto Rico, since IRC §933 keeps that off your federal return. But appreciation that built up before you established residency remains US sourced and fully taxable once you sell, and property located in the US keeps that designation permanently.
What about the 183 day requirement? That's the presence test, one piece of the three part bona fide residency standard under IRC §937. You'll generally need 183 days on the island each year, plus a Puerto Rico tax home and a stronger connection to Puerto Rico than to any single US state. All three have to hold up annually.
Is it too late to get the 0% rate? Not yet, but the clock is running. Submitting by December 31, 2026 secures the 0% rate and grandfathers you in. Anyone applying starting January 1, 2027 moves to 4%, still better than standard federal rates but weaker. Since preparing a decree application takes real time, the actual window to act is tighter than the deadline alone suggests.