For Americans who want out of the federal income tax without giving up their passport — and who can live with what the island actually asks in return.
Puerto Rico is a US territory, not a US state. That distinction is the entire mechanism. Section 933 of the Internal Revenue Code excludes Puerto Rico-sourced income earned by a bona fide resident of Puerto Rico from federal gross income. Puerto Rico is then free to set its own rate on that income — and under Act 60, for people who qualify, that rate is 0% or 4%.
No renunciation. No exit tax. No second citizenship required. You keep the passport, the dollar, US banking, Medicare eligibility and a 2.5-hour flight to Miami.
Act 38-2026, signed 20 March 2026, extended the Resident Individual Investor programme from its old 2035 sunset out to 31 December 2055 — and simultaneously priced the 0% rate out of existence for anyone who applies late.
- Decree application filed on or before 31 Dec 2026 → 0% on interest and dividends, 0% on post-residency long-term capital gains.
- Decree application filed on or after 1 Jan 2027 → 4% on interest and dividends, 4% on post-residency long-term capital gains.
Existing decree holders are grandfathered on their current terms through 2035, and may elect to move onto the new framework to extend their benefits to 2055. Confirm the current implementation status and your own filing timeline with Puerto Rico counsel — this is recent legislation and the administrative guidance is still settling.
What the rates actually are
| Income type | Decree filed ≤ 31 Dec 2026 | Decree filed ≥ 1 Jan 2027 |
|---|---|---|
| Interest and dividends | 0% | 4% |
| Long-term capital gains accrued after you move | 0% | 4% |
| Long-term capital gains accrued before you move | 5% after 10 years’ residency | 5% after 10 years’ residency |
| Export services business income (Act 60 Ch. 3) | 4% | 4% |
The pre-move versus post-move distinction is the one that catches people. If you arrive holding a position with a large unrealised gain, that embedded gain is not laundered by the move. Only what accrues from your residency date forward gets the headline treatment. Plan the timing of your move around your balance sheet, not the other way round.
Qualifying: three tests, not one
“183 days” is the number everyone repeats and it is the least of your problems. Under IRC §937 you must satisfy all three:
- Presence test — at least 183 days in Puerto Rico during the tax year. (There are alternative ways to satisfy this, including a 549-day/3-year rule and limits on days spent in the US.)
- Tax home test — your regular or principal place of business must be in Puerto Rico. If you work, you work from the island.
- Closer connection test — your family, home, belongings, bank, car registration, driver’s licence, doctors, clubs and voter registration should sit in Puerto Rico rather than in any US state or foreign country.
The IRS knows exactly what this programme is and audits it. People who fail do not usually fail on day count; they fail because their life is visibly still in New York and the Puerto Rico apartment is a mail drop.
What Act 60 requires of you
- Buy a home. You must acquire residential property in Puerto Rico for use as your principal residence within two years of the decree. Act 38-2026 tightened the ownership rules: the property must be held directly by you or through a trust, no longer through an LLC.
- Donate annually. A minimum $10,000 per year to Puerto Rico-based nonprofits, with half directed to organisations working on child poverty.
- Report annually. An annual compliance report to the Department of Economic Development and Commerce, accompanied by a filing fee (currently in the region of $5,000). Add decree application and acceptance fees on top.
- Have no recent Puerto Rico history. There is a look-back period during which you must not have been a Puerto Rico resident. Act 38-2026 restates this as the six years before you move, replacing the earlier fixed 2006–2012 window; you will still see advisers cite 10 or 15 years, so confirm which rule attaches to your filing date.
- File a Form 8898 in the year you establish (or end) bona fide residency.
What it costs to set up
Act 60 is not a cheap programme to enter or to keep. Typical ranges:
| One-off, first year | Cost |
|---|---|
| Decree application and acceptance fees (DDEC) | ~$5,000 |
| Puerto Rico attorney | $3,000–$10,000 |
| CPA / tax adviser, initial structuring | $2,000–$5,000 |
| Total first year, excluding housing | ~$18,000–$25,000 |
| Every year after | Cost |
|---|---|
| DDEC annual compliance fee | $5,000 |
| Mandatory charitable donation | $10,000 |
| CPA / tax preparation | $3,000–$8,000 |
| Legal compliance review | $2,000–$5,000 |
| Total ongoing | ~$20,000–$28,000 per year |
Plus the requirement to buy a home within two years, which is the largest single cost and the one most people underestimate.
The break-even. Against a 23.8% federal long-term capital gains rate (including net investment income tax), roughly $25,000 of annual overhead pays for itself somewhere around $105,000 of investment income. That is the mechanical break-even, not the sensible one. Uprooting your life, buying a house and spending 183 days a year on an island only makes sense well above that — most practitioners point at several hundred thousand a year and up.
What it costs to live
Cheaper than US coastal cities, and not as cheap as people expect.
| Monthly | |
|---|---|
| Single person, excluding rent | ~$1,300 |
| 1-bedroom, San Juan centre / outside centre | ~$1,700 / ~$830 |
| 3-bedroom, San Juan centre / outside centre | ~$2,900 / ~$1,460 |
| Single person, all in | $2,000–$2,800 |
| Family of four, all in | $4,500–$5,500 |
Add a generator or solar-and-battery installation as a real line item rather than a luxury, plus private schooling if you have children, and note that imported goods carry a premium because everything arrives by ship.
Quality of life
Electricity is the defining problem. Ratepayers averaged around 27 hours of outages a year between 2021 and 2024, and more than 73 hours in 2024 alone. Island-wide and partial blackouts continued through 2025. Nine years after Hurricane Maria the grid is still in crisis, and anyone working from the island treats backup power as infrastructure, not insurance.
Safety is meaningfully worse than the US average: roughly 14.6 homicides per 100,000, against about 5–6 for the US as a whole and 0.1 for Singapore. Violence is heavily concentrated in specific areas and the expat neighbourhoods are not where it happens, but the headline number is what it is.
Healthcare is solid in San Juan and thin outside it, with a long-running outflow of doctors to the mainland. Connectivity is fine in the metro. Schooling for expat families realistically means private or international schools in the San Juan area.
Pros and cons
For it
- The only route to 0–4% that keeps a US passport, US banking and the dollar
- No exit tax, no renunciation, no second citizenship needed
- 2.5 hours to Miami, 4 to New York — you are not cut off from your life
- English works in business and San Juan; no visa, no customs, no immigration queue
- Tropical, sparsely populated outside the metro, genuinely beautiful
Against it
- $20,000–$28,000 a year in overhead before you save a dollar
- A grid that fails regularly and a mandatory home purchase
- 183 days a year physically on the island, audited by an IRS that knows exactly what this programme is
- Pre-move capital gains do not get the benefit
- Real local resentment toward Act 60 arrivals over housing costs — the programme is politically contested and its beneficiaries are not universally welcome
- Bankruptcy, hurricane exposure and a decade of population decline
Where people land. Condado, Ocean Park and Isla Verde in and around San Juan; Dorado for the gated-suburb version; Palmas del Mar in Humacao; Rincón on the west coast for surfing and a slower pace.
Primary sources
- Act 60 — Puerto Rico Incentives Code, DDEC — the administering agency
- IRS Publication 570 — tax guide for individuals with income from US possessions
- IRC §933 and §937 — the exclusion and the residency tests
- Relocate to Puerto Rico — commercial relocation service, useful orientation
Degens on the island
Common questions
Do I still file a US tax return if I live in Puerto Rico?
Yes. Bona fide residents of Puerto Rico with only Puerto Rico-sourced income generally do not file a federal return, but anyone with US-sourced income still files Form 1040, and every Act 60 decree holder files a Puerto Rico return plus an annual compliance report. You also file Form 8898 in the year you establish residency. You are exiting a tax, not a filing system.How many days a year must I spend in Puerto Rico?
At least 183 days on the island in the tax year is the headline presence test, but it is only one of three. You must also have your tax home in Puerto Rico and a closer connection to Puerto Rico than to the United States or any foreign country. Someone who hits 184 days but keeps a house, a spouse, a car and a doctor in Miami is an audit target.Does Act 60 make my existing capital gains tax free?
No, and this is the most common misunderstanding. Gains that accrued before you became a Puerto Rico resident stay in the federal net. Only appreciation after you establish residency gets the 0% treatment. Pre-move gains realised after ten years of residency get a reduced Puerto Rico rate of 5%, but the federal exposure on the built-in gain does not disappear by moving.General information only — not tax, legal or immigration advice. Tax rules change frequently and the details that matter depend on your citizenship, residency history and asset mix. Verify against the primary sources linked above and retain a qualified adviser before acting.