What it takes to become a resident of Puerto Rico to gain the tax breaks, and what you'd have to give up (2024)

• Becoming a resident of Puerto Rico isn't hard but involves strict rules to get the tax breaks.
• You need to prove your presence on the island and your belongings must be with you.
• You also no longer get voting representation in the US Congress or a voice in presidential elections.

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

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

For most Americans, moving to Puerto Rico is easy. As a US territory, if you are a US citizen, the door is open for you to live there, as it would be in any American state.

However, Act 60 provides financial incentives to entice Americans to move to the island permanently. If you qualify for an Act 60 decree, it includes a 4% income tax rate, a 75% discount on property tax, and no tax on capital gains accrued while on the island.

To get the Act 60 benefits, you have to become what is called a "bona fide" resident, and that comes with some strict rules.

The Presence Test

To be a Puerto Rican resident you need to do some of the normal things you do if you moved to other states, such as register to vote and obtain a local driver's license. However, for the tax breaks, there is an added layer in which you need to establish your presence on the island.

In other words, you can't just buy a house on the island and claim residency if you never lived there.

According to Puerto Rican regulations, several ways exist to establish a "presence" on the island. The easiest is to show that you were in Puerto Rico for more than half the year — at least 183 days — or an average of at least 183 days over 3 years, with a minimum of 60 days in each year.

If you spend fewer than 183 days in Puerto Rico, you can still qualify if you can show that you did not spend more than 90 days during the year in one of the 50 US states or the District of Columbia.

There are occasional exceptions made to the 183-day rule. For example, in 2017, after Hurricane Maria devastated Puerto Rico, the IRS gave people up to 117 days credit if they could not return to the island because of the damage.

The 'closer connection' test

You also cannot have anything deemed a "closer connection" to a US state. This could be belongings or even personal relationships.

Sean Flynn, a semi-retired IT consultant, moved to Humacao, Puerto Rico, in 2021 from Austin. He told Business Insider that he did not move to the island for the tax breaks but that they certainly "sweetened the pot." He explained that a "closer connection" to the mainland can be vague and determined on a case-by-case basis but a few things are clear.

"That could be like a residence in Texas, and I stayed there for more than 30 days throughout the year, that could be considered a closer connection to the mainland," Flynn told Business Insider. "Also, If I were married and she didn't claim residency and she still claimed residency to Texas, that could become an issue."

Flynn noted that the housing situation can be a problem for some wealthier mainlanders moving to Puerto Rico who want to keep a house in the States and split their time. He notes this could violate their decree in Puerto Rico if they visit the mainland too much, and at the very least, it is likely to draw closer scrutiny from the IRS.

According to the government, other things to consider are where the rest of your immediate family lives, such as children, where you conduct your business, where your primary bank is located, and where your personal belongings are stored, including cars, furniture, clothing, and jewelry.

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

Becoming a bona fide resident can be pricey

To help ensure that the people enjoying the tax incentives of moving to Puerto Rico are wealthy enough to help boost the local economy, the government has included a required donation as part of the Act 60 decree.

Puerto Rico requires people who sign up for the 15-year decree to give $5,000 to the government annually and two separate $5,000 donations each year to qualifying 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 donation amount. However, Ricky Santana, the founder and managing partner of Colectivo Group, a real estate firm in Puerto Rico that assists people in moving to the island, told Business Insider during a recent interview that some of his wealthier clients often donate well above the minimum required.

On a political level, you must also give up your representation in the US Congress and your voice in the US presidential election. Puerto Rico does have 23 delegates up for grabs during the presidential primaries. Still, a vote in the general US presidential election only contributes to the popular vote and not the electoral college.

On several occasions, including most recently in 2020, Puerto Ricans have voted in support of statehood, which would change the voting status of locals. However, the US Congress has not acted on the nonbinding 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, even though it is still the United States, those thinking of making the move must keep in mind that some pretty strict regulations must be met to prove you are not just taking advantage of the system.