Puerto Rico and 0% Capital gains
A client reached out with the question and I felt its worth sharing with the audience – We anticipate significant capital gains in 2025, both long and short term. If we move to Puerto Rico next week, would we qualify for 0% capital gains for our 2025 taxes
If you move to Puerto Rico next week and meet the requirements to become a bona fide resident of Puerto Rico, you may qualify for a 0% tax rate on capital gains for your 2025 taxes, but this depends on several factors.
- Bona Fide Residency Requirements: To qualify as a bona fide resident of Puerto Rico, you must meet the presence test, the tax home test, and the closer connection test for the entire tax year. Specifically:
- Presence Test: You must be present in Puerto Rico for at least 183 days during the tax year, or meet one of the other criteria under the presence test, such as not being present in the U.S. for more than 90 days during the tax year [2].
- Tax Home Test: Your principal place of business or employment must be in Puerto Rico, or if you have no regular place of business, your regular place of abode must be in Puerto Rico [2].
- Closer Connection Test: You must have a closer connection to Puerto Rico than to the United States or any foreign country during the tax year [2].
- Capital Gains Treatment: Under Puerto Rican law, if you become a bona fide resident, you can benefit from a 0% tax rate on capital gains that accrue after you become a resident. However, gains that accrued before you became a resident may still be subject to U.S. federal income tax. The portion of the gain that is treated as built-in gain is determined based on the relative holding period of the property [4].
- Special Rules for the Year of Move: In the year you move to Puerto Rico, you must meet the tax home and closer connection tests for at least the last 183 days of the tax year and continue to be a bona fide resident for the next three years to qualify for the benefits [2].
- Act 22 Requirements: Under Act 22, you must not have been a resident of Puerto Rico for the six years preceding the effective date of the Act (January 17, 2012). You must also purchase residential property in Puerto Rico within two years of becoming a resident [7].
If you meet all these requirements, you can exclude from U.S. federal income tax any capital gains that accrue after you become a bona fide resident of Puerto Rico. However, any gains that accrued before you became a resident will still be subject to U.S. federal income tax. Therefore, for capital gains realized in 2025, only the portion of the gains that accrue after you establish bona fide residency in Puerto Rico will be eligible for the 0% tax rate.
Author of this article Jack Chaudhary specializes in Individual, Corporate Tax returns, Foreign Taxes, Expats, Non-resident Taxes, Payroll, Crypto and e-Commerce. With the Enrolled Agent credential, Jack represents taxpayers before the IRS and state taxing authorities. He zealously advocates for his clients to ensure the best results are achieved. Book an appointment here with him for a consultation call.
