Act 60 is the single most powerful tax incentive available to U.S. citizens who relocate to Puerto Rico. Below are direct answers to the real long-tail questions high-net-worth individuals, entrepreneurs, and their advisors ask every week — including how the program changed under Act 38-2026, what it takes to qualify, and how real estate purchases in Dorado Beach fit into the picture.
Act 60 is Puerto Rico’s Incentives Code that consolidates prior tax incentives (including former Acts 20 and 22) and offers preferential tax treatment to qualifying new residents and export-service businesses. Individual investors (Chapter 2) who become bona fide residents of Puerto Rico can receive 0% Puerto Rico tax on post-residency capital gains, dividends, and interest if their decree application is filed by December 31, 2026 (or 4% for applications filed on or after January 1, 2027). Export-service businesses (Chapter 3) generally pay a flat 4% corporate tax rate on qualifying income. Eligibility requires meeting IRS bona fide residency tests, obtaining a tax exemption decree from the DDEC, and complying with ongoing requirements such as purchasing a primary residence (for individual investors) and annual reporting.
Applications filed on or before December 31, 2026 can lock in the legacy 0% Puerto Rico tax rate on qualifying post-residency capital gains, dividends, and interest (through 2035 under prior rules), while applications filed on or after January 1, 2027 generally receive a 4% rate and an extended program horizon to 2055. Act 38-2026 also introduced a six-year prior non-residency lookback for new applicants and confirmed requirements around primary residence ownership. Existing decree holders keep their original terms. The filing date of a complete application (not the move date or decree issuance date) determines which rate applies.
Considering a move to Puerto Rico? Watch Christian Kleiner explain the capital gains tax topic.
Most people rely on the 183-day presence test, but bona fide residency under IRC §937 requires satisfying all three tests every year: the presence test, the tax home test, and the closer connection test. Spending at least 183 days physically in Puerto Rico is the most common and defensible path for the presence test. You must also establish that your principal place of business (tax home) is in Puerto Rico and that your overall personal, family, and economic ties are closer to Puerto Rico than to the U.S. mainland or another country. Failing any one test in a given year can eliminate the federal exclusion under §933 for that year.
Yes — individual investor (Chapter 2) decree holders must purchase a primary residence in Puerto Rico within two years of receiving the decree. The property must serve as your principal residence for the life of the decree and cannot be treated as a pure investment or rental. There is no minimum purchase price. Export-services (Chapter 3) decrees do not carry the same residential real-estate purchase requirement. Ownership must generally be held directly or through a qualifying trust under the updated rules.
Yes — the vast majority of luxury Dorado Beach transactions close in cash or with creative structures such as seller financing because traditional U.S.-style jumbo mortgages are not readily available for multi-million-dollar properties on the island. Puerto Rico’s local banks do not offer conventional jumbo residential financing comparable to mainland products for high-end estates. Common alternatives include all-cash purchases (the dominant path for Act 60 buyers), seller financing (typically 40–50% down, interest-only payments, 3–5 year balloon), and emerging institutional or digital lending options structured as commercial facilities. Christian regularly structures these transactions for Act 60 clients.
No — Act 60 reduces or eliminates Puerto Rico tax on qualifying income, and IRC §933 excludes Puerto Rico-source income from U.S. federal tax only for bona fide residents; U.S.-source income and pre-move appreciation remain federally taxable under normal rules. Post-residency capital gains, certain dividends, and interest that are Puerto Rico-source can achieve 0% (or 4% post-2026) Puerto Rico tax plus the federal exclusion. Salary, mainland business income, and gains that accrued before you became a bona fide resident are generally still subject to U.S. federal tax. Proper sourcing and timing are critical.
Decree holders must file an annual report with the DDEC, pay a $5,000 annual fee, make a $10,000 charitable donation (typically beginning in the second year), maintain bona fide residency, and keep the required primary residence as their principal home. Additional compliance includes residency documentation, CPA verification letters in many cases, and biennial compliance certificates. Missing filings or failing the residency tests can jeopardize the decree and the federal exclusion.
No — applications filed on or after January 1, 2027 generally receive a 4% Puerto Rico tax rate on qualifying capital gains, dividends, and interest rather than the legacy 0% rate. The program itself was extended to 2055, but the preferential rate changed for new applicants. Anyone who wants to lock in 0% must file a complete application by December 31, 2026. Existing decree holders keep their original terms. For more context, watch Christian Kleiner explain Act 38 and the December 31, 2026 application deadline.
Yes — purchasing and occupying a primary residence in Dorado Beach (or elsewhere in Puerto Rico) is both a formal decree requirement for individual investors and strong evidence supporting the closer-connection and tax-home tests under IRS rules. Dorado Beach has become the primary destination for many Act 60 residents because of its luxury inventory, gated communities, Ritz-Carlton infrastructure, and concentration of like-minded professionals. Ownership of a principal residence on the island is one of the clearest signals of genuine relocation.
Gains that accrued before you became a bona fide Puerto Rico resident remain largely subject to U.S. federal tax if the asset is sold within the 10-year lookback window; only post-residency appreciation receives the preferential Act 60 treatment. Proper allocation of pre- and post-move appreciation is required. Selling pre-move assets after 10 years of bona fide residency can produce more favorable results under long-standing rules, but planning with a specialist is essential.
No — Puerto Rico real estate does not qualify for Section 1031 like-kind exchange treatment against U.S. mainland property. Despite Puerto Rico’s status as a U.S. commonwealth, the IRS treats it as non-qualifying for 1031 purposes in exchanges with the 50 states. Act 60 residency and the associated tax benefits operate under entirely different rules.
A complete Act 60 decree application typically takes several months from filing to issuance, often in the 4–8 month range depending on complexity and documentation quality. Working with experienced Puerto Rico tax counsel and preparing a thorough package (including background checks, financial declarations, and residency history) reduces delays. The critical date for rate purposes is the filing date of a complete application.
No — you are not required to sell your mainland U.S. home or other properties. However, keeping a mainland residence as your primary personal home (especially if family remains there) creates significant risk under the IRS closer-connection test. Your Puerto Rico property must function as your true principal residence, and the overall facts of your life must show stronger ties to Puerto Rico than to any U.S. state.
No — having your spouse and minor children remain primarily on the mainland is one of the strongest red flags for failing the closer-connection test. The IRS looks at where your immediate family lives as a major factor. Serious Act 60 participants almost always relocate the entire household so the family’s center of gravity is clearly in Puerto Rico.
If the IRS determines you failed any of the three bona fide residency tests in a given year, you lose the federal exclusion under IRC §933 for that year — meaning previously claimed Puerto Rico-source income becomes fully taxable on your U.S. return, often with interest and penalties. Your Puerto Rico decree does not bind the IRS. Proper documentation (travel logs, utility bills, local banking, driver’s license, voter registration, medical records, etc.) is essential every year.
No — only appreciation that accrues after you become a bona fide Puerto Rico resident qualifies for the preferential Act 60 treatment. Pre-move appreciation on assets you already owned remains subject to U.S. federal capital gains tax if sold within the 10-year lookback window. Accurate cost-basis allocation and timing of sales are critical and should be planned with a specialist before you relocate.
Yes — many Act 60 residents continue operating or working with mainland businesses, but the structure and sourcing of income matter. For individual investors, passive investment income receives the preferential rate. For active businesses, an export-services (Chapter 3) decree can provide the 4% corporate rate on qualifying services performed from Puerto Rico for clients outside Puerto Rico. Simply “working remotely from Puerto Rico” for a mainland employer does not automatically convert salary or business income into tax-free Puerto Rico-source income.
The $10,000 annual charitable contribution required under the individual investor decree is a condition of the decree and is generally treated as a non-deductible expense for Puerto Rico tax purposes under the decree terms. It is not the same as a regular charitable deduction. Confirm the exact treatment with your Puerto Rico tax counsel, as the rules around the donation (and which organizations qualify) are specific.
Yes — Puerto Ricans and former residents can qualify, but the eligibility lookback rules apply. Under the pre-2027 rules, applicants generally could not have been bona fide residents during the fixed historical window (roughly 2006–2012 under older language). For applications filed on or after January 1, 2027, Act 38-2026 requires showing you were not a Puerto Rico resident during the six years immediately before relocating. Local Puerto Ricans remain eligible for many other Act 60 decrees (especially business incentives).
Falling below 183 days creates risk under the physical presence test, although limited alternative safe-harbor day-count methods exist for certain situations. Frequent travel also raises questions under the tax-home and closer-connection tests. Most advisors recommend structuring your life so you comfortably exceed 183 days and can document a genuine Puerto Rico tax home and stronger overall ties. High travel schedules should be reviewed with counsel before relying on any safe harbor.
Christian Kleiner is the Founder & CEO of Christian Kleiner Luxury Real Estate, Puerto Rico’s premier luxury real estate brokerage specializing in Act 60 relocation and Dorado Beach luxury properties. A full-time Dorado Beach resident with over 32 years of real estate experience, Christian structures luxury real estate transactions across the full spectrum of available options in the Puerto Rico market. He has been featured in Mansion Global, The New York Post, and Yahoo Finance and was a featured speaker at the 2026 Uncorrelated Alts Conference in Puerto Rico.
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