I am a luxury real estate expert, not a tax attorney or CPA. The compliance framework described below reflects what I observe from the real estate side of Act 60 relocation. Your client’s Act 60 attorney and CPA are the appropriate professionals to advise on specific compliance requirements.

This is Week 4 of The Act 60 Briefing. Over the past three weeks I have covered what Act 60 is, why clients are moving, and the capital gains math that is driving decisions right now. This week we address the topic that makes advisors most cautious: IRS compliance.

The caution is appropriate. Compliance matters. The IRS is actively scrutinizing Act 60 participants, and any client who approaches this casually is creating risk for themselves. But here is what I want advisors to understand from the real estate side of this equation:

The compliance framework is clear, well-defined, and achievable for any client who is genuinely committed to making Puerto Rico their home. The clients who have problems are the ones trying to game the system. The clients who live here — truly, fully, with their families and their lives — satisfy the requirements naturally.

The Three IRS Bona Fide Residency Tests

To qualify as a bona fide Puerto Rico resident under Act 60, your client must satisfy three IRS tests every year. Failing any one of them puts their Act 60 benefits at risk. Here is what each test examines:

The Physical Presence Test — 183 Days

Your client must spend at least 183 days per year physically present in Puerto Rico. This is the baseline requirement and the one most people hear about first. The IRS does not simply accept a calendar with days marked off — they expect documentation. Flight records, credit card transactions showing Puerto Rico purchases, utility bills, gym membership records, and similar evidence of daily life on the island.

From the real estate side, I can tell you that 183 days is rarely a burden for clients who genuinely make the move. Dorado Beach is not a place people are counting the days until they can leave. It is a place they have to be reminded to travel away from. The lifestyle is that good.

The Tax Home Test — Where Is the Business?

Your client’s primary place of business and economic activity must be in Puerto Rico. This means their business banking should be on the island. Their primary business operations should be conducted from Puerto Rico. The calls they take, the deals they close, the decisions they make should be happening here.

What I observe from the real estate side: most Act 60 clients move their business banking to local Puerto Rico institutions, establish an office presence through coworking spaces or executive offices in San Juan, or run their businesses from home offices within their Dorado Beach properties. The transition is practical and straightforward for most business structures.

The Closer Connection Test — Where Does Life Actually Happen?

This is the test that matters most — and the one that reveals whether your client is genuinely living in Puerto Rico or simply using it as a tax address. The IRS examines where the most important aspects of your client’s life are anchored:

Where is their primary residence?

Where does their family live? — spouse, children, close family

Where is their primary doctor? — physician, dentist, specialists

Where are they registered to vote?

Where was their driver’s license issued?

Where is their religious community?

Where is their social and professional community?

Where is their business banking?

The Simplest Way to Understand the Closer Connection Test

I share this with every client and I think it is equally useful for advisors trying to understand the spirit of what the IRS is looking for:

Where is your client’s dog?

Think about it. When you go on vacation, you leave your dog at home — your real home. If your client is genuinely living in Puerto Rico and not just vacationing there, their dog should be in Puerto Rico. Their dog should have a Puerto Rico veterinarian. Their dog should be sleeping on their Dorado Beach terrace at night.

It sounds almost too simple. But it captures the spirit of the Closer Connection Test perfectly. The IRS is not trying to catch people on a technicality. They are trying to determine whether your client’s life — their real, full, daily life with all its routines and relationships — has genuinely moved to Puerto Rico. When the answer is yes, compliance is natural. When the answer is no, no amount of documentation will fix it.

What This Means for You as an Advisor

Here is the practical takeaway for advisors:

Act 60 is not for every client. It is for clients who are genuinely willing to relocate their lives to Puerto Rico. Not just their tax filing address. Their lives. If a client tells you they want to “spend a few months in Puerto Rico for the tax break” but keep their family, their doctor, their social life, and their dog on the mainland — Act 60 is not the right strategy for them. A qualified attorney would likely decline to file that application.

The right clients are the ones who are excited about the move, not reluctant about it. From the real estate side, the clients who thrive in Dorado Beach are the ones who fall in love with the community before they calculate the tax savings. The tax math is what gets them on the plane. The lifestyle is what keeps them here. And when they are genuinely here — with their families, their businesses, their routines, and yes, their dogs — every IRS box checks itself.

Your role is not to evaluate their compliance. That is for their Act 60 attorney. Your role is to understand the framework well enough to recognize which clients in your book might be a genuine fit — and to be informed enough to have the conversation before someone on the golf course beats you to it.

The Full Intent Requirement: Why This Actually Protects Your Client

Some advisors hear about the IRS scrutiny and it makes them nervous about recommending that clients even look into Act 60. I want to reframe that:

The IRS scrutiny is a feature, not a bug. It is what separates Act 60 from the kind of aggressive offshore strategies that keep compliance departments up at night. The IRS is actively watching because Act 60 works — it delivers real, significant tax savings to participants. That level of benefit demands real compliance. And the compliance framework is clear, documented, and achievable.

For your client, the scrutiny is actually protective. It means that Act 60 is not going to be “shut down” because too many people abused it. The people who try to game the system get caught. The people who comply legitimately are protected by a law that has legislative certainty through 2055.

This brings us back to the point I have made every week in this series: Act 60 is the law. Not a loophole. Not creative tax gymnastics. The law. And like any law, it has requirements that must be met. The requirements are clear. The benefits are extraordinary. And for the right client, it is one of the most powerful legal financial strategies available to an American citizen.

The 2026 Timeline and Why It Matters for Compliance

As I discussed in Week 2 and Week 3, the capital gains rate under Act 60 increases from 0% to 4% on January 1, 2027. For advisors, here is the compliance dimension of that deadline:

A client who wants to lock in the 0% rate needs to establish their decree and bona fide residency in 2026. The decree process itself takes six to twelve months. That means a client starting the process today is already working against a tight timeline. A client who waits until fall 2026 to begin may not receive their decree before year end.

If you have a client who has been casually considering Act 60, the practical reality is that the window for the most favorable terms is narrowing. Not because Act 60 is going away — it has a 30-year runway — but because the best version of it requires action in 2026.

From my side of the table, I am seeing this urgency reflected in the market. Demand for Dorado Beach luxury properties is accelerating. Buyers who might have taken another year to decide are compressing their timelines. The clients who act now will lock in both the 0% rate and today’s property prices. Those who wait will pay more on both fronts.

Continue the Conversation

If you have questions about what the residency establishment process looks like from the real estate side — what kind of property satisfies the requirement, how quickly clients typically close, and what the transition to full-time Dorado Beach living actually looks like in practice — I am happy to share what I observe.

→ Schedule a Wealth Manager Partnership Call — A confidential conversation about what I see from the real estate side

→ Download The Puerto Rico Tax Advantage — A free relocation guide you can share with clients evaluating the move

Next Thursday: Week 5 of 15 — Puerto Rico Real Estate as an Asset Class: 11.6% Appreciation and What Is Driving It

About Christian Kleiner

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 works with high-net-worth entrepreneurs and investors navigating every aspect of the Act 60 relocation process. 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

Frequently Asked Questions

1. What are the three IRS bona fide residency tests for Act 60?

To qualify as a bona fide Puerto Rico resident under Act 60, individuals must satisfy the Physical Presence Test, the Tax Home Test, and the Closer Connection Test each year. Failing any one of these requirements may put Act 60 tax benefits at risk.

2. Is spending 183 days in Puerto Rico enough to qualify for Act 60?

No. While spending at least 183 days in Puerto Rico is an important requirement, the IRS also evaluates where your primary business is located and where your strongest personal and financial connections exist. All three residency tests must be satisfied annually.

3. What does the IRS consider under the Closer Connection Test?

The IRS looks at where your life is genuinely centered, including your primary residence, family, healthcare providers, driver's license, voter registration, banking relationships, and community involvement. The goal is to determine whether Puerto Rico is truly your home.

4. Why is IRS compliance so important for Act 60 participants?

The IRS actively reviews Act 60 residency claims to ensure participants legitimately qualify for the program. Maintaining proper documentation and genuinely relocating to Puerto Rico helps preserve valuable tax benefits while reducing compliance risks.

5. How can Christian Kleiner's Luxury Dorado Real Estate expertise support an Act 60 relocation?

Christian Kleiner specializes in Luxury Dorado Real Estateand helps clients find properties that support a genuine full-time relocation to Puerto Rico. While legal and tax advice should always come from qualified Act 60 attorneys and CPAs, Christian provides valuable guidance on the real estate side of establishing residency and transitioning to life in Dorado Beach.

6. When should someone begin the Act 60 relocation process?

Because obtaining an Act 60 decree can take several months, many professionals recommend starting well before the end of 2026 if you want to qualify under the current capital gains provisions. Beginning early provides more time to complete both the legal process and your relocation.

7. Who is the ideal candidate for relocating to Puerto Rico under Act 60?

Act 60 is generally best suited for entrepreneurs, investors, and business owners who are genuinely prepared to relocate their lives and businesses to Puerto Rico. Anyone considering the program should consult experienced legal and tax professionals to determine whether it aligns with their personal and financial goals.