An Act 60 investor decree covers three kinds of income: interest, dividends and capital gains on appreciation after you become a Puerto Rico resident. It sets Puerto Rico's tax on them. It doesn't cover wages or business income, and it doesn't set your U.S. tax. A bona fide resident excludes only Puerto Rico–source income from federal tax, so dividends from U.S. companies stay federally taxable, and gains on investments you owned before moving are generally treated as non–Puerto Rico income for ten years.
Earlier posts in this series covered the decree, the deadline, the 0% versus 4% choice, residency and eligibility. This one is for the wealth managers and CPAs in the room. It answers the question that decides whether the numbers work: which of a client's income does a decree actually touch?
Two taxes, two maps
Two separate systems apply. Puerto Rico taxes its residents, and the decree sets the rate Puerto Rico charges on certain investment income. The United States, under Internal Revenue Code Section 933, lets a bona fide Puerto Rico resident exclude income from Puerto Rico sources. Anything that isn't Puerto Rico–source stays inside the federal system.
So for every item of income there are two questions: what does Puerto Rico charge under the decree, and is it Puerto Rico–source for federal purposes? A 0% answer to the first doesn't settle the second.
What the decree covers, and how each piece is treated
Income | Puerto Rico tax under the decree | U.S. federal treatment for a bona fide resident (general rule) |
|---|---|---|
Interest and dividends earned after you become a resident | 0% (2026 filers, through 2035) or 4% (2027+ filers, through 2055) | Excluded only if Puerto Rico–source. Dividends from U.S. corporations and interest from U.S. payers are generally U.S.-source and stay taxable |
Gains on assets bought after you become a resident | 0% or 4%, as above | Gain on personal property sold by a bona fide resident is generally Puerto Rico–source, so generally excluded |
Post-move appreciation on assets you owned before moving | 0% or 4%, as above | If sold within ten years, none of the gain is Puerto Rico–source unless you elect to split it between the periods before and after the move |
Pre-move appreciation on assets you owned before moving | 5% if recognized at least ten years after becoming a resident and before 2036 (2026 filers) or 2056 (2027+ filers); otherwise regular Puerto Rico rules | Not Puerto Rico–source if sold within ten years, so taxed federally; generally Puerto Rico–source after that |
Wages, business and professional income | Not covered by the investor decree. Regular Puerto Rico rules apply unless another Act 60 incentive covers it | Depends largely on where the work is performed |
Three things that surprise people
A 0% Puerto Rico rate on a U.S. dividend isn't 0% tax. The statute exempts interest and dividends "from all sources" for 2026 filers, so Puerto Rico won't tax that dividend from a U.S. company. The IRS still will, because the dividend is U.S.-source. For a portfolio of U.S. equities, the decree's headline rate overstates the benefit.
Gains you carried in follow you for ten years. Federal rules treat gain on investment property owned before the move as non–Puerto Rico income if you sell within ten years of the move, even the part that grew after you arrived, unless you make the split-sourcing election. The IRS put this in writing again in a 2024 Chief Counsel memorandum. Puerto Rico's own law mirrors the timeline: its 5% rate on pre-move appreciation starts only after ten years of residency.
For 2026 filers, that 5% window is almost closed. On the 0% track, the 5% rate applies only to pre-move gains recognized at least ten years after you become a resident and before January 1, 2036. Anyone who becomes a resident in 2026 or later can't meet both conditions. The 4% track runs the same window to 2056, and 2026 filers can switch to it (Post 3). For anyone with a large built-in gain, that alone can decide the 0% versus 4% question.
Questions to work through with your CPA
These are the questions, not the answers. The answers depend on your holdings.
- Which positions carry the largest gains from before the move, and when might each be sold?
- How much of the portfolio's income will be U.S.-source and stay federally taxable?
- Does the split-sourcing election help on any position you'd sell within ten years?
- How will Puerto Rico and federal tax interact on income both systems reach?
- Does any business or professional income need its own plan, outside the investor decree?
Where I fit: how you pay for the house matters
This is where the tax map meets the home purchase. If you plan to fund a Puerto Rico home by selling, after you move, investments you held before the move, that gain is generally non–Puerto Rico income for federal purposes during your first ten years of residency. In other words, the timing and source of the money for the house can carry a federal tax cost. So before you make an offer, ask your CPA which funds should pay for the home: cash, financing, or a sale timed before or after the move. Once that's settled, I can build the purchase timeline around it.
Talk it through
If you or a client are mapping out a move and want the home purchase to fit the tax plan rather than fight it, book a consultation with me: https://calendly.com/christiankleiner100. Tax analysis belongs with your CPA and attorney; I'll make sure the property side follows the plan they set.
About the author. Christian Kleiner is Broker-Owner of Christian Kleiner Luxury Real Estate LLC (License C-26640), based full-time in Dorado Beach, Puerto Rico. He has about 30 years of real estate experience and focuses on high-net-worth clients and Act 60 Individual Resident Investor relocations. He is the author of The Puerto Rico Tax Advantage, and his commentary has appeared in Mansion Global, the New York Post and Yahoo Finance.