Act 60 Tax Benefits: What's Actually Exempt (and What Isn't)

Act 60's individual investor decree exempts Puerto Rico–source capital gains, dividends, and interest earned after you become a bona fide resident — at 0% under decrees from applications filed through December 31, 2026, and 4% after. It does not exempt salaries, mainland business income, or appreciation that accrued before your move. Understanding that boundary is the difference between a sound plan and an audit problem.

How the exemption actually works: §933 + the decree

The benefit has two halves that must both hold:

1. Federal: IRC §933 excludes Puerto Rico–source income from U.S. federal tax — but only for bona fide residentsof Puerto Rico. This is the IRS's test, not DDEC's, and it's covered in bona fide residency.
2. Puerto Rico:the Act 60 decree reduces Puerto Rico's own tax on that income to 0% or 4% depending on when the application was filed (2026 changes).

Lose the residency half and the federal exclusion collapses no matter what the decree says. The decree is a Puerto Rico tax instrument; §933 is what keeps the IRS out of the picture.

What income is covered

For a decree holder who is a bona fide resident, covered income includes:

• Capital gains on securities (including crypto) accrued after residency begins — the classic use case for founders and traders positioning before an exit.
• Dividends that are Puerto Rico–source with respect to the resident.
• Interest income, same sourcing logic.

Sourcing generally follows the taxpayer's residence for these categories, which is exactly why the presence and closer-connection evidence matters: the sourcing conclusion is only as strong as the residency it rests on.

What income is NOT covered

The pre-move appreciation trap

Gains that built up before you became a resident are not exempted by moving. If appreciated securities are sold within 10 years of establishing residency, the pre-move portion is generally treated as U.S.-source and remains subject to U.S. federal tax; Puerto Rico applies its own special rates to that pre-move portion (historically 10% if realized within 10 years, 5% after). Only appreciation after the residency start date gets the decree rate. Anyone modeling an exit needs a clean valuation of holdings as of the residency start date — one more item the evidence file should contain.

Worked example: 0% vs 4% vs staying stateside

A resident realizes $1,000,000 of long-term capital gains, all accrued after the move:

Illustrative only — real outcomes depend on sourcing, holding periods, and the pre-move split. But the order of magnitude explains both the demand and the enforcement attention.

The benefit is conditional — permanently

Every year of the 15-year decree, the exemption depends on maintaining bona fide residency (the 183-day rule plus tax home and closer connection) and staying compliant with annual requirements. The benefit isn't granted once; it's re-earned annually.