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.
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How the exemption actually works: §933 + the decree
The benefit has two halves that must both hold:
- 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.
- 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.
What income is covered
Covered income:
- Capital gains on securities (including crypto) accrued after residency begins.
- 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 why the presence and closer-connection evidence matters.
What income is NOT covered
| Income | Treatment |
|---|---|
| W-2 salary / self-employment for mainland work | Normal U.S. rates; not decree income |
| Mainland business profits | U.S.-source; not covered (a business may separately qualify under Act 60 Chapter 3's 4% export-services regime) |
| Pre-move appreciation | Generally U.S.-source if realized within 10 years; PR applies 10%/5% — see below |
| Rental income from mainland property | U.S.-source |
| Retirement account distributions | Follow their own rules; not converted by the decree |
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 10% within that window and 5% after. Only appreciation after the residency start date gets the decree rate — which is why modeling an exit turns on a clean valuation of holdings as of that date (evidence file).
Worked example: 0% vs 4% vs staying stateside
A resident realizes $1,000,000 of long-term capital gains, all accrued after the move:
| Scenario | Approximate tax |
|---|---|
| High-tax state (23.8% federal incl. NIIT + ~13% state) | ~$370,000 |
| No-tax state (23.8% federal) | ~$238,000 |
| Act 60, pre-2027 decree (0%) | $0 |
| Act 60, post-2026 decree (4%) | $40,000 |
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.
Frequently Asked Questions
- Does Act 60 cover crypto gains?
- Gains on crypto accrued after residency begins are generally treated like other capital gains under the decree. Pre-move appreciation follows the built-in-gain rules above.
- Do I still file a U.S. tax return?
- Most decree holders still have federal filing obligations (and Form 8898 in the year residency starts). §933 excludes PR-source income; it doesn't end filing.
- Is salary ever covered?
- Not by the individual decree. Service income earned in Puerto Rico is taxed under normal PR rules, and mainland service income stays U.S.-source.