Puerto Rico's Act 60 for Mainland Americans (2026): The 0% Capital Gains Move, the Real Residency Test, and the Property You Actually Have to Buy

Published on: June 23, 2026

Quick answer: Act 60 is the only way a U.S. citizen can sharply cut their federal tax bill without renouncing citizenship, because Puerto Rico is a U.S. territory and Section 933 excludes Puerto Rico-source income. It can mean 0% on qualifying capital gains, dividends and interest for grandfathered decree holders, or 4% for newer applicants after the 2025 reform (confirm the exact cut-off with an advisor). It only works if you genuinely relocate: 183-plus days a year, the tax-home and closer-connection tests, and a primary residence you must buy within two years. Pre-move appreciation stays U.S.-taxable, and the IRS actively audits paper-only movers.

For a high-earning American investor, trader, or remote founder, Puerto Rico is the only place on earth where you can dramatically cut your federal tax bill without renouncing your U.S. citizenship. That is the whole reason Act 60 exists, and the whole reason it is so often misunderstood. It is not a foreign tax haven you flee to. It is a U.S. territory you genuinely move to, and the rules in 2026 are stricter than the headlines from a few years ago suggest.

This guide explains what Act 60 actually offers in 2026, what changed in the 2025 reform, the residency test that the IRS is now aggressively enforcing, and the one detail many people miss: you are legally required to buy a home in Puerto Rico.

What Act 60 is (and what it isn't)

Act 60 is the common name for Puerto Rico's Incentives Code, enacted in 2019, which consolidated two earlier programs: Act 22 (incentives for individual investors) and Act 20 (incentives for export-services businesses). People still casually refer to "the Act 22 benefits" and "the Act 20 benefits," but legally both now live inside Act 60.

There are two pieces most newcomers care about:

• Chapter 2, Individual Resident Investors. Historically, a qualifying individual paid 0% Puerto Rico tax on Puerto Rico-sourced interest, dividends, and on capital gains that accrued after becoming a bona fide resident.
• Chapter 3, Export Services and Commerce. A qualifying Puerto Rico business can pay a flat 4% corporate income tax on eligible export-service income.

The reason this works for a U.S. citizen comes from federal law, not Puerto Rico law. Under Section 933 of the U.S. Internal Revenue Code, income sourced within Puerto Rico earned by a bona fide resident is excluded from U.S. federal gross income. Because Puerto Rico is a U.S. territory and not a foreign country, you keep your U.S. passport, you typically keep Medicare and Social Security, and there is no expatriation or exit tax involved. That combination, federal exclusion plus a generous territorial regime, is what makes Act 60 unique.

What changed in 2025 to 2026 (read this before you plan anything)

This is the part that outdated guides get wrong. In 2025, Puerto Rico passed legislation that did two big things:

1. It extended Act 60's individual-investor benefits through 31 December 2055, adding roughly two more decades of certainty.
2. It introduced a 4% tax on capital gains, interest, and dividends for future applicants, replacing the old 0% rate for people who come into the program after the cut-off.

Here is how the structure works:

• Investors who already hold a decree, or obtain one before the cut-off, are grandfathered into the existing 0% structure, which runs until 1 January 2036 for capital gains accrued after residency.
• New applicants after the cut-off face a 4% rate on that same income, plus a new prior-residency requirement (you must show you were not a Puerto Rico resident for at least the six years before relocating).

Important caveat on timing: the exact effective date of the 4% rate has been reported differently across the 2025 reform and the 2026 budget process. Some sources place the cut-off at the end of 2025, others at the end of 2026. Because a single year can decide whether you qualify for 0% or 4%, do not rely on a date from any blog, including this one. Confirm the current cut-off in writing with a licensed Puerto Rico tax advisor before you time a move. Even at 4%, the rate remains far below mainland federal-plus-state capital-gains rates, so the program is still highly attractive; the point is simply that the structure now has tiers.

The residency test the IRS actually checks

Act 60 only "switches on" once you become a bona fide resident of Puerto Rico for federal purposes. That is defined by three IRS tests, all of which must be met:

• The presence test: broadly, being physically present in Puerto Rico for at least 183 days in the tax year (there are alternative ways to satisfy it). The "where are you" test. If you are weighing day counts, our guide to the 183-day rule explains how a day is counted and why a clean count is not always enough.
• The tax home test: you must not have a tax home (your main place of business) outside Puerto Rico during the year. The "where do you work" test.
• The closer connection test: you must not have a closer connection to the U.S. or another country than to Puerto Rico. The "where is your life" test, judged on where your home, family, belongings, banking, and community actually are.

You also file a special statement with the IRS in the year you begin (and end) residency, Form 8898.

The property you actually have to buy

A detail many people only discover late: under Act 60, an individual investor must purchase real estate in Puerto Rico to use as their primary residence, within two years of receiving the decree. The property must be owned by you alone or jointly with your spouse, and for newer applicants the ownership has to be recorded in the Puerto Rico Property Registry.

This requirement is not bureaucratic box-ticking. It is part of proving you genuinely relocated. Owning and living in a Puerto Rico home is strong evidence that the island is your real tax home, which is exactly what the residency tests turn on. Renting a beachfront condo while keeping your "real" house on the mainland is the kind of arrangement that draws scrutiny.

The ongoing obligations

Holding the decree is not passive. Individual investors generally must:

• Make a minimum annual charitable donation to Puerto Rico nonprofits (a floor that recent reforms raised, and that you cannot pay to organizations you control).
• File an annual report with an associated filing fee.
• Keep meticulous documentation of days present, income sourcing, and the activities that qualify under the decree.

Under the 2026 compliance framework, reporting has tightened further, including certified CPA letters and, for crypto investors, declaration of wallet addresses and transaction histories so that gains can be shown to have arisen after residency.

The trap: income sourcing and IRS enforcement

This is where Act 60 strategies most often fail. The exemption only applies to income sourced to Puerto Rico, and sourcing depends on when the value accrued:

• A capital gain on an asset is generally sourced to your tax home at the time of sale. So a gain on stock or crypto you acquire after becoming a bona fide resident is Puerto Rico-sourced and can qualify.
• But appreciation that built up before you moved is treated under special rules, including a ten-year look-back, and is generally still U.S.-sourced, meaning it stays taxable in the U.S. even if you sell it after moving.
• Cryptocurrency is treated as property by the IRS, so it follows these same sourcing rules. You cannot move to the island, immediately sell a position that appreciated for years on the mainland, and call the whole gain tax-free.

Since 2021 the IRS has run a dedicated enforcement campaign targeting people who claim Act 60 benefits without truly relocating, and recent cases have ended in guilty pleas. The agency now shares data with Puerto Rico and cross-checks federal and territorial filings. The takeaway is simple: Act 60 rewards people who actually move their lives to Puerto Rico. It punishes people who try to claim the benefits on paper.

So who is Act 60 actually for?

Act 60 makes the most sense if you:

• Earn substantial capital gains, dividends, or interest, or run an exportable services business;
• Are willing to genuinely relocate, 183-plus days, a home you live in, your real center of life;
• Can handle the compliance overhead and the cost of professional advisors on both sides;
• Are planning around future gains, not trying to launder pre-move appreciation.

It is far less suitable for someone who wants to keep their mainland home, work, and family unchanged while collecting a tax break, or who is hoping to shelter a gain that already accrued. It belongs alongside the wider wave of tax-driven relocation we cover in our map of the U.S. states pushing capital out.

Frequently asked questions

Do I have to give up my U.S. citizenship?
No. Puerto Rico is a U.S. territory, so Act 60 works because you remain a U.S. citizen. There is no renunciation and no exit tax.

Is the capital-gains rate 0% or 4% in 2026?
It depends on when you obtain your decree. Existing and earlier decree holders are grandfathered at 0% (through 2036 for post-residency gains); newer applicants face 4%. The exact cut-off date must be confirmed with a Puerto Rico tax advisor.

How long do I have to spend on the island?
Bona fide residency generally requires at least 183 days of physical presence per year, plus meeting the tax-home and closer-connection tests.

Do I really have to buy property?
Yes. Individual investors must buy a primary residence in Puerto Rico within two years of receiving the decree.

Will the IRS audit me?
The IRS has an active enforcement campaign on Act 60 claims and shares data with Puerto Rico. Genuine relocation with strong documentation is essential.

Disclaimer. This article is general information for cross-border buyers and investors, current as of 2026, and is not legal, tax, immigration, or investment advice. Tax rates, residency rules, effective dates, and compliance requirements under Act 60 have changed repeatedly and can change again. Income sourcing and bona-fide-residency questions are highly fact-specific. Before acting, consult a licensed Puerto Rico tax advisor and a U.S. tax professional experienced with Act 60 and Section 933.

A note on the numbers: where no source is named, the market figures in this article (prices, yields, costs) are indicative estimates compiled from publicly available market data and industry reporting at the time of writing. Markets move and rules change, so treat them as a starting point and verify current figures with official sources before acting on them.