- 1 Will Moving to Puerto Rico Avoid All Cryptocurrency Tax?
- 2 Relocating with Current Crypto Ownership
- 3 Specific Puerto Rico Residency Rules
- 4 Investment Component
- 5 Incentives Code 60 is Not Set in Stone
- 6 Later Acquired Cryptocurrency/Assets is the Benefit
- 7 About Our International FBAR & FATCA Tax Law Firm
Will Moving to Puerto Rico Avoid All Cryptocurrency Tax?
No, Puerto Rico is not a zero-tax crypto haven. If you Google “Puerto Rico Crypto Haven,” you will undoubtedly find pictures of wealthy hipsters living the high-life on the coast of Puerto Rico — sipping espresso, lounging by the pool, and driving fast cars under the false pretense that all their crypto earnings are tax-free. This is not the case. Recently, financial bloggers (or self-proclaimed journalists), tax attorneys, and other practitioners have been hyping-up US taxpayers on a false bill of goods — that just by relocating to Puerto Rico (instead of formal expatriation), they can avoid all US taxes on cryptocurrency gains. In other words, that by simply moving to Puerto Rico — US Persons can avoid all cryptocurrency taxes. There is no pot of gold at the end of the rainbow for taxpayers pursuing this strategy. In fact, it can be very dangerous for taxpayers who jump too quickly at the perceived opportunity to avoid all taxes on cryptocurrency sales — only to find out that they are in fact subject to taxes on current cryptocurrency-generated income (capital gains, dividends from ETFs, exchanges, etc.) for crypto that they owned when relocating to Puerto Rico — or are considered US-sourced — even if they are approved under Incentives Code (Act) 60 (previously acts 20/22). While Act 60 can be very complicated, let’s go through five basic facts before you relocate to Puerto Rico for cryptocurrency tax.
Relocating with Current Crypto Ownership
When a taxpayer already owns cryptocurrency (or other assets) and relocates to Puerto Rico in order to sell the cryptocurrency — they are taxed by the IRS on those gains generated from these cryptocurrency sales/exchanges. In other words, a taxpayer who already owns cryptocurrency (or other assets) cannot just relocate to Puerto Rico and sell or exchange the assets to avoid US tax on the sale of those assets. Thus, if a person already made a ton of money from crypto while living in the US mainland, moving to Puerto Rico at this point would not remove the tax obligation on gains from selling crypto.
Specific Puerto Rico Residency Rules
Now, for taxpayers who know that they will sometime in the future acquire new crypto and make a killing and wish to set themselves up tax-wise, then Puerto Rico may be an option. Of course, it is not as simple as just packing your bags and hopping on a plane. The taxpayer needs to jump through many hoops. The first is to become a PR Resident. In order to qualify as a resident of Puerto Rico for tax purposes, there are very specific requirements the taxpayer must meet. In addition, there are many pitfalls to be aware of and if the taxpayer does not plan correctly (such as visiting the United States too often), they may still be subject to US tax in general — without the benefits of being a resident of Puerto Rico.
Under the revised version of PR Act 60, taxpayers are required to make larger contributions to the economy of Puerto Rico than what was required before — and are now also required to acquire a property in Puerto Rico in order to qualify under Act 60. It is not as simple as taking a temporary stay in Puerto Rico in order to qualify. And, with the increased flock to Puerto Rico comes an increase in home prices.
Incentives Code 60 is Not Set in Stone
While it would appear from reading Act 60 that Puerto Rico has every intention to maintain this opportunity for taxpayers seeking to relocate to Puerto Rico until at least 2035/2036 — it is not an absolute right. In other words, the Puerto Rico government can still modify or eliminate the program, even after a taxpayer has qualified. Moreover, the United States Government has taken aim at Act 60 as well and the hard-working residents of Puerto Rico are not too fond of it either (since they cannot directly benefit from it).
Later Acquired Cryptocurrency/Assets is the Benefit
Presuming that a Taxpayer qualifies under Act 60, then the benefit becomes acquiring cryptocurrency and other assets once they are there. The assets that are acquired after relocating to Puerto Rico in which the taxpayer qualifies as a Puerto Rico resident — along with qualifying under Act 60 — may be sold at a later date without having to pay US tax, but there are caveats to be aware of. Any income that is considered sourced in the United States or otherwise outside of Puerto Rico, would still be considered taxable by the United States — and there is no telling whether Act 60 will remain in its current state. This is a current loophole many politicians are aware of and they are seeking to eliminate the tax benefits of Act 60 for US Persons.
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