Puerto Rico Act 60 Capital Gains Tax on Stock You Already Own.

An engineer with $9,000,000 of vested company stock and a $1,000,000 basis calls in October, three months before a tender offer, asking whether to move before he sells. He has read that the Puerto Rico Act 60 capital gains tax rate is 0%, and the flight from Miami is two and a half hours with no passport and no visa. He can move, the 0% is real, and it will not reach a dollar of the $8,000,000 of gain he is already carrying.

Section 933 keeps income from sources within Puerto Rico out of the gross income of a bona fide resident. Two conditions carry the whole strategy: you have to be a bona fide resident, and the income has to be Puerto Rico source. People planning the move spend their attention on the first and assume the second follows. It does not. Section 937(b) and the regulations under it decide source, and for property you owned before you arrived, the answer is unfavorable by design.

Residency is the part everyone gets right. Section 937(a) asks for three things in the same tax year: presence in Puerto Rico for at least 183 days, no tax home outside Puerto Rico, and no closer connection to the United States or a foreign country than to Puerto Rico. The regulations allow alternatives to the 183 days, including spending no more than 90 days in the United States. Buy a house, move the family, and it is a factual question you can win.

Treas. Reg. §1.937-2(f)(1) sets the default. If you are a bona fide resident of Puerto Rico in the year of the sale, and at any point in the 10 years before that year you were a US citizen or resident who was not a bona fide resident of Puerto Rico, then gain on property you owned before you became a resident is not Puerto Rico source. That default is blunter than most summaries admit. It throws out the entire gain, not just the part that grew before the plane landed.

The election in §1.937-2(f)(1)(vi) is what rescues the rest. Make it and the gain splits. For marketable securities the split is by value, measured from the market close on the first day of your possession holding period, so everything after that date is Puerto Rico source. For anything else the split is by days: Puerto Rico days over total holding days, no matter when the value showed up. You make the election by reporting the Puerto Rico portion on your Puerto Rico return.

The day-count version is the one that hurts founders. Hold your company stock for nine years, move, sell a year later in an acquisition, and one tenth of the gain is Puerto Rico source even if the company was worth nothing a year earlier. Digital assets sit in an uncomfortable spot, because a marketable security has to be actively traded on an established financial market and the IRS has not said tokens qualify. I would plan on the day-count rule there.

The election is worth $714,000 in that example, and it is made on a return, not in a planning meeting. It gets missed.

Act 60 of 2019 is Puerto Rico law, not federal law, and the decree it grants zeroes out Puerto Rico tax on interest, dividends, and capital gains accrued after you become a resident. It carries conditions: buy a home in Puerto Rico as your primary residence within two years of the decree, donate $10,000 a year split between two Puerto Rico nonprofits, and file an annual report.

The pricing changed this year. Act 38-2026, signed March 10, 2026, extended the individual resident investor program from December 31, 2035 out to December 31, 2055 and raised the rate on the way. Apply on or before December 31, 2026 and the old terms hold, 0% through December 31, 2035. Apply on or after January 1, 2027 and the rate is 4% on interest, dividends, and post-residency capital gains, 5% on certain pre-residency long-term gains, and you have to show six years of non-residency before the move.

That deadline is real, and it is the smaller number. The spread between 0% and 4% is worth chasing if you are moving anyway, but the federal treatment of the gain you already hold is unchanged by any of it.

The IRS opened a compliance campaign aimed at this population on January 27, 2021, under the name Puerto Rico Act 22, Individual Investors Act, and it is still active. The stated concern is people excluding US-source income under §933 and people who never established residency at all.

In December 2024 the Office of Chief Counsel released AM 2024-005, taking apart the workaround that was circulating: contribute appreciated stock to an S corporation before the move, then sell the S corporation stock or let the S corporation sell the shares. Neither version produces Puerto Rico source gain. Wrapping an asset in an entity does not restart the clock on when you owned it.

A year later the GAO reported on the program. It counted roughly 2,200 recipients of the incentive as of 2021, found their average federal tax paid fell sharply after the move, put the revenue effect at potentially hundreds of millions of dollars a year, and told the IRS its oversight had gaps. Reports like that produce more examinations, not fewer.

The filing is small and people still miss it. If your worldwide gross income is over $75,000 in the year you move, Form 8898 is due with that year's return and the penalty for skipping it is $1,000 under §6688. Not filing it is a cheap way to look evasive about something legal.

The pattern is the same one states run. California keeps its claim on the compensation you earned there before you left, which is what the California RSU rules come down to, and the federal government does the same with built-in gain. Getting out from under the US system entirely is expatriation, with its own mark-to-market exit tax, and a different decision than a move to San Juan.