Puerto Rico Act 60 for Crypto Investors

What is Act 60 Chapter 2?

Puerto Rico's Act 60 of 2019 consolidated several prior tax incentive laws into one framework. Chapter 2 — which traces back to Act 22 of 2012, the "Individual Investors Act" — provides qualifying bona fide Puerto Rico residents with:

• 0% Puerto Rico capital gains tax on gains from assets acquired after establishing residency and disposed of during Puerto Rico residency
• 0% Puerto Rico tax on dividends and interest earned during the residency period
• Federal exclusion of Puerto Rico-source income under IRC §933 for bona fide PR residents — meaning those post-move gains are also excluded from federal income tax

Under Act 38-2026, the program was extended through December 31, 2055. But the 0% rate is only available to applicants who file by December 31, 2026. Applicants from 2027 onward receive a 4% preferential rate and must demonstrate they were not Puerto Rico residents for at least six consecutive years prior to relocating.¹

The core tax math for a crypto holder

A US taxpayer with a large unrealized Bitcoin or Ethereum position faces a federal capital gains rate of up to 23.8% (20% LTCG + 3.8% NIIT) on the gain when they sell. For a position worth $5 million with a $200,000 cost basis, the federal tax on a full sale is roughly $1.14 million — before state income tax.

Under Act 60, a bona fide Puerto Rico resident who buys new crypto after establishing residency pays 0% on any appreciation when they eventually sell. Because the gain is Puerto Rico-source income for a bona fide resident, it is also excluded from federal income under IRC §933.

That is the headline benefit. The critical limitation: it only applies to appreciation that builds after you establish Puerto Rico residency.

What Act 60 does not fix: pre-move unrealized gains

Crypto you already own before becoming a bona fide Puerto Rico resident does not benefit from the 0% rate — at least not on the gain that already exists. Here is why.

Capital gains on personal property are generally sourced to where the seller was resident when the gain accrued (IRC §865). Gain that accumulated while you were a US resident is US-sourced income. Puerto Rico's Act 60 decree does not change how the IRS taxes US-sourced income. When you eventually sell pre-move crypto, the pre-residency appreciation remains subject to federal capital gains tax at standard rates — up to 23.8% for long-term positions in the top bracket.

There is a time-apportionment rule for long-term Puerto Rico residents: if you hold pre-move property for more than 10 years while domiciled in Puerto Rico, a portion of the total gain may ultimately be characterized as Puerto Rico-source. But this rule is complex, involves the regulations under IRC §937, and the IRS has intensified scrutiny of exactly these positions for crypto holders in 2025 and 2026.²

Some holders respond to this by selling their pre-move position before relocating, paying the full US federal tax, then starting fresh with post-move purchases. Whether that makes financial sense depends on expected future appreciation, the tax cost of selling now, and how much time is needed to rebuild a comparable position. Use the crypto tax reserve calculator to model what a pre-move sale would cost before running the tradeoff analysis.

Bona fide residency requirements (IRC §937)

Federal law — IRC §937 and the regulations under it — defines what "bona fide Puerto Rico resident" means for federal tax purposes. Puerto Rico cannot grant bona fide residency status; only actual residence satisfies the federal standard. The IRS applies a three-part test:

1. Physical presence test

You must be physically present in Puerto Rico for at least 183 days during the tax year. Travel days count based on where you are at midnight. This test is the most documented and the easiest to verify — but also the easiest to fail if mainland business, family, or health needs pull you back more than expected.

2. Tax home test

Your "tax home" — the principal place of business or, if no fixed place of business exists, where you regularly perform services — must be in Puerto Rico. For crypto holders and investors, the IRS looks at where financial activity is actually conducted: where your advisors and accountants are, where you maintain offices or a home office, where hardware wallets and workstations are kept, and where you attend to investment-related meetings.

3. Closer connection test

You must have a closer connection to Puerto Rico than to the United States or any foreign country. The IRS evaluates: where your family and close social ties are, where you maintain a permanent home, where your vehicles and bank accounts are registered, where you are registered to vote, where your professional licenses are held, and where you spend time when not counting days toward the 183-day threshold.

This test is the primary driver of enforcement failures. Many Act 60 decree holders have spent 183 days in Puerto Rico but maintained a primary home in California or New York, sent children to US schools, and returned to the mainland for the majority of their social and professional life. The IRS treats that pattern as failing the closer connection test regardless of the day count.³

Meeting all three tests requires a genuine relocation — not a tax-motivated counting exercise. Advisors recommend establishing Puerto Rico banking, professional relationships, community involvement, and a primary residence before the year you first claim bona fide residency.

Annual compliance costs

Maintaining an Act 60 decree requires ongoing annual compliance beyond physical presence:

Total annual cash cost for compliance — decree fee, charitable contribution, dual-jurisdiction tax preparation, and legal compliance reviews — typically runs $20,000 or more per year for crypto holders with complex positions. For a large position with significant future appreciation, these costs are minor relative to the tax savings. For smaller positions, the economics may not justify the relocation.

IRS enforcement: the scrutiny is real

The IRS treats Puerto Rico Act 60 as a high-audit-risk area. In 2025, the IRS audited more than 300 Act 60 decree holders. A significant portion faced penalties — primarily for failing the closer connection test or mischaracterizing pre-move gains as Puerto Rico-source.³

Two recent IRS guidance documents apply directly to crypto traders under Act 60:

• IRS Chief Counsel Memorandum 202538025 — addresses income sourcing for cryptocurrency transactions by Puerto Rico residents, specifically questioning whether crypto trading income qualifies as Puerto Rico-source income when the exchanges, servers, or counterparties are located in the US.
• AM 2024-005 — provides additional analysis of how US-resident gain treatment applies even after Puerto Rico residency is established for assets acquired before the move.

The practical enforcement implication: crypto holders under Act 60 must be prepared to demonstrate not just physical presence, but that their actual trading and financial activity is genuinely centered in Puerto Rico. Using only US-based exchanges, having all advisors and counterparties in the US, and conducting every financial decision from a mainland office creates documentation that the IRS will use to argue the income is US-source regardless of where you slept each night.²

Successful Act 60 residency for crypto holders requires real relocation and real documentation:

• Physical presence logs (travel records, utility bills, medical appointments, social engagements in PR)
• A genuine Puerto Rico tax home — banking, advisors, and professional relationships actually located in Puerto Rico
• Severing US closer connection factors — selling or renting the mainland home, updating vehicle registrations, state voter registration, and professional licenses

Planning your pre-move crypto position

The most consequential planning decisions happen before you establish Puerto Rico residency. Advisors typically frame three scenarios for a holder with large unrealized gains:

Scenario A: Sell before moving

Pay full US federal capital gains tax on the existing position, then move to Puerto Rico and reinvest post-residency. The future appreciation on the now post-move position benefits from the 0% rate. Whether this makes economic sense depends on the expected return: at 23.8% combined LTCG + NIIT, selling $3 million of gain to "reset the clock" costs $714,000 now. You need the future appreciation on the reinvested amount to exceed that $714,000 to break even compared to holding and paying tax later. Use the crypto tax reserve calculator to model the pre-move tax cost before committing.

Scenario B: Move and hold pre-move coins

Establish Puerto Rico residency, acquire new crypto post-residency (which benefits from the 0% regime), and continue holding the pre-move position until you are ready to sell. The pre-move gain remains federally taxable when sold, but you can manage the timing — using multi-year tranche selling to stay in lower rate brackets, harvesting losses against it using the crypto wash-sale gap strategy, or donating concentrated positions to a donor-advised fund to eliminate the gain on the donated amount entirely. See the crypto charitable giving guide for how DAF contributions work for large crypto positions.

Scenario C: Donate pre-move holdings, reinvest post-move

For holders with charitable intent, donating concentrated pre-move crypto to a donor-advised fund eliminates the capital gains on donated amounts, generates a full fair-market-value charitable deduction, and clears capital for reinvestment in post-residency purchases. This is frequently the most tax-efficient combination for large pre-move positions with a charitable component. The donated assets never trigger capital gains recognition, the DAF can sell them tax-free and invest the proceeds, and the grants made from the DAF go toward the holder's charitable goals. Combined with Puerto Rico residency on the remaining position, this approach can dramatically reduce the overall tax burden on a large crypto position over a multi-year horizon.

The three-advisor team this requires

A Puerto Rico Act 60 relocation for a crypto holder is not a single-advisor project. The planning requires three distinct professionals working in coordination:

1. Puerto Rico tax attorney. Prepares and files the Act 60 decree application. Advises on the closer connection test, how to document the residency, and how to structure the relocation to satisfy IRC §937. Essential for modeling how pre-move property is characterized and what the timing of any pre-move sale means for the federal tax position.
2. Dual-jurisdiction CPA. Files both the federal Form 1040 (with the IRC §933 exclusion) and the Puerto Rico income tax return each year. Tracks cost basis across pre-move and post-move positions, handles the charitable contribution and decree fee compliance documentation, and manages the 2026 portal reporting requirements. This is complex enough that generalist CPAs frequently make costly errors on dual-jurisdiction crypto returns.
3. Crypto-aware financial advisor. Models the pre-move sell vs. hold vs. donate decision, designs the diversification plan for post-residency purchases, coordinates the charitable giving strategy, and writes the investment policy statement that governs the new portfolio. The advisor also monitors whether trading behavior, exchange usage, and the geographic distribution of advisory relationships is consistent with Puerto Rico-source characterization for the gains — a question the IRS is now explicitly scrutinizing.

Coordination failures between these three roles — missed application deadlines, contradictory residency advice, undocumented compliance, incorrect income sourcing positions — create the conditions for large audits and penalties. The complexity of this plan is why it attracts the most experienced financial and legal professionals working in this space, and why crypto holders who self-direct the relocation without a coordinated team tend to end up with the enforcement problems.

Is Puerto Rico Act 60 right for you?

Act 60 Chapter 2 makes economic sense for holders who:

• Have large future appreciation potential — the primary value is protecting gains that have not yet occurred, not sheltering gains already on paper
• Can genuinely establish Puerto Rico as their primary residence and pass the closer connection test — not as a 183-day counting exercise but as an actual life relocation
• Are willing to complete the application process by December 31, 2026 to lock in the 0% rate
• Have the resources for ongoing compliance costs ($20,000+/year in fees, filings, and contributions)
• Have flexibility in their lifestyle — no children in US schools, no strong professional or family ties that prevent a genuine closer connection to Puerto Rico

It makes less economic sense for holders who:

• Have large concentrated unrealized gains they plan to liquidate soon — those gains remain federally taxable regardless of Puerto Rico residency
• Cannot meet the closer connection test due to family, employment, or professional constraints in the US
• Earn significant US-source income (salary, equity, business income) that remains federally taxable regardless of residence
• Are not prepared to invest in the compliance infrastructure required to withstand an IRS audit

Get matched with a crypto-aware financial advisor

If Puerto Rico is on your roadmap, the planning decisions in the six to twelve months before you move determine most of the outcome — which coins to sell first, how much to donate, what the breakeven return needs to be, and whether the relocation will survive IRS scrutiny. Tell us about your situation and we will match you with a fee-only financial advisor who coordinates with Puerto Rico tax attorneys and understands both sides of this plan.

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1. Procopio, Puerto Rico Extends Act 60 Resident Investor Program to 2055 and Introduces New 4% Tax Regime for Future Applicants — Act 38-2026 extended the program through 2055; applications filed after December 31, 2026 face a 4% preferential rate; existing 0% decrees grandfathered; post-2026 applicants must demonstrate 6+ years of non-PR-residency; annual decree fee $5,000; charity requirement $10,000–$15,000.
2. Holland & Knight, Puerto Rico's Act 60, Income Sourcing and IRS Scrutiny in the Age of Cryptocurrency (November 2025) — IRS Chief Counsel Memorandum 202538025 and AM 2024-005 on crypto income sourcing for Act 60 residents; IRS scrutinizes whether crypto trading gains qualify as Puerto Rico-source income when exchanges and counterparties are US-based.
3. Procopio, IRS Intensifies Scrutiny of Puerto Rico Tax Residency Claims Under Act 60 — IRS audited 300+ Act 60 decree holders in 2025; penalties concentrated in closer connection test failures and incorrect sourcing of pre-move gains.
4. IRS, Publication 570 — Tax Guide for Individuals With Income From U.S. Possessions — bona fide Puerto Rico residency requirements under IRC §937; physical presence, tax home, and closer connection tests; IRC §933 federal exclusion for Puerto Rico-source income of bona fide residents.

Regulatory framework verified as of June 2026. Act 38-2026 extended Act 60 through 2055 and introduced a 4% rate for post-2026 applicants. IRC §933, §937, and §865 govern the federal treatment of Puerto Rico-source income and capital gains sourcing. Consult qualified Puerto Rico tax counsel and a crypto-aware CPA before relocating or making pre-move asset decisions.