Act 60's 0% vs. 4%: Which Rate Actually Wins Long-Term?

Last verified: July 5, 2026

The honest answer: filing by December 31, 2026 wins in every scenario — not just because 0% beats 4%, but because 2026 filers keep the option to switch to the 4% framework later, while 2027 filers can never go back. The rates aren't the real comparison. The runways and the option are.

Since Act 38-2026 restructured Puerto Rico's Resident Individual Investor program, most coverage has framed the change as a simple downgrade: 0% before the deadline, 4% after. That framing misses the two details that actually drive the decision — how long each rate lasts, and who gets to change their mind. This page walks through both, with real numbers.

What's the difference between the 0% and 4% rates?

Under Act 60, a Resident Individual Investor decree covers three income streams earned after you become a bona fide Puerto Rico resident: interest, dividends, and capital gains on assets acquired after your move.

Applications filed on or before December 31, 2026 get a 0% Puerto Rico rate on all three, with benefits running through December 31, 2035.

Applications filed on or after January 1, 2027 get a 4% Puerto Rico rate on the same income, with benefits running through December 31, 2055 — and one extra provision worth knowing: if a more favorable rate exists under any other Puerto Rico or federal law, that better rate applies instead of the 4%.

The federal side is identical for both groups. Under Section 933 of the U.S. Internal Revenue Code, bona fide Puerto Rico residents exclude Puerto Rico-source income from federal tax entirely. Neither cohort pays federal tax on qualifying income. The entire difference between the two regimes is 4 percentage points of Puerto Rico tax.

Who gets 0% and who gets 4%?

Your application filing date decides — nothing else. An application timestamped in DDEC's Incentives Portal by 11:59 p.m. on December 31, 2026 falls under the 0% rules, even if the decree is approved and the move happens in 2027. An application filed January 1, 2027 or later falls under the 4% rules and must also clear a six-year lookback: post-2026 applicants can't have been Puerto Rico residents in the six years before relocating.

Anyone already holding a decree — including legacy Act 22 decrees — is grandfathered at 0% through 2035. The full mechanics of the cutoff are in our December 31, 2026 deadline breakdown.

Is 0% for nine years better than 4% for twenty-nine?

This is the comparison that matters, and it depends entirely on when your gains show up.

If your gains are front-loaded — a business sale, a concentrated position you plan to unwind, a crypto portfolio you expect to realize over the next several years — the 0% window is decisively better. Every qualifying dollar realized before 2036 is taxed at zero instead of 4%. On $10 million of gains realized inside the window, that's $400,000 kept.

If your gains are back-loaded — you're 35, compounding, and expect your largest realizations in the 2040s — the raw comparison gets closer, because the 0% structure expires in 2035 while the 4% structure runs to 2055. A gain realized in 2040 gets no help from a decree that lapsed five years earlier.

Which sounds like a genuine dilemma. It isn't, because of what comes next.

The option almost nobody mentions: file now, switch later

Act 38-2026 lets existing decree holders — including everyone who files by December 31, 2026 — voluntarily modify their decree to adopt the new framework: the 4% rate with the 2055 runway. Law firm analyses of the amendment, including DLA Piper's, flag this as most valuable for holders whose 0% benefits would otherwise expire in 2035.

Think about what that means. A 2026 filer holds both positions: 0% today, and a standing option to trade into 4%-through-2055 if their timeline stretches. A 2027 filer holds only one position — 4% from day one — and no path back to zero, ever.

That asymmetry is the whole ballgame. There is no scenario where waiting until 2027 gets you something the 2026 filer can't have. Filing by the deadline isn't just picking the better rate; it's keeping both doors open.

One honest caveat: modifying a decree is a formal process with DDEC, the switch is prospective — 4% applies from the modification, and you can't toggle back — and the terms of any modification follow the rules in force when you make it. The option is real, but it's a door you walk through once.

What does 4% actually cost? A worked example

Take an investor who becomes a bona fide resident and realizes $1 million per year in qualifying post-move gains.

Under the 0% structure: $0 Puerto Rico tax per year through 2035. Over nine years, that's roughly $360,000 more kept than under the 4% rate — on top of the $0 federal owed under Section 933 either way.

Under the 4% structure: $40,000 per year in Puerto Rico tax. Still remarkable — on the mainland, the same gains could face federal long-term capital gains rates up to 23.8% before state tax, roughly $238,000 or more per year. But $40,000 a year is not $0 a year, and over a decade the gap is the price of a house in most of America.

The point isn't that 4% is bad. By any global standard it's extraordinary. The point is that for the next six months, 0% is still on the table — and it comes bundled with the option described above.

What's identical under both rates

Everything else. The bona fide residency tests, including the 183-day presence rule. The $5,000 annual filing fee and the $10,000 annual charitable contribution. The primary residence requirement. And the rule that surprises everyone: appreciation that built up before your move is never covered at 0% or 4% — it's taxed at Puerto Rico's ordinary rates if realized within ten years of residency, or 5% after a ten-year hold. Neither cohort escapes that. If your plan depends on sheltering gains you're already sitting on, neither rate helps you, and anyone telling you otherwise is selling something.

Frequently Asked Questions

Is Act 60's 0% rate better than the 4% rate? For gains realized before 2036, yes — 0% beats 4% on every dollar. For very long horizons, the 4% framework's 2055 runway matters, but 2026 filers can adopt that framework later by modifying their decree, so filing by December 31, 2026 dominates either way.

How long does the 0% rate last? Through December 31, 2035, for decrees from applications filed on or before December 31, 2026.

How long does the 4% rate last? Through December 31, 2055, for applications filed on or after January 1, 2027.

Can I switch from 0% to the 4% framework later? Yes. Act 38-2026 allows existing decree holders to modify their decree to adopt the 4% rate with benefits through 2055. The switch is one-way and prospective.

Can a 2027 applicant ever get the 0% rate? No. Applications filed on or after January 1, 2027 are subject to the 4% rate. There is no mechanism to opt back into the 0% structure.

Do both rates come with the federal exemption? Yes. Under IRC Section 933, bona fide Puerto Rico residents exclude Puerto Rico-source income from federal tax regardless of which Puerto Rico rate applies.

Does either rate cover gains from before my move? No. Pre-relocation appreciation is taxed at Puerto Rico's ordinary rates if realized within ten years of establishing residency, or at 5% after a ten-year hold — under both regimes.

What decides which rate I get? Your application filing date in DDEC's Incentives Portal. On or before December 31, 2026 means 0%; on or after January 1, 2027 means 4%.

Running the numbers for your own situation? Schedule a consultation — we'll connect you with the attorneys and CPAs who can model your specific gain timeline against both frameworks before the December 31 filing window closes.

This article is general information, not tax or legal advice. Act 60 decisions depend on your specific facts — talk to advisors before acting.