Act 60 Benefits Only Work If Residency Holds Up

Many people first hear about Act 60 because of the headline benefits—0% tax on qualifying capital gains, dividends, and interest under the Individual Resident Investor program, plus separate incentives for eligible businesses. A decree does not replace bona fide residency; it works alongside it. The IRS’s baseline overview for Puerto Rico is IRS Publication 570, and the legal framework for bona fide residency is grounded in IRC § 937 and its regulations, including 26 CFR § 1.937-1.

The Three Tests You Must Pass (Every Tax Year)

1) Physical Presence Test

Most people shorthand this as “183 days,” but the IRS framework is more specific than that. Publication 570 explains the physical presence rules and the types of days that count. Practically, many relocation plans aim to exceed 183 days by a comfortable margin to avoid “close call” years, because travel patterns are often the first thing reviewed when residency is questioned.

Documentation that helps (common-sense, not exhaustive): airline itineraries, travel receipts, phone location history, credit card statements, toll records, Puerto Rico utility bills showing continuous use, and calendar logs that match objective records.

2) Tax Home Test

In plain terms: Puerto Rico has to be the center of your working life—your regular or principal place of business (or, if you don’t have one, your principal place of abode in a real and substantial sense). That definition appears in 26 CFR § 1.937-1. If your income is tied to an operating business, a day-to-day role in Puerto Rico, local employees/vendors, and a Puerto Rico office footprint can all matter.

3) Closer Connection Test

This is where “life facts” matter. The IRS evaluates whether your personal, family, social, economic, and civic ties are closer to Puerto Rico than anywhere else. Publication 570 summarizes the concept and points you to the broader rules. The cleanest approach is consistency: home, routine, primary doctors, community involvement, banking patterns, and “where your life is” should not point back to a mainland state.

The Form People Miss: IRS Form 8898

If your worldwide gross income meets the filing threshold, the IRS expects notice when you begin (or end) bona fide residence in a U.S. territory. See About Form 8898 and the IRS page on Form 8898 for bona fide residence in a U.S. territory.

How This Connects to Act 60’s Local Compliance

Separately from the IRS residency tests, Act 60 decree holders must also meet Puerto Rico–level compliance requirements each year, including filings, fees, and other conditions set in the decree. For example, many Individual Resident Investor decree holders plan around annual reporting and fees, charitable contributions, and housing-related requirements reflected in their decree terms and program rules.

If you are applying for or maintaining a decree, the starting point for the Puerto Rico-side process is the DDEC Incentives Portal, and the governing law is Act 60 (Puerto Rico Incentives Code).

A Practical Way to Plan Your Residency Year

Most residency problems come from inconsistency. A conservative plan typically looks like this:

• You spend well over 183 days on the Island and can prove it with objective records.
• Your work life is anchored in Puerto Rico (tax home), not merely “administratively” located there.
• Your closer-connection facts are coherent: housing, banking, health care, professional network, memberships, and routine activity align with Puerto Rico.
• You keep a compliance calendar for your decree obligations and collect documentation throughout the year (not at filing time).

A Note on Federal Taxes People Still Encounter

Even for bona fide residents, certain federal tax exposures can still apply depending on the facts—particularly where income is sourced and whether there is a U.S. filing obligation. Publication 570 notes that Net Investment Income Tax (NIIT) can apply to bona fide residents of Puerto Rico in certain circumstances. That is one reason relocation planning should treat “0%” claims carefully and tie them to source-of-income and filing-position reality.

Frequently Asked Questions

Does “183 days” automatically qualify me?

Not by itself. Physical presence is one of the three tests. You also need Puerto Rico as your tax home and a closer connection to Puerto Rico than any other jurisdiction. Start with IRS Publication 570 and 26 CFR § 1.937-1. Another consideration is where is the income being generated, where are the assets amongst other factors. For an in depth analysis contact your tax attorney.

What counts as a “day” in Puerto Rico?

The IRS rules define how days are counted and which exceptions apply. Publication 570 is the most practical starting point for the day-count framework.

How does “tax home” work if I’m remote?

Remote work can still support Puerto Rico as your tax home if your regular work base is Puerto Rico in practice, not just on paper. Facts like where you routinely work, where your business is managed, and where operational activity occurs can matter. The definition is addressed in 26 CFR § 1.937-1.

What matters most for “closer connection”?

Housing, where your family spends time, doctors, banking activity, memberships, community ties, and where your routine life happens. Consistency is key; your fact pattern should not point back to a mainland state. See Publication 570.

Do I need to file Form 8898?

If you meet the filing threshold, the IRS expects Form 8898 when you begin or end bona fide residence in a U.S. territory. See About Form 8898 and the IRS territory-residency guidance.

Does Act 60 eliminate all U.S. federal tax?

Not necessarily. Even bona fide residents may have federal exposure depending on sourcing and other rules. Publication 570 discusses how U.S. federal rules apply to Puerto Rico residents and flags areas where federal taxes can still come into play.

Where to Go Next

If you’re evaluating relocation under the Individual Resident Investor program, start with What Is Act 60? and then compare this checklist against your actual travel, work structure, and life ties. If you need legal structuring or decree support, see MZLS — Tax Incentives & Decrees and MZLS — Individual Resident Investor for practitioner-level guidance.

Key Takeaways

• Act 60 benefits for individuals depend on bona fide Puerto Rico residency, which requires passing physical presence, tax home, and closer connection tests each year.
• “183 days” is helpful shorthand, but residency is stronger when your work base and life ties clearly point to Puerto Rico.
• Plan early for Form 8898 and keep documentation aligned with your actual patterns.
• IRS residency is one piece; Act 60 also includes Puerto Rico-side decree obligations that must be met to maintain benefits.

Last updated: January 1 2026 5:03pm. Educational content only; not tax advice.