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Puerto Rico Act 22
Old 09-02-2014, 12:59 AM   #1
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Puerto Rico Act 22

I wonder if anyone is familiar with this and has specific insight. I have heard very few investors actually moved to PR as a result of this, however, i recall a year or two ago some big media about people moving there due to Act 22.. PR used to not be a very nice place to live, and getting "stuck" there for 183 days a year may not exactly be pleasant. But the tax savings are pretty amazing.....

Act 22 Objective: To attract new residents to Puerto Rico by providing a total exemption from Puerto Rico income taxes on all passive income realized or accrued after such individuals become bona fide residents of Puerto Rico

[mod edit to comply with copyright regs]

Seems like a wise move for higher net worth individuals who are throwing off significant dividend and capital gains (especially short term gains from, say, trading).

Likewise seems like a fairly interesing 20+ year tax shelter that would allow money to be earned tax free for a fairly long duration - and one could move back to USA at any point too... not necessarily locked in.

Like to get a discussion going about this. Any decent places to live in PR? Is it at all safe (used to be a real hell hole and not at all safe). . .
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Old 09-02-2014, 08:18 AM   #2
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Thanks for the info, biker

Is 1099-R income (pension/401k/IRA) still federally taxable? What about Social Security?

-gauss
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Old 09-02-2014, 09:20 AM   #3
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Good subject, also would like to know about the SS question, will try looking at PR sites that might shed some light on this
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Old 09-02-2014, 11:40 AM   #4
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I am glad someone started this thread.

Personally, I like Puerto Rico and do not believe I would not mind spending 1/2 the year there.

Educating myself on the implications of this act has been on my ToDo list for some time; but, I have not made any real progress yet.
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Old 09-02-2014, 12:46 PM   #5
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This act does not free a US citizen or resident from paying US tax on income, they will continue to be subject to US federal tax obligations, just as before. Income will not be subject to local taxation, which might be of interest to businesses.
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Old 09-02-2014, 03:26 PM   #6
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This act does not free a US citizen or resident from paying US tax on income, they will continue to be subject to US federal tax obligations, just as before. Income will not be subject to local taxation, which might be of interest to businesses.
This is my concern; but, a brief Forbes article and IRS Publication 1321 seem to indicate that some capital gains (sales of stocks, funds, etc.) as well as interest payments would not be taxed for Puerto Rico residents under Act 22.
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Old 09-02-2014, 08:08 PM   #7
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This act does not free a US citizen or resident from paying US tax on income, they will continue to be subject to US federal tax obligations, just as before. Income will not be subject to local taxation, which might be of interest to businesses.

If this is true then I do not see the benefit of it... there are enough states in the US that do not charge any state taxes... so why choose PR if it does not save any US taxes...
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Old 09-02-2014, 09:51 PM   #8
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I've been to PR. Nice place to spend a couple of weeks. Was ready to go when the deployment ended though. Spend half a year there to gain a few bucks on taxes Not me.
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Old 09-02-2014, 10:32 PM   #9
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I've been to PR. Nice place to spend a couple of weeks. Was ready to go when the deployment ended though. Spend half a year there to gain a few bucks on taxes Not me.
For about a decade we visited PR about every year or two. I have seen most of the island, well beyond the usual tourist traps. There are lots of interesting things to see and do in PR. Not a hellhole at all.

That said, I think the only set of circumstances under which using the PR tax loophole would make sense is if you are fluent in Spanish (and can understand the Puerto Ricans), and you appreciate the island and its people enough for themselves that you would enjoy spending 6 months there annually. I don't have the fluency, but enjoy PR.
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Old 09-02-2014, 11:52 PM   #10
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This is my concern; but, a brief Forbes article and IRS Publication 1321 seem to indicate that some capital gains (sales of stocks, funds, etc.) as well as interest payments would not be taxed for Puerto Rico residents under Act 22.
Wow, I don't have to move there for that benefit!
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Old 09-02-2014, 11:53 PM   #11
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I have spent a lot of time in PR also, mainly working. Industry/manufacturing is going away. I have worked on three refinery projects towards resurrecting equipment and all have gone bust. No crude oil there so refineries have to import expensive feedstock. Also, decades of poor maintenance practices have turned most plants into rust buckets. On the tuna canning locations, most are gone now that Asian countries can it cheaper. One generic drug company I know of closed its doors a few years ago. So from an employment standpoint, the counrty is leaning towards trouble.

The above means the economy must rely on tourism and services to make a go of it. Hotels in San Juan are very expensive and it's a dangerous town.

I love the countryside and the smaller shore towns. Good place for a vacation. Other than that, I prefer the Mainland.
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Old 09-08-2014, 05:34 AM   #12
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Unfortunately the moderator edited all the key points to my post. This was a paraphrase of the key benefits of PR-22 and in no way violated copyright infringements but what ever.

I guess the key question is whether or not. 6 months in PR to qualify for Bonafide residence is tolerable. Sounds like it may not be ... Hence the fantastic tax benefits being offered. Always a catch.

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Old 09-08-2014, 07:18 AM   #13
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I must be missing something. Can't you accomplish the same tax result by moving to states that do not have an income tax? FL, NH etc?
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Old 09-08-2014, 07:24 AM   #14
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No PR taxes on interest and dividends (all sources of such income, regardless of where it comes from), also no federal taxes on Puerto Rico source income. So this would still mean you have to pay federal taxes on interest & dividends. Like others have said, there are plenty of states that already don't have state taxes on these items. So I guess this is good if you come from a state that taxes these things, but from others, not so much.

That being said, I love PR, and could easily be happy living there, but I don't think I'd do it for the taxes (also, my family would think I am nuts).
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Old 09-08-2014, 07:42 AM   #15
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Unfortunately the moderator edited all the key points to my post. This was a paraphrase of the key benefits of PR-22 and in no way violated copyright infringements but what ever.
The deleted text was identical to what is on this web page Extra Realty, Inc.'s Puerto Rico Real Estate Blog (Bilingual) : Why Puerto Rico?.

Gumby gives an excellent explanation of why this is an issue for us Copyright, the DMCA, and "cut and paste". This well written post is easy to understand and concludes with a practical suggestion we can all follow to deal with material written by others we want to offer for discussion here.

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One still may make “fair use” of small snippets of copyrighted materials. The best way to do that is to link to the article, block quote perhaps a sentence or paragraph from the article, and then provide your own commentary on the quoted material. Not only does this help comply with the law, it also starts better discussions by letting the rest of us know what you consider to be the most important part of the article and what your thoughts are on the matter. While it is easier to simply post a whole article with commentary limited, in essence, to “look what I found”, that often does not lead to the witty and interesting discussion we want. Spending a little extra time to do it right will not only aid in our compliance with the law, but will also make this an even better forum.
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Old 09-08-2014, 07:51 AM   #16
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Pr-22 allows for FED and STATE tax free short term and long term capital gains. This is not the same as what some states offer. The federal tax free policy is significant benefit especially if considering short term capital gains, say, from trading stocks or other assets in a short term (<1 yr)

Likewise dividends and interest are totally fed and state tax free.
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Old 09-08-2014, 08:02 AM   #17
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As I read it, 100% TAX EXEMPTION ON DIVIDENDS AND INTEREST

New Residents will enjoy a 100% tax exemption from Puerto Rico income taxes on all dividend and interest income.

The law further states:
Interest and dividends that qualify as Puerto Rico source income will not be subject to federal income taxation under Section 933. .

Now the best part :

100% TAX EXEMPTION ON LONG-TERM and short term CAPITAL GAINS

New Capital Gains: All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. These gains will not be subject to US federal taxes.

There are also ways to exempt all the unrealized gains if recognized within
To qualify for the Act 22 incentives, all gains must be recognized prior to January 1, 2036.

To MOD.- not to be too harsh but There are no less than 20 sites quoting this or similar information and various paraphrases which comes from the Puerto Rico bureau of investments and notes in that documentation that the information can be quoted and or reproduced.

Sorry if I l posted a piece of an article that apparently can be reproduced. Have fun modding the board !!! Happy Monday too!
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Old 09-08-2014, 08:19 AM   #18
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To MOD.- not to be too harsh but There are no less than 20 sites quoting this or similar information and various paraphrases which comes from the Puerto Rico bureau of investments and notes in that documentation that the information can be quoted and or reproduced.

Sorry if I l posted a piece of an article that apparently can be reproduced. Have fun modding the board !!! Happy Monday too!
If there is an original source document that permits reproduction all you need to do is link it, as it is probably still protected by copyright. They probably allow reproduction without modification and ask they be attributed. All we are doing is trying to ensure compliance.
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Old 09-08-2014, 08:26 AM   #19
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For about a decade we visited PR about every year or two. I have seen most of the island, well beyond the usual tourist traps. There are lots of interesting things to see and do in PR. Not a hellhole at all.

That said, I think the only set of circumstances under which using the PR tax loophole would make sense is if you are fluent in Spanish (and can understand the Puerto Ricans), and you appreciate the island and its people enough for themselves that you would enjoy spending 6 months there annually. I don't have the fluency, but enjoy PR.
biker4life-so if one is fluent in spanish, as I and most of my family, do you consider PR would be a good place to buy property (home) as vacation and investment? As opposed to FL where I have been researching and about ready to travel there to check out areas, however, I like tropical climates. thanks
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Old 09-08-2014, 11:47 AM   #20
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biker4life-so if one is fluent in spanish, as I and most of my family, do you consider PR would be a good place to buy property (home) as vacation and investment? As opposed to FL where I have been researching and about ready to travel there to check out areas, however, I like tropical climates. thanks
I think you are responding to me. Anyway, I am not a real estate investor, so I can't really comment on that. That said, if you are considering Florida and are fluent in Spanish, I would check out PR as well.
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