Geoarbitrage

[RunningBum]

Moving somewhere strictly for tax reasons seems like the ultimate "tax tail wagging the dog". If a place already has appeal to you anyway, it makes more sense. Puerto Rico has never been on my radar, so No, I won't be moving there.

 

[imnontrad]

Taxes are close to last on my list of considerations about where to live. The cost of daily living is also of little importance to me. I want to live in a place that I thoroughly enjoy, not make do somewhere just because it's cheap.

The thing is, I oversaved too much in my pre-tax IRA. It is now in danger of causing increased Medicare premiums or a tax burden to my heirs due to the 10 year distribution rule due to the Secure Act.
I figured that the difference in taxes may save enough to basically live "free".

 

[imnontrad]

I would consider overall location benefits and amenities, closeness to family/friends, climate, activities, parks, resources, medical, and a whole lot of other things before I put taxes and politics on my priority list.

One thing about PR, while it's beautiful, I don't want to be on an island when the next Cat4-5 comes knocking. At least in FL I can drive away a few days before if needed.

I have been through hurricanes in Florida, Connecticut and Maryland. The hurricane that hit the main island of Puerto Rico damaged homes on the south side, not the north where San Juan is.
Although I would love to live near my friend and siblings, they live in an area where I hate the weather.

 

[imnontrad]

The 4%/0/0 rates in the OP are for local taxes in Puerto Rico. US citizens and residents who relocate to Puerto Rico are still subject to US income tax on their worldwide income, including capital gains, interest and dividends.

Actually, Puerto Rico has several tax incentives that other territories do not have. Even though Puerto Rico is a territory of the United States (and generally subject to all US. federal laws), it is treated as a “foreign country” for US federal income tax purposes, and a special tax treatment applies to its residents. People who take advantage of Puerto Rico’s programs can enjoy huge exemptions on federal income tax and reduce their tax rate by as much as 90%.

Act 20 - no taxes on dividends or capital gains (and that alone will save me 5 figures)

Act No. 22- 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.

if I had a business, the savings would be even more.

 

[RunningBum]

imnontrad--Are you considering this because the tax savings are needed to live the way you want to? Or are you in good financial shape where you are at, and just want to pay less taxes?

 

[imnontrad]

I am financially independent. But I am trying to avoid higher income tax brackets plus higher Medicare premiums for the rest of my life.

 

[RunningBum]

I am financially independent. But I am trying to avoid higher income tax brackets plus higher Medicare premiums for the rest of my life.

To me, that doesn't make sense. Like you, I'm FI. I do what I can to reduce taxes, but I'm not going to upend my life to do so. I'm certainly not going to make such a drastic change so that my heirs don't have to pay cap gains on what they inherit from me. But that's me, not you. And maybe you don't see this as much of a huge change as I do. Your handle, which I assume means "I'm non-traditional" tells me not to expect you to think like I do.

I would also be concerned that Puerto Rico might have need to collect more tax revenue, and I've lived down there for a few years and wind up with almost no tax benefit to show for it. But I haven't looked farther than any links in this thread to see why taxes are so low and what the chances are they stay that way.

 

[W2R]

I guess I'm a little cynical. I have lived in I guess eight or more states, although I haven't lived in PR. Anyway, they all seem to "get you" one way or another. The ones that have no income tax, have higher property taxes or sales tax. Or something else.

Frank calls this "level of pain" theory. They tax you and charge you until your level of pain is about maxed out and you can't pay any more, which is why the total seems to be the same everywhere.

 

[Koolau]

I guess I'm a little cynical. I have lived in I guess eight or more states, although I haven't lived in PR. Anyway, they all seem to "get you" one way or another. The ones that have no income tax, have higher property taxes or sales tax. Or something else.

Frank calls this "level of pain" theory. They tax you and charge you until your level of pain is about maxed out and you can't pay any more, which is why the total seems to be the same everywhere.

I agree to an extent. Where I disagree: There really ARE states with much lower overall taxes - all in. Most states' taxes are sufficiently complex that it's difficult to figure out from some web site which state has the lowest taxes (or highest). You almost have to consult a tax professional to figure it all out. You also need to factor in all the sources of YOUR income as well as your status with regard to other taxes - for instance what RE you own, etc. (I mentioned that I was mistaken as to what I thought MY state taxes would be - I was way high. Having said that, I'm STILL overtaxed, but that's a different story.)

Bottom line becomes: Do you feel that your high or low or moderate taxes are "worth it." IOW do you receive enough "value" for the taxes you pay. Alternately, is it worth (lets say, 'over paying' on taxes) to be 'allowed' to live in a certain state. I guess that's where I am right now. I'm (still or maybe 'so far') willing to be overtaxed in order to live in Paradise. If we ever experience the travail I now see in many Mainland cities, I think I'd be gawn! No amount of 'perfect weather' and 'natural beauty' is worth feeling 'unsafe.' Most certainly, this is a YMMV scenario.

 

[RetireBy90]

I guess I'm a little cynical. I have lived in I guess eight or more states, although I haven't lived in PR. Anyway, they all seem to "get you" one way or another. The ones that have no income tax, have higher property taxes or sales tax. Or something else.

This seems to be true for most states as there is a cost to run a state and local governments and someone has to pay for it. However, some states tax tourism somewhat successfully, like Nevada and Florida so other taxes on locals can be lower. You could say that without the tax on tourists the locals could earn higher wages or cost of living could be lower but both states have no income tax and seem to operate without the fiscal problems of some states.



Bottom line is the money to run the state and local governments must come from somewhere.

 

[audreyh1]

I agree to an extent. Where I disagree: There really ARE states with much lower overall taxes - all in. Most states' taxes are sufficiently complex that it's difficult to figure out from some web site which state has the lowest taxes (or highest).

Agree - I know that TX is often pointed out as having high property tax rates, yet housing values are far lower than many states, especially the high COL states, and even within TX, areas outside of the largest major metropolitan areas can have much lower tax rates and housing values. You can get by with a modest home if you choose, regardless of your income.

I know that for us the state income tax savings on our taxable income is far higher than the annual property taxes we pay. I did some careful analysis years ago looking at neighboring states like NM and CO. We have a fairly high taxable income dominated by long-term capital gains. If it were lower or mostly from retiree income favored by some states like SS and IRA withdrawals or pension income, the picture would be completely different.

 

[MichaelB]

Actually, Puerto Rico has several tax incentives that other territories do not have. Even though Puerto Rico is a territory of the United States (and generally subject to all US. federal laws), it is treated as a “foreign country” for US federal income tax purposes, and a special tax treatment applies to its residents. People who take advantage of Puerto Rico’s programs can enjoy huge exemptions on federal income tax and reduce their tax rate by as much as 90%.

Act 20 - no taxes on dividends or capital gains (and that alone will save me 5 figures)

Act No. 22- 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.

if I had a business, the savings would be even more.

So, Act 20 applies to income from select business export activity, not normal passive investment income.

Act 22 can apply to investment income such as dividends and capital gains, but it needs to be domiciled in Puerto Rico and use a local investment structure. Just moving to PR isn’t enough. The complexities (and risk of fraud) of that probably explain why only a few very wealthy people do it. This is definitely a move that requires a great deal of due diligence and specialized tax advice.

The thing is, I oversaved too much in my pre-tax IRA. It is now in danger of causing increased Medicare premiums or a tax burden to my heirs due to the 10 year distribution rule due to the Secure Act.
I figured that the difference in taxes may save enough to basically live "free".

The concern about a tax burden to your heirs can be remedied by leaving your IRA to a charitable organization. Neither your heirs nor the charity will be burdened by any tax liability.

Not sure about Medicare. You’ll still need it living in PR, especially if yiu want to come to the US for health care, and how they determine MAGI in this case probably needs a tax expert - as does everything else in this case.