Geoarbitrage

[imnontrad]

I am wondering -

Considering the current political climate and the possibility of step up basis going away, the SECURE Act provisions, has anyone moved to Puerto Rico for the tax advantages? (4% on income, 0% on capital gains, 0% on dividends)

 

[njhowie]

A number of high profile money managers have relocated to Puerto Rico for that exact reason. Peter Schiff is most notable.

 

[Koolau]

There are SO many more aspects to a home base than (low) taxes - or any other single financial factor. I suppose if low taxes make it possible to FIRE AND one is okay with other issues of such a move, go for it. Just keep in mind that YMMV.

Oddly enough, lower taxes for retirees turned out to be an unexpected perk here in Paradise. I didn't fully understand taxes before moving so was pleasantly surprised. Again, YMMV.

 

[ShokWaveRider]

There are SO many more aspects to a home base than (low) taxes - or any other single financial factor. I suppose if low taxes make it possible to FIRE AND one is okay with other issues of such a move, go for it. Just keep in mind that YMMV.

Oddly enough, lower taxes for retirees turned out to be an unexpected perk here in Paradise. I didn't fully understand taxes before moving so was pleasantly surprised. Again, YMMV.

We did consider Hawaii, I spend a lot of my wo#$%^g years traveling there for business, but ~$1.2m for a mediocre home is prohibitive, and IMHO a waste of good capital at this stage of our life.

 

[Aerides]

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.

 

[Koolau]

We did consider Hawaii, I spend a lot of my wo#$%^g years traveling there for business, but ~$1.2m for a mediocre home is prohibitive, and IMHO a waste of good capital at this stage of our life.

I agree. Our (decent) condo (1000+ SF) goes for $600K right now. HOA dues are around $700/mo. Not cheap, but affordable by comparison to many houses. All in all, probably similar to prices in much of Cali. Actually there is some newer housing in the Ewa area which is rather affordable. I'm not a fan of the area (dry and warmer than our area and "far" from many amenities.) Check Zillow or equivalent for (example) Maili (on the Waianae cost.) As always, YMMV.

 

[MichaelB]

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.

 

[athena53]

My brother, a retired tax accountant, bought a house in FL to avoid state income taxes in SC. He says the carrying costs on the house will be covered by his tax savings. (Yes, brother did very well- partner at a major firm). They have a lake house in SC they'll keep and use in summer and if I know DB he will keep meticulous records to make sure they qualify as FL residents. He says FL gets all their income from taxing tourists. Wonder how that will work for them now.

I live in KC and my only son lives in IA. MO taxes SS, IA doesn't, but when I ran the numbers, my IA taxes would be higher because the rates are higher! As Aerides said, you have to look at the whole picture. I'm also seeing many in my generation struggling to help Mom and Dad (or the remaining widowed parent), who moved far away and now can't live independently. I plan to move near DS and DDIL in whatever type of place I need when I can no longer live independently here.

 

[Markola]

To fill out the total tax picture, no one has mentioned sales and property taxes. What are those rates in PR, HI and Florida?

 

[Koolau]

No one has mentioned sales and property taxes. What are those rates in PR, HI and Florida?

Can't speak to the others, but HI has a GET (General Excise Tax) which adds to about 4.2% on almost all retail purchases (I think it ONLY excludes Pharma products BUT is charged on, for instance, food.) IIRC there are "hidden" GET taxes that accrue along the way before retail sales, but don't know the details. There is a 0.5% added to the GET on Oahu to "pay for" building the light rail - Do NOT get me started on this boondoggle!

Amazingly, RE taxes are relatively low. RE taxes are charged on the full appraised value of each property BUT the rate is fairly low (we pay HALF what we paid on the mainland and our HI property is valued at 4X our mainland property.) Over 65 receive a substantial exemption from appraised value.

 

[Alan]

I am wondering -

Considering the current political climate and the possibility of step up basis going away, the SECURE Act provisions, has anyone moved to Puerto Rico for the tax advantages? (4% on income, 0% on capital gains, 0% on dividends)

I'm not sure what you mean about the step up basis.

According to this article in Forbes you have to pay US taxes on any sales of appreciated assets until after you have been living in PR for 10 years.

https://www.forbes.com/sites/robert...-your-taxes-to-zero-not-exactly/#222288741362

First, forget about easily avoiding U.S. tax on the appreciation in your assets before you move. If you move with appreciated stock, bitcoin or other property, and then sell, all that pre-move appreciation is still subject to U.S. tax. Only your post-move appreciation will be subject to the special tax rules in Puerto Rico. In fact, to escape U.S. tax on all of the pre-move appreciation, you generally must wait a full ten years after you move. That is hardly a quick fix. What about selling your U.S. real estate? That will always be U.S. source income. That means it is fully taxed in the U.S., even if you move to Puerto Rico and wait ten years before selling.

 

[ShokWaveRider]

Not sure PR would be our First Choice in the Caribbean. Especially with their poor infrastructure history.

 

[kevink]

Not sure PR would be our First Choice in the Caribbean. Especially with their poor infrastructure history.

THIS.

And let's not forget the "official" PR retiree recruitment motto: "Come for the tax savings, stay for the hurricanes."

We lived as expats in Mexico for 5+ years where the cost savings on the expenses that really matter - housing, food, transportation and medical care -are substantial and almost certain to remain so given the peso/dollar exchange rate (which is unlikely to improve in Mexico's favor anytime soon). But you also have to be willing to deal with no rule of law, narcos effectively running the country, infrastructure problems and noise levels that really have to be experienced to be believed.

The IRS will get its share of your income no matter where you live so I'd focus on the other positives of possible expat living, potentially including better weather, richer culture and cost savings on key expenses. If you take political stability into account Costa Rica is arguably the only healthy democracy in tropics at the moment. Otherwise the lower-cost EU countries (Portugal, Spain) remain appealing but may well change their visa rules as they've been inundated with American expats over the past 4 years.

 

[athena53]

Not sure PR would be our First Choice in the Caribbean. Especially with their poor infrastructure history.

And it's another place I wouldn't want to have to evacuate in a hurricane!

One plus: Medicare covers you in PR.

 

[GravitySucks]

Low taxes aren't a reason to move away from friends and family for me. Remember some neighborhoods had no electricity 2 YEARS after the last large hurricane.

 

[projectmaximus]

PR is an interesting case. There is some benefit for relocating your business there as well, although just like with the personal tax there are a lot of guidelines and complications in the details.

But the common geo-arbitrage thought re: PR is why not just actually move overseas? PR makes sense if you actually want to live in PR, otherwise in almost every instance there is a foreign location that would be better.

I'm not sure what you mean about the step up basis.

According to this article in Forbes you have to pay US taxes on any sales of appreciated assets until after you have been living in PR for 10 years.

https://www.forbes.com/sites/robert...-your-taxes-to-zero-not-exactly/#222288741362

Interesting, I actually had never heard that after 10 years you could avoid the appreciation prior to moving.

 

[Sunset]

To fill out the total tax picture, no one has mentioned sales and property taxes. What are those rates in PR, HI and Florida?

They are all less than IL.

Living in IL is nice as the choice to move to other lower cost locations is greater

 

[Sunset]

PR prior to the hurricane damage last time, had a large problem of people leaving PR.
There is a reason many leave.

 

[ShokWaveRider]

If we were to leave Florida, Hawaii would be our next choice. We particularly like Mexico but there is a lot to deal with there and healthcare would be a challenge.

When we get REALLY old we will go to Canada, Vancouver Island to be precise. As then we will not care about the weather and there are nice beaches Mid Island. The weather is not too bad there either.

 

[RetireBy90]

What about American VI ? Short visit, but they were amazing for one day per island

 

[Gumby]

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.

 

[Markola]

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.

Same. We pay some taxes in Minnesota but we also get a high quality of life in return. Yes, it gets cold here but many Minnesotans genuinely love it or they’re used to and ignore it, while we and some other friends are experimenting with snow birding down south, where we rent.

 

[audreyh1]

I think I would get island fever. Hawaii would be my first choice.

 

[ZachTB]

I'd echo the replies of others. There are certainly advantages to PR--nice weather, a protectorate of the United States, generally low cost of goods, etc.

But there are disadvantages. Hurricanes, potential language barrier if you're not fluent in New-World Spanish, possibly being distant from family in the States, etc.

And, of course, there are tax laws to forestall possible tax dodges--you're still on the hook for certain taxes as long as you maintain your U.S. citizenship. I'm sure a tax lawyer could clear this up for you, but you might not like the response!

There's never a one-size-fits-all answer. (Except, of course, to live within one's means!)

 

[athena53]

They are all less than IL.

Living in IL is nice as the choice to move to other lower cost locations is greater

When I was in a shop in Hawaii I got into a conversation with the saleswoman, who had moved there from Chicago. She said she once saw a FB meme showing a billboard (Photoshopped, I assume) on the way out of Chicago saying. "Sorry you're leaving Chicago... was it something we taxed?"