After the passage of the United States Internal Revenue Service section 933, also known as “Act 60”, there is a significant tax advantage for United States Residents and their Cryptocurrency income. Specifically, this new statute allows U.S. residents to move to the territory of Puerto Rico to take part in IRC 933.
Filing Criteria
U.S. citizens who are bona fide residents of Puerto Rico may have to file a U.S. income tax return.
Income earned from Puerto Rican sources is exempt from U.S. income tax under section 933 of the U.S. Internal Revenue Code (except salaries and pensions received as a civilian or military employee of the United States government).
§ 933. Income from sources within Puerto Rico
The following items shall not be included in gross income and shall be exempt from taxation under this subtitle:
(1) Resident of Puerto Rico for the entire taxable year
In the case of an individual who is a bona fide resident of Puerto Rico during the entire taxable year, income derived from sources within Puerto Rico (except amounts received for services performed as an employee of the United States or any agency thereof); but such individual shall not be allowed as a deduction from his gross income any deductions or any credit, properly allocable to or chargeable against amounts excluded from gross income under this paragraph.
(2) Taxable year of change of residence from Puerto Rico
In the case of an individual citizen of the United States who has been a bona fide resident of Puerto Rico for a period of at least 2 years before the date on which he changes his residence from Puerto Rico, income derived from sources therein (except amounts received for services performed as an employee of the United States or any agency thereof) which is attributable to that part of such period of Puerto Rican residence before such date; but such individual shall not be allowed as a deduction from his gross income any deductions properly allocable to or chargeable against amounts excluded from gross income under this paragraph.
Essentially, the law stipulates that if you spend more than half of the year within the territory of Puerto Rico, you are exempt from paying U.S. Federal Income Tax. There are a few additional requirements. However, this law would could citizens reduce their effective tax rate by 48%.
With the growth of cryptocurrencies over the past few years and their big return in recent months, it is possible for some investors that are thinking of cashing in long-term gains to consider the tax savings of making a move to Puerto Rico.
For Example, if you were a single filer in 2020 in the contiguous United States and had USD 100,000 of long-term capital gains and a traditional yearly wage of USD 70,000, you would pay $38,741.23 from the wages $15,000 from the crypto gains in Federal Income Tax.
If you were a Single filer in 2020 in the United States Territory, Puerto Rico, you with USD 100,000 long term capital gains and wages of USD 70,000 would pay USD 0 in long term capital gain taxes, and the wage’s taxes would depend on whether the company he works for is located within Puerto Rico or not. Either way, savings of at least USD $15,000 and could be up to 50% if the taxpayer is in a higher tax bracket for capital gains.
While the future of taxation on cryptocurrency is constantly changing for United States’ citizens, currently, Puerto Rico is an excellent place to be if you are looking to save significant amounts of money in Federal Income Taxes on your crypto gains.
At Nimrod Yaron & Co., we serve as a professional resource for individuals and companies invested in the global marketplace. We are specifically assisting with intelligent tax planning. Contact us today to learn about all of the services we offer.
