Puerto Rico Act 60 After the 2026 Reset: Is 4% Still Worth the Move?

The party’s over. Effective January 1, 2026, the IRS has closed the loophole on one of the best tax shelters in North America. Puerto Rico, a tropical paradise where businesses have historically relocated to avoid capital gains taxes, is no longer free.

What does that mean? A modification to Puerto Rico Act 60 replaces the 0% tax rate with a new 4% rate and raises the compliance bar. Is it still worth doing business there? The math is still in your favor, but you have some new hoops to jump through.   

Let’s start with the rate. House Bill 505 effectively eliminates the 0% capital gains tax rule on Act 60. The new rate is 4% for any business establishing a presence on the island starting in 2027. Applications submitted this year are still eligible for the lower rate, but compliance rules have changed. Existing decree holders are grandfathered at 0% for life.

That doesn’t sound too bad, right? Unfortunately, there’s also a residency clock. New applicants must prove they’ve lived off-island for at least six years before they apply. In other words, the US government doesn’t want to reward business owners using a mainland-to-island revolving door. Puerto Rico Act 60 is intended to encourage external, not internal, investments.

And then there’s the “C” word. The 2026 compliance portal requires certified CPA letters, proof of residency, and a full breakdown of income sources. On top of that, you’re now required to purchase a residential property in Puerto Rico within two years, a modification from the original three-year rule. There’s good news, though. The program is available through 2055. 

This didn’t just happen overnight. The IRS launched a campaign in 2021 to specifically target Act 60 participants. Their findings revealed 2,200 recipients and a potential tax loss of hundreds of millions of dollars. In December 2025, the U.S. Government Accountability Office expanded on that with specific recommendations. The IRS agreed to all of them.  

Noncompliance is a serious offense. In June 2025, investor Suresh Gajwani pled guilty to filing a false document to retroactively establish Puerto Rico residency. The court fined him $15.3 million and put him on probation for one year. The judge could have sentenced him to up to three years in prison. The court action was a statement for future investors.

Gajwani was convicted of falsely backdating his residency, but tax evasion was his real offense in the eyes of the US government. By sheltering $30 million in gains, he sidestepped $7 million in capital gains taxes. His fine for doing that was more than double what he thought he’d saved. Think carefully about that before submitting your Act 60 application.  

Don’t expect this to be an easy road. Proper documentation will be required. The residency rules are laid out in IRC §937. There are three required tests:

Keep flight logs, lease agreements, and brokerage statements, because the IRS will ask for them. You’ll also want to secure the services of a CPA before applying for Act 60 status. 

Let’s do the math. The top federal rate on long-term capital gains is 20%. Add the 3.8% net investment income tax. You're at 23.8% on the mainland. Under Act 60, new applicants pay 4%. That's a 19.8-point spread. If you project $500,000 in annual passive income, Act 60 can save you nearly $100,000 in taxes. Compliance costs are roughly $20,000. 

The party may be over, but the afterparty should still be a lot of fun. The savings are significant for those who legitimately qualify for Act 60. Hire a Puerto Rico-experienced CPA and attorney, and live there for real. With proper documentation, you’ll save money. Without it, your application will be denied. Don’t try to fake it. The government is watching.