Puerto Rico Act 60: Passing the 183-Day Physical Presence Test

For a US citizen, geo-arbitrage is uniquely difficult. The United States enforces Citizenship-Based Taxation (CBT), meaning the IRS taxes your global income regardless of where you live.

There is only one legal loophole that allows a US citizen to maintain their passport while completely erasing capital gains tax: Puerto Rico Act 60 (formerly Act 22).

Because Puerto Rico is a US territory with its own distinct tax authority (the Hacienda), the IRS Section 933 explicitly exempts bona fide residents of Puerto Rico from US federal income taxes on Puerto Rican-sourced income.

However, the IRS aggressively audits Act 60 beneficiaries. You cannot simply rent an empty apartment in San Juan and claim the tax shield. You must pass the grueling 183-Day Physical Presence Test.

The Physical Presence Test

To be considered a bona fide resident of Puerto Rico by the IRS, you must prove that you were physically present on the island for at least 183 days during the tax year.

How Days Are Counted

The IRS rules are absolute:

• Any part of a day spent in Puerto Rico counts as a full day.
• If you fly from Miami and land in San Juan at 11:50 PM, that counts as a full day in Puerto Rico.
• Conversely, if you leave Puerto Rico at 1:00 AM, that day also counts as a day in Puerto Rico.

The Travel Exemptions

The IRS allows a maximum of 30 days of travel outside of Puerto Rico to count toward your 183-day minimum, but only if that travel is for a qualifying reason (e.g., a major disaster, or specific charitable work). Do not rely on these exemptions. Your baseline strategy must be 183 actual days on the island.

The Tax Home and Closer Connection Tests

Spending 183 days on the island is not enough. You must also pass two qualitative tests:

1. The Tax Home Test: Your primary place of business must be in Puerto Rico. If you spend 183 days in San Juan but your company headquarters, executive team, and primary office remain in New York, the IRS will fail you.
2. The Closer Connection Test: You must prove your life is centered in Puerto Rico. The IRS looks at where your family lives, where you vote, where your driver’s license is issued, and where your primary social, cultural, and religious ties are located. If your spouse and children live in California, you will fail this test.

The Audit Defense (Tracking Your Footprint)

The IRS uses cellular data, credit card transactions, and flight logs to verify your location.

As an Act 60 beneficiary, you must act like you are under constant surveillance. Keep an exhaustive “Audit Binder” containing:

• Boarding passes for every flight in and out of the island.
• Uber receipts showing travel from SJU airport to your home.
• Utility bills proving consistent electricity and water usage.
• Credit card statements showing daily transactions at local Puerto Rican grocery stores and restaurants.

Deepen the Strategy

Act 60 is a powerful shield, but it is expensive to maintain. You must buy local real estate, make a mandatory $10,000 annual charitable donation, and pay the decree fees.

For the complete architectural breakdown of the Act 60 math, the real estate market in Dorado Beach, and how to legally sever your ties with your mainland state tax authority, download the complete guide:

Download The Puerto Rico Act 60 Blueprint [EPUB]