While cryptocurrency investors have flocked to Puerto Rico in recent years to take advantage of generous tax incentives, U.S. Representative Nydia Velázquez is fighting back with legislation aimed at closing what she sees as an exploitative loophole. The battle centers around Puerto Rico’s Act 60, which combines the former Acts 20 and 22 to offer mainland transplants extraordinary tax benefits, including a complete exemption on Puerto Rico-sourced passive income.
Puerto Rico’s tax haven status faces congressional scrutiny as Representative Velázquez targets crypto millionaires exploiting Act 60 benefits.
For crypto enthusiasts, the island’s allure is simple: 0% tax on capital gains accrued after establishing residency. Understanding whether capital gains qualify as Puerto Rico source income is crucial for investors seeking these benefits. That’s a far cry from the mainland’s rates, which can climb to 37%. No wonder high-profile figures like Brock Pierce and Logan Paul have made the move, joining thousands of others seeking shelter from the IRS storm.
But establishing “bona fide residency” isn’t as simple as buying a beachfront condo. You’ll need to pass three tests: physical presence (183 days annually), tax home, and closer connection to Puerto Rico. You can’t have lived there within the previous decade either. Act 60 also requires an annual local donation requirement of $10,000 to Puerto Rican nonprofits, with half directed to organizations fighting child poverty. It’s like trying to join an exclusive club where the bouncer has a very specific checklist. Maintaining detailed records of your residency status and financial transactions is essential for defending your position during potential IRS audits.
The IRS isn’t sitting idly by. Since 2021, they’ve launched investigations into approximately 100 high-income individuals, scrutinizing whether they’re truly meeting residency requirements or merely pretending to call Puerto Rico home while actually living stateside – a bit like claiming you’ve moved to Hogwarts while still sleeping in your childhood bedroom.
Critics argue these tax-motivated relocations have real consequences for locals. Representative Velázquez’s “Fair Taxation of Digital Assets in Puerto Rico Act” aims to amend the U.S. tax code, forcing digital asset income to follow federal rules regardless of Puerto Rican residency. She’s backed by colleagues who introduced the UPROAR Act resolution in October 2024, claiming the influx of wealthy investors has driven housing costs skyward and displaced residents.
The tax paradise crypto investors discovered might soon face a reckoning, as Washington lawmakers attempt to close what they view as an unfair advantage.
