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Puerto Rico: the New Tax Haven for Crypto Investors

 

We recently wrote how dangerous it is to not report your Bitcoin and other cryptocurrency gains to the IRS. While this remains true, there might be an option for some crypto investors to dodge taxes on their gains if they became residents of Puerto Rico. Is that something you would consider? Let’s see how much of this can become reality.

 

How Can Crypto Investors Skip Taxes in Puerto Rico?

According to a number of tax advisers as reported by Cointelegraph, if you move to Puerto Rico and receive a resident status, you would be able to sell your cryptocurrencies and keep 100% of the gains. You should know, however, this strategy isn’t bullet-proof. While the text from the Code says that a U.S. taxpayer is not required to include “sources from Puerto Rico”, these still have to be reported even if not taxed. Does that mean that crypto investors will pay taxes on gains in Puerto Rico? Not entirely clear.

As of now, there are tax incentives for new residents of the country, especially when it comes to capital gains. Will that continue to apply in the case of crypto investments? We will have to wait and see.

How Possible is for Puerto Rico to Become the New Tax Haven for Crypto Investors?

By now you would be thinking, “What a great idea! I can become a bona fide Puerto Rico resident and save tens or hundreds of thousands of dollars from taxes”. But in reality, how possible is for the IRS to just give up on millions, if not billions of tax money?

There are suggestions that the IRS may introduce new rules to tax at least part of the gains a crypto investor has realized. For example, let’s say you invested in Bitcoins or other cryptocurrencies in 2014. But you moved to Puerto Rico only at the end of 2017. The most of the appreciation of your crypto assets occurred while you resided in the United States. Therefore, the IRS wants to have the right to tax the gains from that period.

So to take advantage of the no tax incentives for Puerto Rico residents, you would have to physically reside there for at least one tax year. More importantly, even if you spend a year in Puerto Rico that may not be enough for the IRS to leave your crypto gains untouched. You may have to wait for 5 to 10 years before you sell your assets to skip taxation.

 

Will Puerto Rico Tax Crypto Investors as Some Point?

Although it seems unlikely, the recent devastating events in Puerto Rico, may force the government to change some of their tax laws and regulations. The jurisdiction was practically ruined by the hurricanes Irma and Maria in late 2017. Sadly, it did not receive much foreign aid. Its economy and social environment is not entirely stable yet, so it is reasonable for the governors to seek solutions for recovery of the losses. Taxing crypto investors could be on.  Supposedly, it would be on small bits of their gains, accrued after they’ve become residents.

 

Take Out

  • Moving to Puerto Rico may be a way of not paying taxes on crypto gais
  • There is no clarity on this option yet as the IRS hasn’t reviewed their crypto policies
  • Puerto Rico offers many tax incentives, especially on capital gains, but you will have to physically reside there for at least a year
  • For your crypto profits to be taxed as capital gains you will have to wait for 5-10 years before you sell
  • Your untaxed portion would depend on your residential location when you accrued the gains
  • Puerto Rico may decide to tax crypto investors to recover from the losses during the hurricanes

 

Are you looking for ways to maximize your wealth as a crypto investor? Contact us today at support@fascpaconsultants.com and talk to one of our experts about the most feasible tax planning strategies you could use.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized In Tax Planning, International Business, Wealth Management and Offshore Banking. You can email him to fa@fascpaconsultants.com or follow us on Facebook : FAS CPA & Consultants.

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