When it comes to earning income from investments, it's important to understand the differences between capital gains, interest, and dividends—and how they are taxed, especially if you're considering a move to Puerto Rico to save on taxes.
Here’s a detailed breakdown of how this might look for you:
1. Capital Gains
What It Is
Capital gains refer to the profit made from selling an asset (such as stocks, cryptocurrency, real estate, etc.) for more than what you originally paid.
How It Works
You buy an asset → The price increases → You sell it for a profit → The difference is your capital gain.
Taxation (U.S. vs. Puerto Rico)
- U.S. Residents: Pay capital gains tax (0%, 15%, or 20% depending on income and how long they held the asset).
- Puerto Rico Residents:
- Assets acquired AFTER moving to PR → 0% capital gains tax.
- Assets acquired BEFORE moving to PR → Partially taxable (the portion of the gain earned before moving is taxed by the U.S.).
Example
- You bought Apple stock for $100 per share while living in the U.S.
- You moved to Puerto Rico in 2023 and sold the stock for $200 per share in 2025.
- The capital gain is $100 per share.
- The gain from before moving is subject to U.S. tax.
- The gain after moving is eligible for PR’s lower tax rates.
2. Interest
What It Is
Interest is the income earned from lending money (such as through savings accounts, certificates of deposit (CDs), or bonds).
How It Works
You deposit money into a savings account or buy a bond → The bank or issuer pays you interest over time.
Taxation (U.S. vs. Puerto Rico)
- U.S. Residents: Pay ordinary income tax on interest earnings.
- Puerto Rico Residents:
- Interest from U.S. banks, bonds, or Treasury securities → Still taxable by the U.S.
- Interest from Puerto Rico banks or PR municipal bonds → Tax-free (both in PR and the U.S.).
Example
- You deposit $100,000 in a U.S. bank CD paying 5% interest.
- You earn $5,000 in interest, which is U.S.-sourced and taxable.
- You deposit $100,000 in a Puerto Rico bank CD paying 5% interest.
- You earn $5,000 in interest, which is tax-free in PR and the U.S.
3. Dividends
What It Is
Dividends are payments made by a corporation to its shareholders (usually from company profits).
How It Works
You own shares in a company → The company distributes a portion of its earnings to shareholders.
Types of Dividends
- Qualified dividends: Taxed at the lower capital gains rates (0%, 15%, or 20%).
- Ordinary dividends: Taxed as regular income (higher tax rates).
Taxation (U.S. vs. Puerto Rico)
- U.S. Residents: Pay capital gains tax rates on qualified dividends from U.S. stocks and ETFs.
- Puerto Rico Residents:
- Dividends from U.S. corporations (like Vanguard, Apple, etc.) → Still taxable by the U.S.
- Dividends from Puerto Rico corporations → Tax-free in PR and exempt from U.S. tax.
Example
- You own 1,000 shares of Apple, which pays a $2 per share dividend.
- You receive $2,000 in taxable dividends.
- Since Apple is a U.S. corporation, the U.S. still taxes this dividend.
- You own shares in a Puerto Rico-based company that pays $2,000 in dividends.
- Because the company is PR-based, these dividends are Puerto Rico-sourced and tax-free.
Need Help Structuring Your Investments for Puerto Rico?
If you're considering relocating to Puerto Rico or want to optimize your tax strategy, I can help you navigate these rules and find the best approach for your financial goals. Schedule a personalized consultation to guide you with a step-by-step tax strategy.
