Puerto Rico’s Act 60 offers substantial tax incentives, including exemption from U.S. federal tax on Puerto Rico–sourced income. To qualify, individuals must become bona fide residents of Puerto Rico—and that starts with passing the Puerto Rico Presence Test.

This article outlines what the Presence Test requires, how it’s calculated, and why it remains a key focus of both federal and state tax authorities. It also highlights common pitfalls, documentation standards, and the latest developments shaping enforcement in 2024 and beyond.

1. The Role of the Presence Test in Act 60 Compliance

To qualify as a bona fide resident of Puerto Rico under Act 60, individuals must satisfy three tests: the Presence Test, the Tax Home Test, and the Closer Connection Test. Among them, the Presence Test is the most clear-cut and quantifiable.

It determines whether an individual has spent enough time in Puerto Rico to exclude Puerto Rico-source income from U.S. federal taxation. This is not a procedural formality—it is the clearest evidence of physical relocation and commitment to the island.

Unlike domicile, which can be subjective and open to interpretation, the Puerto Rico Presence Test is grounded in numbers. But that clarity comes with responsibility: precise day-counting, thorough documentation, and consistency across lifestyle and records are essential. For Act 60 participants, meeting this test each year is a non-negotiable requirement—and often the first point of examination in a federal or state audit.

2. The Five Regulatory Gateways to Meeting the Puerto Rico Presence Test

Federal law offers five different ways to meet the Presence Test. A taxpayer only needs to qualify under one of these in a given year, but choosing the right one—and documenting it properly—is essential.

• The 183-Day Rule
  The simplest and most commonly used method. If you spend at least 183 days in Puerto Rico during the calendar year, you meet the test. Because it’s easy to measure and hard to dispute, this is the standard most applicants follow.
• The 549-Day Rule
  This option looks at a three-year window. You must spend at least 549 days in Puerto Rico over the current year and the two prior years, with a minimum of 60 days each year. It’s useful for those with temporary travel or business obligations elsewhere.
• The Under-90-Day U.S. Rule
  If you spend fewer than 90 days in the continental United States during the year, you automatically satisfy the Presence Test. This rule often benefits those who travel internationally or avoid the U.S. for extended periods.
• The Income/Day Ratio Rule
  To qualify, you must spend more days in Puerto Rico than in the mainland U.S. and have less than $3,000 in earned income from U.S. sources. This is intended for individuals with minimal active ties to the mainland.
• The No Significant U.S. Connection Rule
  This applies to individuals with no meaningful ties to the U.S.—no permanent home, no voter registration, and no spouse or dependents living stateside.

While all five paths are valid, the 183-Day Rule remains the clearest and most defensible option. It provides a strong foundation for proving your residency and withstanding IRS or state scrutiny.

3. Complexities in Counting Days: Technical Nuance Meets Practical Reality

While the Presence Test may appear simple—just count your days in Puerto Rico—the rules for how those days are counted are more complex than they seem. The IRS has issued detailed guidance, and understanding these nuances is essential for staying compliant.

• Any Part of a Day Counts
  If you are physically present in Puerto Rico for any portion of a day, it counts as a full day. Whether you arrive in the morning or depart in the evening, that day adds to your total.
• Split Days Favor Puerto Rico
  If you spend part of the same day in both Puerto Rico and the U.S. mainland, that day is counted as a Puerto Rico day. This rule provides a helpful edge for frequent travelers.
• 30-Day Foreign Travel Allowance
  You may count up to 30 days spent outside both Puerto Rico and the U.S. as Puerto Rico days—so long as you still spend more days in Puerto Rico than in the mainland. This helps accommodate international travel without jeopardizing residency status.
• Excused Absences
  If you leave Puerto Rico due to a major disaster or for qualifying medical treatment, those days can still be counted as Puerto Rico days. These exceptions are limited but important in emergency situations.
• Excluded U.S. Days
  Some days spent in the mainland U.S. don’t count against you. These include brief transits (under 24 hours), time as a full-time student, charitable athletic events, or official Puerto Rico government duties.

These rules are meant to ensure fairness. To benefit from them, you must keep accurate records and understand how each rule applies. Without proper tracking and documentation, even honest mistakes can lead to residency challenges during an audit.

4. Precision and Proof: The Imperative of Documentation

Meeting the Presence Test is not something the IRS or state tax authorities take on trust. You must be able to prove, with clear and consistent records, that you were physically present in Puerto Rico as claimed.

To do this, it’s essential to maintain a detailed and organized “residency file.” This should be updated regularly and include:

• Travel records: boarding passes, flight itineraries, toll and ferry receipts, and a signed travel calendar
• Financial evidence: utility bills, credit card charges, and ATM withdrawals showing regular activity in Puerto Rico
• Location data: cell phone location history, GPS-tagged receipts, and app data
• Legal ties: Puerto Rico driver’s license, voter registration, home purchase or long-term lease

High-net-worth individuals often go further, aligning their personal affairs—such as joining local clubs, updating legal documents, or shifting domestic services—to reinforce their commitment to Puerto Rico.

Auditors are trained to look for mismatches between what you claim and how you live. If the facts don’t support the story, even a strong day count may be challenged. On the other hand, a well-documented record can significantly reduce audit risk and speed up resolution.

5. The State-Level Threat: Federal Presence Is Not State Immunity

Many Act 60 participants mistakenly believe that passing the federal Presence Test protects them from further tax obligations. It does not. States like California and New York apply their own rules to determine whether someone is still a resident—and those rules are entirely separate from federal law.

Unlike the IRS, which looks primarily at days spent in Puerto Rico, states focus on domicile: where your true home is. This includes not just physical presence, but where you maintain meaningful personal and financial ties. Even if you spend less than 183 days in your former state, you can still be considered a resident if your lifestyle suggests you haven’t truly left.

State residency audits are detailed and increasingly data-driven. Auditors review:

• Property use: How often you stay in your former home, whether utilities are active, and whether the property is set up for personal use
• Family and business connections: If your spouse or children remain in the state, or if you continue to serve on boards or manage businesses there
• Digital and delivery clues: Online orders, gym visits, social media activity, frequent flyer accounts—even pet records

In one real case, a California resident who passed the federal Presence Test still owed over $1 million in state taxes after California determined he had not fully severed ties—based largely on his family’s continued presence and retained home.

For those relocating from high-tax states, it’s not enough to track your days. You must take meaningful steps to end your prior residency—both on paper and in practice.

6. Common Missteps That Undermine Presence Claims

Despite best intentions, numerous taxpayers inadvertently compromise their Act 60 residency status by making seemingly minor, yet cumulatively damaging, errors. Among the most common:

• Inaccurate day counting: Relying on approximations or memory rather than documented records. Missing the 183-day threshold by even a single day can prove fatal in an audit.
• Retained U.S. ties: Maintaining an active residence, having dependents remain behind, or failing to terminate business obligations in the former state all serve to undermine a bona fide relocation claim.
• Lack of alignment across legal, financial, and familial domains: If an individual’s legal documents, banking activity, and family logistics do not consistently reflect Puerto Rico as the center of life, residency status may be challenged.
• Neglecting state-level exposure: Many Act 60 applicants prepare meticulously for IRS compliance, while underestimating the aggressiveness and independence of state tax departments.

In today’s environment of heightened enforcement, success under Act 60 requires not only precision in meeting federal standards, but strategic awareness of overlapping state-level vulnerabilities.

Conclusion

Establishing bona fide residency under Puerto Rico’s Act 60 is more than just moving—it requires careful planning, consistent documentation, and a clear shift in how and where you live.

The Presence Test may seem simple, but meeting it—and proving it—requires discipline. With audits becoming more common at both the federal and state levels, it’s critical to approach residency with precision and a well-documented strategy.

Relocating under Puerto Rico’s Act 60 requires more than meeting the Presence Test — it demands strategy, documentation, and foresight. Tiempo Capital’s team provides tailored Act 60 services and tax optimization strategies designed to help high-net-worth individuals achieve full compliance while maximizing the benefits of Puerto Rico’s incentives.

Through our integrated Investment Management, Family Office, and Estate Planning solutions, we ensure your entire wealth strategy aligns with your residency goals. Learn more about our Act 60 Services and contact us today to schedule a confidential consultation.