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If you dream of owning a place on the beach of the beautiful island of Puerto Rico, with cool breathes, sunny weather, and picturesque waters, this post is for you. Here you will find what you need to know about property laws in Puerto Rico.
You are probablyreading this because you heard of all the economic problems the island has been struggling through of late, and you may be thinking that this is a good time to invest in property.
After all, common sense says, that you should buy when things are low. Right? But if you’re interested in purchasing property on the island, you really should learn about the property laws in Puerto Rico because they are VASTLY different from those of the mainland states.
We never owned property on the island, and are actually grateful that we didn’t; especially after learning about the unbelievably complex property laws in Puerto Rico.
Well that, and the fact, that I still strongly feel that purchasing real estate in Puerto Rico right now, just isn’t a good idea. See my post on Puerto Rico Real Estate Is It A Good Time To Buy?
Disclosures: I am not a lawyer nor am I a realtor in Puerto Rico. So, the information here is from what I personally learned on the topic of property law in Puerto Rico through our two-year stay there. If you are serious about purchasing real estate on the island, I strongly advise that you hire a good attorney in Puerto Rico – not in the States.
OK, so, here are some basics about property law on the island that you should know before considering a purchase:
Property Laws In Puerto Rico: Wills and Court Jurisdiction
If you own real property in Puerto Rico, the rules pertaining to that property and its transfer (or succession) are governed by property laws of Puerto Rico. That’s right – NOT the laws of your home state in the USA. This is true even if you do not reside in Puerto Rico. And, the laws aremuch different than in other US states. The US Foreign Investment Law states that the applicable law for real property falls under the law jurisdiction of where the owner resides. This does not apply to the island.
So, what does this mean?
It means that if your property passes through inheritance, or any other means, your home state’s courts have no jurisdiction. And furthermore, US rulings will not be upheld by the Puerto Rican courts. So, for example, if you have a will in the USA, it doesn’t really hold any power over your property on the island. And it is the probate courts of Puerto Rico that decide what happens to your property.
Why is that bad?
Well, read on and you’ll get an idea; but suffice it to say that you may be in for a nasty surprise. Also, consider that everything is inSpanish and that you will need a Puerto Rican attorney that is familiar with both mainland US and PR property laws. And he/she needs to be honest and can communicate with you effectively.
Can you imagine the cost and the emotional upheaval of having to deal with this during a time of a crisis?
Add to that, that during the economic crisis gripping the island, it is difficult to find good help there as many talented people have left for the mainland… You are probably starting to get the picture.
Property Laws In Puerto Rico: Forced Heirship Law
At one point of our two-year stint in Puerto Rico, we seriously considered investing in property. However, one major thing that changed our minds was the forced inheritance law. This is a law left over from the Spanish rule, sometimes called the Napoleonic Law of Thirds, and it goes something like this:
Family First –The biggest difference between Puerto Rican inheritance law and the inheritance laws of the United States is that the property laws in Puerto Rico benefit the family before they benefit the spouse. In other words, the blood relativesautomatically receive the benefits from the estate and not the spouse. The law is designed to keep the property in the “family”.
So, how does this work?
The following relatives have first (and automatic) right to the property in this order:
- Children – children inherit first under property laws in Puerto Rico.
- In the absence of children, then grandchildren.
- In the absence of children, grandchildren or other direct descendants, the parents are considered forced heirs.
Note: Foreigners cannot avoid the rules of “forced heirship” for real property located in Puerto Rico! Again, the inheritance of such property is regulated by the property laws of Puerto Rico.
So, what if you have a Puerto Rican will?
In that case, here is how the distribution works:
- First 1/3 of the property goes to children(see above).
- Second 1/3 of the property goes to other blood-heirs as described in the will.
- Final 1/3 goes to whomever you willed (non-blood heirs), i.e. spouse
This process is extremely complicated. If there are no children than the parents get their share and, in some cases, they get as much as 1/2 of the estate. Needless to say, this can and does take years to distribute, even if there is a will and it is not disputed. This is the main reason you see so many beautiful properties on the beach that have gone to ruin. Years in probate court and the many heirs not willing to upkeep and pay taxeswill do that.
Do you, also, see why this would be a problem if your married?The spouse will generally receive some portion of the estate (possibly a 1/3); but the title of the estate is usually passed along to the surviving, blood-related family members of the deed holder.
God forbid if you’re on your second marriage and/or you have a large number of siblings. UGH!
Property Laws In Puerto Rico: Taxes Upon Transfer of Property
They’ll tax you in life as they tax you in death but they’ll tax you more in death… Depending on your circumstance, you can expect to pay anywhere form 18% – 50% in property taxes when the property is transferred by death or by gift. OUCH!
If you are a resident of Puerto Rico, you can expect to pay taxes on all properties you owned. If you just own property in Puerto Rico, like a vacation home, but are not a resident, the tax only applies to that property.
As you may expect, the inheritance tax laws of Puerto Rico are also incredibly complex. They apply differently to “US Persons” vs. “Puerto Rico Persons” and interface with US inheritance tax laws.
I am not even going to attempt to explain them here because of all the different possible scenarios. Suffice it to say: GET A TAX LAWYER
Read my post on income taxes in Puerto Rico.
Property Laws In Puerto Rico: Rental Contracts and Laws
“There is no Landlord and Tenant Law in Puerto Rico. Instead, the basic legal arrangement between the tenant and the landlord is called a contract, and is regulated by the Puerto Rico Civil Code. Contracts or lease as is usually called may be verbal or written and are binding between parties. A lease is simply a set of agreement between landlord and tenant as to their respective duties and responsibilities. Basically, the tenant agrees to pay the rent on time for the use of the property and in return the landlord agrees to maintain the property for the tenant’s use.” Global Property Guide
(Video) Girl CAN'T SEE FAMILY On THANKSGIVING, What Happens Is Shocking | Dhar Mann
So, what does this mean? It means that, as I described in my other posts on Puerto Rico rentals (Renting Apartments In Puerto Rico Part 1, Renting Apartments In Puerto Rico Part 2), leasing in Puerto Rico is relatively “flexible”. And by that I mean, that no one really follows any rules.
Seriously, you may or may not get your deposit back and you may or may not get your landlord to help with repairs. It is all up to the honesty and integrity of the individual.
Our own experience was 50/50 – 50% was really good with an excellent landlord and 50% was terrible with one didn’t want to repair anything. So, take that for what it’s worth and be sure to read my other posts on the topic.
By the way, this is also true in reverse. If you’re considering purchasing property in Puerto Rico as an investment, and you plan on renting it while you’re not using it, then you should think about this too. You may be in for a surprise when you try to uphold your lease or evict the tenets. And good luck recouping any money for unpaid utilities or damage to the property…
Summary
In summary, I hope this article helps you understand what is involved when you own property in Puerto Rico. I have not even mentioned other issues with property purchases, like the years it takes to register the property (yes, years). But, I think you get the idea.
Sure, most of us don’t think about dying when we buy a beautiful place on the beach. But shit happens. So, you should seriously consider all the above before committing to real estate in Puerto Rico.
PS. Beware of shyster lawyers on the island that will tell you whatever you want to hear. They will paint you a pretty picture, just to get you to buy, so they can make money. The island is in dire needs, after all, so everyone is hungry for business.
Cheers!
Joanna-
FAQs
Is buying property in Puerto Rico a good investment? ›
The Bottom Line. Buying real estate in Puerto Rico offers a number of logical investment perks for Americans, including flexible finance possibilities, zero immigration concerns, and amazing tax breaks (should you qualify).
Why are people buying property in Puerto Rico? ›During Covid, Puerto Rico's warm climate coupled with the adoption of remote work and Puerto Rico's low cost of living accelerated the trend of wealthy individuals buying primary and vacation homes on the island.
What is the new inheritance law in Puerto Rico? ›The portion of the estate reserved for forced heirs in a will is two thirds. In the absence of a will (intestate estate), estate is distributed equally among forced heirs. The portion reserved for forced heirs in a will is reduced to 50%. In the absence of a will, estate is still distributed equally among forced heirs.
Is it hard to buy a house in Puerto Rico? ›Buying a property on the island can be very different than on the mainland. To purchase a home in Puerto Rico, you are required to be pre-qualified for a loan. If you are planning a cash purchase, you must show evidence of sufficient funds. A good credit score and a 20% downpayment is the norm for getting a loan.
Is it smart to buy real estate in Puerto Rico? ›Puerto Rico offers many advantages to homeowners, including a lower cost of living, tax benefits, beautiful weather and beaches, and a rich culture. However, there are also potential challenges to be aware of, such as natural disasters, property values, and infrastructure challenges.
Is Puerto Rico a good tax haven? ›Located in the Caribbean Sea, the U.S. territory of Puerto Rico is a spectacular tax haven for businesses and individuals. Much of this is due to Act 60, a piece of legislation passed to boost economic development on the island.
Is Puerto Rico property tax free? ›Puerto Rico real property is subject to an annual real property tax.
Why are houses so expensive in Puerto Rico? ›The increase in foreign capital due to the promotion of the Puerto Rican archipelago as a tax haven, the proliferation of short-term rentals, a halt in the construction of low-income housing in the past decade, as well as the remote-work flexibility prompted by COVID-19, created the perfect storm for the average price ...
Why do people move to Puerto Rico for taxes? ›U.S. citizens who become bona fide residents of Puerto Rico can maintain their U.S. citizenship, avoid U.S. federal income tax on capital gains, including U.S.-source capital gains, and avoid paying any income tax on interest and dividends from Puerto Rican sources.
What is Rule 75 in Puerto Rico? ›Under Law 75, once the principal establishes a distribution agreement with the distributor, the principal cannot withdraw from the contract without just cause.
What is the 7 year inheritance law? ›
After 7 years, the gift does not count towards the value of your estate, which is known as “the 7-year rule” for inheritance tax purposes. This rule is why, very often, parents will give their children or grandchildren gifts long before they believe they will pass away, in order to avoid paying tax on the gift.
Who are forced heirs in Puerto Rico? ›All real estate in Puerto Rico is subject to the probate system. This system is based on a "forced heir" policy, that states that all children need to receive from the decedent (the person that died).
Is it cheaper to live in the US or Puerto Rico? ›Remember this rule of thumb: depending on where you settle on this U.S. territory, you will likely save somewhere between 5% and 70% off the cost of living found in a typical city in the United States. Puerto Rico's smaller cities tend to have an especially low cost of living.
How much money do you need to live comfortably in Puerto Rico? ›Summary of cost of living in Puerto Rico: A family of four estimated monthly costs are 3,366.3$ without rent. A single person estimated monthly costs are 970.9$ without rent. Cost of living in Puerto Rico is, on average, 10.7% lower than in United States.
Can I live in Puerto Rico as a US citizen? ›If you're a U.S. citizen, this means an easy transition for you. No need for work permits or visas if you decide to relocate. In other words, living in Puerto Rico is almost like living abroad, but without either the paperwork hassle or the immigration concerns.
Where is the most expensive place to live in Puerto Rico? ›If an upscale, livable, walkable area is what you desire in Puerto Rico, Dorado is a great choice. Dorado is one of the wealthiest areas near San Juan, with gated communities everywhere you look.
What is the law 20 and 22 in Puerto Rico? ›As has been widely reported, Puerto Rico's Act #20 and Act #22 provides incentives for high net worth U.S. citizens to move to Puerto Rico and potentially reduce their 39.6% federal income tax (plus any applicable state tax) to a 0% – 4% Puerto Rico income tax rate.
Why are people moving out of Puerto Rico? ›Achieving economic stability is typically the main reason that many Puerto Ricans migrate to the U.S. mainland. At the same time, thousands return to Puerto Rico annually, describing their homecoming as "a dream come true."
How long do I have to live in Puerto Rico to avoid taxes? ›You must become a resident of Puerto Rico, and you must reside there for at least 183 days a year, or meet one of several other tests that are less clear cut.
What is the Act 60 in Puerto Rico? ›The Tax Incentive Code, known as “Act 60”, provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico.
Does Puerto Rico tax Social Security benefits? ›
Social security contributions
Puerto Rico is covered under the US social security system; consequently, Puerto Rico employers and employees are subject to the US Social Security and Medicare taxes requirements. See the Other taxes section in the United States Individual tax summary for more information.
After a meteoric year, investors are relocating to Puerto Rico for its savings on individual and corporate taxes.
What happens if property taxes are not paid in Puerto Rico? ›A surcharge for late payment of the tax is imposed as follows: 5% of the unpaid amount for a delay in payment in excess of 30 days, but not more than 60 days. 10% of the unpaid amount for a delay in payment in excess of 60 days, but not more than 90 days.
What is the most expensive part of Puerto Rico? ›This $45 Million Home At Dorado Beach Is Puerto Rico's Most Expensive Listing. Senior Contributor.
Why is electricity so expensive in Puerto Rico? ›Puerto Rico's reliance on petroleum as a fuel for electricity generation contributes to the island having a higher average electricity price than any U.S. state, except for Hawaii.
What happens to abandoned houses in Puerto Rico? ›“Any abandoned property that has a mortgage will be subject to a judicial foreclosure process. Until then, the ownership will be retained by its lawful owners,” he said. “Then if they are finally foreclosed, it will become a real estate owned (REO) property of the particular bank.
Why do Americans not pay taxes in Puerto Rico? ›Puerto Rico is an unincorporated territory of the United States and Puerto Ricans are U.S. citizens; however, Puerto Rico is not a U.S. state, but a U.S. insular area. Consequently, while all Puerto Rico residents pay federal taxes, many residents are not required to pay federal income taxes.
Who qualifies for Act 60 in Puerto Rico? ›Act 60 - Export Services and Commerce
Services must be provided in Puerto Rico for customers outside Puerto Rico. The eligible service provided must not have a nexus with Puerto Rico; it cannot be related to the conduct of the trade, business or other activity of the customer in Puerto Rico.
The term 'resident individual' means an individual who is domiciled in Puerto Rico. It should be presumed that an individual is a resident of Puerto Rico if they have been present in Puerto Rico for a period of 183 days during the calendar year.
What is law 33 in Puerto Rico? ›(Approved May 22, 2019) AN ACT. To set forth the public policy of the Government of Puerto Rico on climate. change and on the mitigation, adaptation, and resilience processes per sector; establish a greenhouse gas emission inventory; direct the approval of a.
What is law 116 in Puerto Rico? ›
In 1937, Law 116 legalized sterilization in Puerto Rico. This law implemented Eugenics Boards within 32 states that oversaw compulsory sterilizations.
What is 408 law in Puerto Rico? ›The Act number 408 or Mental Health Act of Puerto Rico was created in October 2000 in order to establish the needs of prevention, treatment, recovery and rehabilitation in mental health. It is divided into fifteen chapters and fifteen articles.
What is the order of inheritance? ›- Grandchildren;
- The decedent's parents;
- The decedent's siblings;
- The decedent's nieces and nephews;
- The decedent's grandparents; and.
- The decedent's aunts, uncles, and cousins.
If your assets have been comingled your spouse will inherit 100% interest in the house, bank accounts, stock accounts, etc. In most cases, the second spouse changes everything and leaves assets to their own children, nothing to the spouse's children.
What is the law of inheritance in order? ›The three laws of inheritance proposed by Mendel include: Law of Dominance. Law of Segregation. Law of Independent Assortment.
Who are the rightful heirs? ›If there are descendants, usually the surviving spouse and surviving children share in the assets of a deceased person's estate. When there is no surviving spouse, or any surviving children, the estate's assets pass to the parents.
What is the Homestead Act in Puerto Rico? ›The Homestead Act establishes that every Puerto Rico domiciled individual or head of family shall be entitled to possess and enjoy, as a protected homestead, a real property consisting of a parcel of land and the structure located thereon or a residential condominium unit, which real property or residence the ...
How do you transfer on death deed in Puerto Rico? ›This means that if someone dies owning property in Puerto Rico, in order to transfer that property to another person, you must go to court to get the permission to transfer and register the property to the new person. This is what is commonly known in the U.S. as probating an estate.
How much is a gallon of milk in Puerto Rico? ›Dairy products
A gallon of milk in Puerto Rico costs about $2.99, while the average US price is $2.39.
Even though Puerto Rico is a Caribbean island, it is very affordable. As the cost of the average 7-day Puerto Rico vacation ranges from around $1,000 to $2,500+ USD per person making a Puerto Rico holiday far more affordable than a Hawaiian getaway.
Why do homes in Puerto Rico have bars on windows? ›
The bars were popular in the tropical parts of Spain because they allowed better ventilation and were cheaper than glass. They also kept the home safe. As Spain colonized the Caribbean they took the architecture with them, including the ornate iron bars.
How long can a US citizen stay in Puerto Rico? ›An approved ESTA for Puerto Rico allows a stay of 90 days with each entry for tourism, transit, or business purposes, and is valid for a total of 2 years from issue, meaning there is no need to re-apply for every trip to US territories.
How much is gas per gallon in Puerto Rico? ›| Nation | City | Price in USD Regular/Gallon |
|---|---|---|
| Nicaragua | Managua | $2.61 |
| Panama | Panama City | $2.19 |
| Russia | Moscow | $2.10 |
| Puerto Rico | San Juan | $1.74 |
Average Household Income: $34,931. Per Capita Income: $14,047. 1.1% of Households in Puerto Rico are High Income Households that make over $200,000 a year.
Does US health insurance work in Puerto Rico? ›Unfortunately, the insurance you have in your home state won't necessarily cover you in Puerto Rico. That's because the island is not a U.S. state. It's a territory, so not all of the rules on the mainland apply here. Healthcare providers here are different, so insurance providers are different too.
Can I bring my guns to Puerto Rico? ›Puerto Rico Concealed Carry Reciprocity With Other States
The Puerto Rico gun law indicates that Puerto Rico honors permits from all states, enclaves, possessions or territories of the United States of America.
Since Puerto Rico is a U.S. territory, customs clearance won't be needed either. The USPS ships items across the United States and its territories at fixed rates and offers a variety of delivery options. For packages that weigh between 70 and 150 pounds, UPS and FedEx are best.
Do you pay property taxes on homes in Puerto Rico? ›Puerto Rico real property is subject to an annual real property tax.
What are the tax benefits of owning a house in Puerto Rico? ›100% exemption from Puerto Rico income taxes on all short-term and long-term capital gains generated after the individual becomes a bona-fide resident of Puerto Rico (“Puerto Rico Gain”). Special rules apply to capital gains on the sale of securities held before moving to Puerto Rico and sold after the move.
Is it worth it to move to Puerto Rico? ›Life in Puerto Rico is a superb value, with a high standard of living combined with an overall lower cost of living than most expect. Your dollar will go farther in Puerto Rico than in most U.S. cities.
Do you have to pay US taxes if you live in Puerto Rico? ›
While the Commonwealth government has its own tax laws, Puerto Rico residents are also required to pay US federal taxes, but most residents do not have to pay the federal personal income tax.
Is there a tax break for buying a house in Puerto Rico? ›Puerto Rico Real Estate Incentives: Law 68 & 187
Law 187: Exempts buyers from paying property taxes for five years as well as certain closing costs for the purchase of the new residence as a primary residence, second home or investment property.
To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. This implies residing on the island for more than 183 days per year, filling out IRS forms, such as form 8898 and applying for a tax exemption decree from the Secretary of Economic Development and Commerce of Puerto Rico.
How often do you pay property tax in Puerto Rico? ›As a reminder, property taxes in Puerto Rico are paid twice a year, with the first installment due at the end of June and the second at the end of January.
Are home prices dropping in Puerto Rico? ›House prices were down 2.67% during the year to Q3 2022
Puerto Rico's housing market remains weak.
| State | Hawaii |
|---|---|
| Median Income Per Household | $65,686 |
| State | Puerto Rico |
| Average Effective Tax Rate | 0.55% |
| Median Home Value | $111,800 |
If you have Original Medicare, you have coverage anywhere in the U.S. and its territories. This includes all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands. Most doctors and hospitals take Original Medicare.
What is a major concern in Puerto Rico? ›In Puerto Rico, Flooding and Loss of Coastal Habitat Are Top Conservation Concerns.
Can you drive in Puerto Rico with US license? ›Visitors from the United States can use their driver's license to drive in Puerto Rico since the island is a territory of the United States. International visitors will need an International Driving Permit along with their country's license.
Where do Americans move to in Puerto Rico? ›Relocating to Puerto Rico
Most expats settle in Puerto Rico's capital, San Juan, or in the south in Ponce, its second-largest city. Carros Públicos (public cars) allow you to travel all over the island and reach even remote areas.