What Are Property Taxes on Residential Properties?

In Puerto Rico, residential property taxes are vital for funding municipal services and community development. However, a common question is, "Is there property tax in Puerto Rico?" Understanding and complying with Puerto Rico real estate taxes can be challenging for homeowners. In this blog, we'll demystify the essentials of property taxes, including Puerto Rico property records and the Puerto Rico property registry, to help homeowners easily navigate their obligations and acquire property in Puerto Rico.

Key Takeaways

• Puerto Rico property tax includes personal property tax for movable assets and real property tax based on land and buildings, with rates set by each municipality.
• Homeowners using parts of their dream home for business purposes may be subject to personal property tax, calculated on the net book value or fair market value of business assets.
• The Sales and Use Tax (SUT) in Puerto Rico impacts property management, maintenance, or leasing services. The combined state and municipal rate is 11.5%, which can influence costs associated with managing Puerto Rico real estate tax responsibilities.
• A common question is, does Puerto Rico pay property taxes? Yes, penalties for late payment of property taxes in the state of Puerto Rico include monthly interest charges and fines, making it essential to meet deadlines to avoid additional costs.

What are Residential Property Taxes in Puerto Rico?

Puerto Rico property taxes are administered by the Municipal Revenue Collection Center (CRIM), which manages property taxes on residential properties in Puerto Rico and offers resources in CRIM Puerto Rico English for non-Spanish speakers. The yearly property tax is based on the property's hypothetical fair market value (FMV) as of 1957, which typically ranges between 40% and 50% of the property's cost. How much are property taxes in Puerto Rico? The tax rates vary by municipality, ranging from 8.03% to 11.83%. Properties are assessed at a fraction of their market value, resulting in relatively low effective tax rates compared to many U.S. jurisdictions.

To illustrate, view property options in Puerto Rico with an example of a home priced at $200,000.

1. Assessed Value: Properties are assessed at 1957 market values, typically around 40-50% of their current market value. For simplicity, let's use 45%.

• Assessed value = $200,000 * 45% = $90,000.

1. Tax Rate: The property tax rate ranges from 8.03% to 11.83%. Let's use an average rate of 10%.

2. Annual Property Tax:

• Annual tax = $90,000 * 10% = $9,000.

Thus, based on these assumptions, the annual property tax for a $200,000 property would be approximately $9,000.

Exemptions and Reductions

Puerto Rico property offers various property tax exemptions and reductions, making it one of the best places to live in Puerto Rico and even more attractive to those looking for the best property options. Key exemptions include:

• Homestead Exemption: This provides significant tax relief for primary residences, with the first $15,000 of the assessed value exempt from property taxes.
• Senior Citizens, Disabled Persons, and Veterans: These groups may qualify for additional exemptions, reducing their property tax burden significantly.
• Act 60 Puerto Rico: For new residents who qualify, Act 60 offers extensive tax incentives, including a 75% exemption from municipal and state property taxes.

In summary, Casas para la venta en Puerto Rico's residential property tax policies offer substantial benefits. With preferential rates and exemptions under Acts 20 and 22, do you pay property taxes in Puerto Rico? Yes, with its low property tax rates and generous exemptions, Puerto Rico is an appealing destination for investors and homeowners. Buying property in Puerto Rico as an American comes with distinct tax advantages that can help individuals make informed decisions about relocating to or investing in Puerto Rico.

List of Property Taxes in Puerto Rico

In Puerto Rico, property taxes encompass:

1. Personal Property Tax 

A common question is, are there property taxes in Puerto Rico? Yes, including personal property tax, which applies to movable assets such as vehicles and machinery, varying by location and assessed by the OPV, considering age, condition, and market value. Importantly, this category also extends to personal property used in trade or business, even within a residential property.

For Residential Properties Used in Vacation Rentals or Other Businesses

For homeowners who use part of their residential property for business purposes, such as a home office or a rental portion, these areas may be subject to personal property tax. This is particularly relevant for those who acquire property with the intention to maintain a property that serves both personal and business needs. The tax is computed on the net book value of taxable property, which could include business equipment and assets used in the operation of the business.

If the book value does not reasonably reflect the fair market value of these assets, they must be appraised at fair market value. The maximum tax rate is 9.83%, and it varies depending on the municipality in which the property is located. Whether you're a homeowner or looking at a Puerto Rico hotel for sale, compliance with these tax responsibilities is essential for both residential and business components.

2. Real Property Tax 

When considering how to pay property taxes in Puerto Rico, the real property tax is based on fixed real estate, such as land and buildings. The Puerto Rico property tax rate varies by municipality, based on the property's assessed value, established by the Office of Property Valuation (OPV). 

3. Special Assessment

Municipalities may levy special assessments for local projects or services, which are calculated differently from standard property taxes.

Property taxes in Puerto Rico, levied on personal property used in trade or business as of January 1st, will also extend to residential properties utilized for business activities unless an exemption is applicable. This means if a residential property is used for business purposes, it may be subject to personal property tax. However, typical residential property taxes, focusing on properties not used for business, are assessed differently, primarily based on the property's assessed value for purely residential use.

4. Sales and Use Tax (SUT)

The Sales and Use Tax (SUT) in Puerto Rico generally applies to all transactions of taxable items, including tangible personal property and certain services. While real property rentals are not directly subject to SUT, services associated with managing rental properties or leasing activities could be taxable. For residential property owners, any services related to property management, maintenance, or other related services could fall under the taxable services category, affecting the cost and potentially the rental prices.

The SUT rate is 10.5% at the state level and 1% at the municipal level, for a total of 11.5%. Designated professional and business-to-business services are taxed at a 4% SUT rate.

Additionally, homeowners associations (HOAs) in Puerto Rico often impose specific restrictions and guidelines on property usage, which can include mandatory maintenance services or management fees. These HOA-imposed services might also be subject to SUT, further influencing the overall cost of property ownership. 

5. Excise Taxes

Excise taxes in Puerto Rico are levied on various goods and services, including those related to farming in Puerto Rico as well as property management or construction. Specific items like cement, certain construction materials, and fuels may be subject to excise taxes, which can influence the cost of building or renovating rental properties.

Increases in costs due to excise taxes on materials or utilities can affect the overall expenses of maintaining and managing rental properties, influencing rental pricing and investment returns.

Property Taxes on Residential Properties

Property taxes on residential properties in Puerto Rico are managed Municipal Revenue Collection Center (CRIM), with tax rates varying between municipalities, generally ranging from 8.03% to 11.83%. These PR property tax rates are applied to the property's value as it was hypothetically appraised in 1957. However, for new construction homes in Puerto Rico, adjustments can be made to accurately reflect the current fair market value (FMV), typically representing about 40%-50% of the property's acquisition cost. If you're planning to buy land in Puerto Rico, be aware that property taxes are due twice a year, at the end of June, and again at the year's end, although specific deadlines can vary.

This is especially important for owners who have invested in eco-friendly houses or beachfront houses in Puerto Rico.

How Are Property Taxes Calculated on Residential Properties

The property appraiser in Puerto Rico, impuestos de propiedad en Puerto Rico, plays a critical role in the property tax calculation, which involves several key steps that homeowners should be familiar with. The process involves determining the assessed value of your property, which is done by the Puerto Rico Property Registry, and then applying the tax rate specific to your municipality. The actual tax rates set by the Municipal Revenue Collections Center (CRIM) vary between 8.03% and 11.83%, depending on the municipality.

For example, if your house for sale or house for rent is assessed at $100,000 and your municipal tax rate is 8%, your property tax would be $8,000, payable in two installments annually. 

The municipal tax rate for properties in Puerto Rico will vary, including areas like:

• Palmas del Mar
• Bahia
• Dorado, and 
• San Juan 

Tabular View of Real Estate Taxes on Certain Puerto Rico Municipalities

The San German Puerto Rico real estate market is among the top 10 municipalities and cities in Puerto Rico listed here with the highest rates of sold and rented real estate properties. These areas have seen significant activity due to their popularity and the rise of short-term rental platforms like Airbnb, significantly influencing the real estate market in these regions.

Please note that this table is based on the information provided on the real estate taxes for the fiscal year 2021-2022, as specified in the document where this is taken. The percentages represent the tax rates based on property values, and the tax figures (‰) are mill rates, which are the amount per thousand currency units of the property's assessed value.

If you wish to view the full content on all municipalities in Puerto Rico, you may refer to the link attached here.

Is There a Cap on Residential Tax Exemptions?

There is a cap on residential tax exemptions in Puerto Rico, specifically for primary residences. There are limits based on the property's value and the owner's circumstances, which include: 

• Owning a Primary Residence
• Senior Citizens
• Disabled Persons, and 
• Veterans

For instance, owning a primary residence could qualify you for an exemption reducing your property taxes by up to 60%, provided certain conditions are met, such as being a legal resident of Puerto Rico and having a total household income of less than $40,000 per year. Other deductions may apply for home improvements, solar energy installations, and conservation easements.

Other Conditions for Exemption

Besides the conditions mentioned, exemptions for owning a primary residence often require these qualifications: 

1. The property should be the owner's legal domicile, meaning it must be where they officially reside and are registered for voting or other legal purposes. 
2. Additional criteria might include not owning another primary residence elsewhere, and 
3. The property must be used exclusively for residential purposes without generating income. 

Each jurisdiction may have specific requirements, so it's advisable to consult local tax laws or a tax professional for comprehensive details.

For Non-Residents

Owning a primary residence in Puerto Rico offers specific tax exemptions not typically available to non-resident investors. Non-residents or normal immigrants who purchase real estate in Puerto Rico might not qualify for these same exemptions unless they meet residency requirements or other specific criteria established by Puerto Rican tax law.

To establish residency in Puerto Rico, immigrants or foreigners typically need to demonstrate:

1. Physical presence on the island for a significant portion of the year (usually more than 183 days)
2. Intent to reside permanently (such as building or buying a home or signing a long-term lease) 
3. Financial ties (like opening a local bank account).
4. Comply with local tax regulations, including filing local tax returns. 

Special Property Tax Considerations for Business Use

For homeowners using part of their apartment located in Puerto Rico for business purposes, such as vacation rentals or home offices, personal property taxes may apply. The tax is computed on the net book value of taxable property, such as business equipment, used in the operation of the business. Whether you're considering a new listings opportunity for a luxury home or running a business from a residential property, it's essential to comply with tax responsibilities.

Filing and Payment

For the filing and payment of real property tax in Puerto Rico, tools like CRIM Puerto Rico property search can assist in identifying accurate property assessments; the process generally follows these steps:

1. Assessment Notification - The initial assessment process starts at the beginning of each year. Property owners in Puerto Rico receive an "Assessment Notification" from CRIM (Municipal Revenue Collections Center) around January each year. This notification details the property's assessed value, which is the basis for the upcoming tax bill. Property owners must review this assessment carefully, as it impacts the tax they must pay.
2. Tax Bill - Following the assessment notification, CRIM issues a Tax Bill based on the assessed value. The tax bill usually arrives shortly after the assessment notifications are sent out, typically by early to mid-year. It specifies the property tax the property owner owes for that fiscal year.
3. Payment Deadlines-Real property taxes are typically due annually, but the specific deadlines can vary. For personal property taxes, particularly those relating to business assets within a residential property, a tax return must be filed annually on or before May 15.
4. Payment Options - Owners can pay online, by mail, or in person. Some may qualify for installment payments. If the personal property tax liability is more than $1,000, it must be paid in four equal installments due on August 15, November 15, February 15, and May 15. A 5% discount is allowed if the total property tax liability is paid with these four estimated installment payments.
5. Discounts - There might be discounts for early payment or paying in full, depending on local policy. For example, a statutory 5% discount is available for personal property taxes if 100% of the liability, as reflected in the tax return for the preceding taxable year, is made by the last installment date (May 15).

Deadlines for Payment

The deadlines for the payment of property taxes in Puerto Rico are typically set twice a year:

1. The first installment is due at the end of June.
2. The second installment is due at the end of December.

Property owners must adhere to these deadlines to avoid late fees and penalties. Payments can be made online, by mail, or in person, providing flexibility in settling property taxes.

Penalties

When managing CRIM Puerto Rico property taxes, it’s essential to avoid penalties for late payments. The interest rate can accrue monthly on the unpaid balance, and there might be additional penalties for late filings or payments. These penalties can significantly increase the total amount owed, so meeting all deadlines is essential to avoid these extra costs. Property owners should be aware of the penalties for late payment of taxes, especially if they have made a real estate purchase in a high-demand area like San Juan or Dorado.

For specific rates and penalties, it's advisable to consult the Municipal Revenue Collections Center (CRIM) or local tax office.

Do Puerto Ricans Pay Federal Taxes?

A common point of confusion when discussing taxes in Puerto Rico is whether residents are required to pay U.S. federal taxes. While Puerto Rico operates under a unique tax system that offers significant benefits to residents and investors, it is crucial to understand the interaction between local taxes and federal obligations.

In this section, we clarify whether Puerto Ricans must pay federal taxes and how specific circumstances, like Act 60 incentives or residency status, influence their tax responsibilities.

Understanding Federal Tax Obligations in Puerto Rico

Puerto Rico is a U.S. territory, but its tax system is distinct from that of the mainland United States. Puerto Ricans are generally exempt from paying U.S. federal income tax on income earned within Puerto Rico. However, certain exceptions and conditions apply:

• Income from U.S. Sources: If a Puerto Rican resident earns income from sources in the United States, they are required to file a federal tax return and pay taxes on that income.

  • Example: A Puerto Rican resident who owns a business or earns wages in the mainland U.S. must report and pay federal taxes on those earnings.

• Federal Payroll Taxes: Puerto Ricans must pay Social Security and Medicare taxes (FICA) if they are employed or self-employed. These taxes contribute to federal programs that Puerto Ricans can access, including Social Security benefits and Medicare coverage.

• Federal Excise Taxes: Goods and services imported into Puerto Rico may be subject to federal excise taxes, such as fuel or tobacco products.

Comparison Table: Federal Taxes for Puerto Rican Residents

Key Takeaways for Puerto Rican Residents

1. Local Income Tax vs. Federal Income Tax: While Puerto Rico residents are not taxed federally on locally sourced income, they are subject to Puerto Rico's local income tax system, which has its own progressive tax rates.

2. Residency Matters: Establishing residency in Puerto Rico under Act 60 can reduce or eliminate certain tax obligations, especially for individuals earning income through investments, dividends, and capital gains. However, residency rules must be strictly adhered to, including spending at least 183 days per year in Puerto Rico.

3. U.S. Citizens Living in Puerto Rico: U.S. citizens residing in Puerto Rico still retain their citizenship rights but enjoy unique tax advantages unavailable to mainland residents.

4. Business Owners: If a Puerto Rico-based business generates income from the mainland U.S., that income remains taxable under U.S. federal law.

Act 60 and Federal Taxes

Act 60 incentives are a significant draw for investors and individuals relocating to Puerto Rico. Under Act 60, qualifying individuals benefit from reduced or eliminated local taxes on:

• Dividend income

• Interest income

• Capital gains

However, Act 60 does not exempt individuals from paying federal taxes on U.S.-sourced income. For example, if an Act 60 beneficiary earns dividends from investments in U.S.-based companies, those earnings may be subject to federal tax obligations.

Example Scenario

Consider an investor who resides in Puerto Rico under Act 60:

• Puerto Rico-Sourced Income: Real estate rental income earned in San Juan is exempt from federal income tax.

• U.S.-Sourced Income: Dividends earned from stocks of a U.S.-based company are subject to federal tax.

Special Considerations for Non-Residents

Non-residents of Puerto Rico who own property or earn income on the island may still be subject to federal tax obligations if they maintain strong ties to the U.S. or generate income in the mainland. It is essential for non-residents to carefully assess their tax liability based on:

• Residency status

• Source of income (Puerto Rico vs. U.S.)

• Property ownership and rental income in Puerto Rico

Conclusion

Understanding property taxes in Puerto Rico is crucial for anyone looking to invest in real estate in Puerto Rico, whether they seek a dream home, an investment opportunity, or a non-commercial use property. The tax benefits, combined with relatively low rates and exemptions under Act 60, make Puerto Rico an appealing destination. Let Christie's International Real Estate Puerto Rico, navigating property tax in Puerto Rico can be complex, but homeowners can effectively manage their tax obligations with the right information and resources.

Our expertise ensures compliance with the right property tax processes and maximizes tax exemptions and deductions for our clients. Whether you're looking to buy, sell, or rent properties in Puerto Rico, we are committed to providing personalized service that addresses all your real estate needs, including guiding you through the complexities of property taxes. 

Use the Puerto Rico Property Tax Calculator to estimate your potential tax liabilities and plan your finances accordingly. For more details, visit our website and view property details or explore the latest new listings today.

FAQs