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What Are Property Taxes on Residential Properties?

In Puerto Rico, residential property taxes are vital for funding municipal services and community development. However, understanding and complying with these taxes can be challenging for homeowners. In this blog, we'll demystify the essentials of property tax in Puerto Rico, helping homeowners navigate their obligations with ease

Three Types of Property Taxes

In Puerto Rico, property taxes encompass:

Real Property Tax 

This is based on fixed real estate like land and buildings, with rates determined by each municipality based on the property's assessed value, established by the Office of Property Valuation (OPV). 

Personal Property Tax 

This tax applies to movable assets such as vehicles and machinery, also varying by location and assessed by the OPV considering age, condition, and market value. 

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 being 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.

It is important to note that understanding the different types of property tax in Puerto Rico is crucial for every homeowner.

Property Taxes on Residential Properties

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

How Are Property Taxes Calculated on Residential Properties

The calculation of property tax in Puerto Rico 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 property’s assessed value is $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 

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 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 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. 

Filing and Payment

For the filing and payment of real property tax in Puerto Rico, the process generally follows these steps:

  1. Assessment Notification - Property owners receive an assessment notice from CRIM, detailing the property's assessed value.
  2. Tax Bill - Based on the assessment, CRIM issues a tax bill to the property owner.
  3. Payment Deadlines - Real property taxes are typically due annually, but the specific deadlines can vary.
  4. Payment Options - Owners can pay online, by mail, or in person. Some may qualify for installment payments.
  5. Discounts - There might be discounts for early payment or paying in full, depending on local policy.

Note that property taxes in Puerto Rico are billed twice annually. The first bill is issued in July for the first semester, and the second bill is issued in January for the second semester. There can be variations based on local regulations or specific terms negotiated by the property owner.

Penalties

In Puerto Rico, penalties for late payment of property taxes include interest charges and fines. 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 it's essential to meet all deadlines to avoid these extra costs. For specific rates and penalties, it's advisable to consult the Municipal Revenue Collections Center (CRIM) or local tax office.

Conclusion

Understanding property taxes in Puerto Rico is crucial for anyone looking to invest in residential real estate on the island. As detailed, these taxes support a wide range of essential municipal and territorial services, enhancing the quality of life for residents. At Christie's International Real Estate Puerto Rico, navigating property tax in Puerto Rico can be complex, but with the right information and resources, homeowners can effectively manage their tax obligations.

Our expertise not only ensures compliance with the right property tax processes but also 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. 

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