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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 and other taxes that may directly or indirectly influence residential properties, helping homeowners navigate their obligations with ease.

Types of Property Taxes

In Puerto Rico, property taxes encompass:

1. 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. Importantly, this category also extends to personal property used in trade or business, even if located 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. 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. Property owners should be aware that compliance with these tax responsibilities is essential for both residential and business components of their property.

2. 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). 

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 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.

4. Sales and Use Tax (SUT)

The Sales and Use Tax (SUT) in Puerto Rico is generally applied to all transactions of taxable items, which include 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 of these services and potentially the rental prices.

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

5. Excise Taxes

Excise taxes in Puerto Rico are levied on a variety of goods and services, which might include some elements related to 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 associated with maintaining and managing rental properties, thereby influencing rental pricing and investment returns.

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 

Tabular View of Real Estate Taxes on Certain Puerto Rico Municipalities

Listed here are the top 10 municipalities and cities in Puerto Rico 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, which has significantly influenced the real estate market in these regions.

MUNICIPALITY REDEMPTION FUND (%) MUNICIPAL FUND (%) MUNICIPAL SUPERVISION FUND (%) SPECIAL FUND FOR PENSION PAYMENTS (%) STATE TOTAL COMBINED (%) MUNICIPAL TOTAL COMBINED (%) STATE TAX (‰) MUNICIPAL TAX (‰)
Aguadilla 1.03 1.03 2.00 6.00 10.06 10.06 8.03 8.03
Cabo Rojo 1.03 1.03 4.00 7.00 12.06 12.06 9.33 9.33
Culebra 1.03 1.03 2.00 6.00 10.06 10.06 7.78 7.78
Dorado 1.03 1.03 4.00 8.00 12.06 13.03 9.33 10.03
Isabela 1.03 1.03 2.50 6.50 11.06 11.56 8.53 9.03
Ponce 1.03 1.03 4.50 7.50 12.06 13.06 9.33 10.33
Rincón 1.03 1.03 2.00 7.00 10.06 10.06 7.78 7.78
Río Grande 1.03 1.03 3.75 8.75 11.81 12.53 9.03 9.78
San Juan 1.03 1.03 3.75 9.75 12.56 14.53 9.78 11.53
Vieques 1.03 1.03 3.00 7.00 11.03 11.03 8.53 8.53

Please note that this table is based on the information provided on the taxes on real estate 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 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 - 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 serves as the basis for the upcoming tax bill. It is crucial for property owners to review this assessment carefully, as it impacts the amount of tax they will be required to 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 exact amount of property tax owed by the property owner for that fiscal year.
  3. Payment Deadlines - Real property taxes are typically due annually, but the specific deadlines can vary. For personal property tax, particularly 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 how property taxes are settled.

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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