Capital Gains Tax Exemption for Primary Residence in Puerto Rico

Capital Gains Tax Exemption for Primary Residence in Puerto Rico

Understanding Law 180-2025

The Puerto Rico Law 180-2025 marks a major shift in how capital gains from the sale of a primary residence are treated. According to www.ley180.com (https://ley180.com/), this law provides a tax exemption on capital gains realized when selling your home if specific conditions are met.

Puerto Rico has traditionally taxed capital gains on property sales, which could significantly reduce net proceeds for sellers. Law 180-2025 changes this dynamic for homeowners whose property qualifies as their principal residence.

What Is the Capital Gains Exemption Under Law 180-2025?

Starting with tax years after December 31, 2024, the law exempts from income tax and the alternative basic tax the capital gains generated from the sale of a primary residence in Puerto Rico, provided certain conditions are satisfied. This amendment to the Incentives Code (Law 60-2019) aims to clarify and expand the tax benefits for homeowners.

In essence, qualifying homeowners may keep more of the profit from their home sale, without the typical capital gains tax burden.

Eligibility Criteria

Key requirements for the exemption include:

1. Primary Residence Use:
   The property must have been the seller’s principal residence for at least two out of the last five years prior to the sale, with no rental use during that period.

2. Inherited Properties:
   For inherited homes to qualify, the deceased owner must have lived in the property as their principal residence for at least two years before passing, and the property must not have been rented after.

3. No Act 60 Incentive Beneficiaries:
   Sellers who benefit from certain tax incentives under Section 2022.02 of the Incentives Code (e.g., tax decrees previously offered under Law 22) are excluded.

4. Post-2024 Sale Requirement:
   Only sales occurring after the end of 2024 are eligible.

Financial Impact for Homeowners

This capital gains exemption can significantly increase the net proceeds from selling a primary residence. Rather than paying roughly 10 % in taxes on gains, qualifying sellers may realize a much higher effective return on their property investment.

This financial advantage can mean:

• Greater funds available for purchasing another home

• More flexibility for debt repayment or savings

• Enhanced retirement or investment planning

Broader Market and Economic Implications

The new exemption is also expected to have positive effects on Puerto Rico’s housing market, such as:

• Encouraging more homeowners to list their properties

• Increasing movement and liquidity in established neighborhoods

• Promoting residential mobility for families and professionals

• Supporting economic activity related to real estate transactions

By reducing tax friction, Law 180-2025 helps align Puerto Rico’s housing tax environment with global best practices, benefiting both sellers and the broader real estate ecosystem.