When selling your real estate property in Puerto Rico, you will be required to pay capital gains taxes to Hacienda, a tax collecting arm of the Puerto Rico government. The following is a guideline on how that tax is calculated. To see how a sale specifically effects your tax liabilities, please consult with your tax advisor in Puerto Rico and wherever in the world you may declare your residency.
When you sell a property in Puerto Rico, there is a 15% tax on any capital gains. That gain is calculated by taking the Sales Price, subtracting Closing Costs, subtracting Capital Improvements, and then subtracting your original Purchase Price. The number left over is your capital gain, and you will be required to pay 15% of that to Hacienda.
If you are a resident of of Puerto Rico, you will need to declare your capital gain tax responsibility when you file your end of year taxes. No taxes will be withheld at the closing.
If you are a non-resident of Puerto Rico selling a property in Puerto Rico, that 15% capital gains tax will be withheld at closing. That tax will be held by the closing Notary or Title Company at the closing, and sent to Hacienda by the end of the next calendar month. There is the possibility of factoring in capital improvement costs to minimize your gains for cash closings if you work in advance with your accountant.
For closings where the buyer is using a mortgage company, we have noticed that mortgage and title company only factor in the purchase price, closing costs and selling price when calculating capital gains. We have not seen any situation yet where a seller is allowed to factor in any capital improvements into the equation.
It is suggested that you file your end of year Puerto Rico taxes within a few weeks of the closing, so that you can get a quicker refund, if you are owed one. The capital gains taxes you pay in Puerto Rico also become a federal tax credit for those of you having to file in the USA.
No seller, buyer or closing is the same. And Paraiso Realty is not a licensed law firm or accountant. As always, consult with your accountant in the USA and in Puerto Rico to discuss you specific tax circumstances and strategy.