Puerto Rico’s investor tax incentive known as Act 22—later folded into the island’s broader Act 60 incentives code—has become a flashpoint in debates over housing affordability and displacement, as critics argue the program helps wealthy newcomers reduce their U.S. tax bills while intensifying local pressures on rents and real estate.
Puerto Rico’s controversial investor tax incentive known as Act 22—formally the Act to Promote the Relocation of Individual Investors—has renewed scrutiny from activists and public figures who argue it contributes to displacement and rising housing costs.
Act 22 was enacted by Puerto Rico’s Legislative Assembly in 2012, according to The Nation. (thenation.com) In 2019, Puerto Rico consolidated several incentives laws into a broader incentives framework commonly known as Act 60, which includes the former Act 22 provisions for qualifying individual investors. (mcvpr.com)
How the tax benefits work
The core federal tax mechanism often cited by supporters and critics alike is the U.S. Internal Revenue Code’s treatment of Puerto Rico-sourced income for people who qualify as bona fide residents of the territory. The IRS explains that bona fide residency generally depends on meeting a presence test, not having a tax home outside the territory, and not having a closer connection to the mainland United States or another country. (irs.gov) Under this framework, Puerto Rico-sourced income can be excluded from U.S. federal income taxation in many cases, though U.S.-sourced income generally remains taxable.
Under Puerto Rico’s incentives for qualifying new resident investors, private-sector legal and tax summaries describe exemptions on certain Puerto Rico income taxes—commonly involving dividends and interest and, in some circumstances, capital gains accrued after establishing residency—though the exact tax outcome depends on income sourcing rules and individual facts. (mcvpr.com)
The Nation describes Act 22’s “minimal requirement” as buying a home on the island, spending roughly half the year there, and making a $10,000 annual donation to local charities, while arguing there is limited oversight. (thenation.com) (Separate from Puerto Rico’s local program requirements, the IRS rules for bona fide residency focus on physical presence and “closer connection” tests, not a property purchase requirement.) (irs.gov)
Housing, luxury real estate, and environmental complaints
Critics argue that the arrival of affluent newcomers—alongside broader market factors such as short-term rentals and post-disaster rebuilding—has intensified housing pressures.
The Nation claims that “average rents” in Puerto Rico have increased 600% since 2017. (thenation.com) That figure could not be independently confirmed in the sources reviewed for this fact-check; some reporting has documented sharp housing pressures tied to tourism and the expansion of short-term rentals, but not necessarily a territory-wide 600% average rent increase. For example, the Associated Press has reported that short-term rentals grew from about 1,000 in 2014 to more than 25,000 by 2023, and that advocates say this growth is contributing to higher housing costs and displacement. (apnews.com)
In Dorado, a luxury property listing of $65 million has been widely reported as potentially record-setting for Puerto Rico if it sells near asking price. (forbes.com) The Nation cited that listing as the highest-priced home in the island’s history; other outlets have described it as poised to break the record if sold close to asking price. (thenation.com)
The Nation also alleges environmental and access violations by some newcomers, including illegal clearing of protected areas and barriers restricting beach access. (thenation.com) Those allegations were not independently corroborated with official enforcement records in the additional sources reviewed.
Public backlash and political attention
The issue has also been amplified by cultural and political figures.
The Nation reports that Puerto Rican artist Bad Bunny (Benito Martínez Ocasio) has rapped about fears of losing his home and community to tax-driven relocation, quoting lyrics from his album Debí Tirar Más Fotos: “They want to take my river and my beach, too. / They want my neighborhood and for grandma to leave.” (thenation.com)
The same article says Zohran Mamdani, described by The Nation as having won a “historic race for mayor of New York,” traveled to Puerto Rico and spoke at the Somos conference, using the slogan “Puerto Rico no se vende” and echoing it for New York City. (thenation.com) This account could not be independently confirmed in other reporting reviewed here.
Scrutiny of enforcement and potential abuse
Broader concerns about compliance and abuse have surfaced around efforts to claim Puerto Rico tax benefits. The U.S. Department of Justice has announced criminal cases involving alleged fraud schemes linked to Act 20/Act 22-related representations, including allegations of sham transactions and attempts to mischaracterize income as Puerto Rico-sourced. (justice.gov)
Advocates of Puerto Rico’s investor incentives argue the program attracts capital and new residents; opponents argue it accelerates inequality and housing pressures and shifts tax burdens to others. The debate continues amid renewed attention to affordability across Puerto Rico and in U.S. cities where officials and activists say lost tax revenue and wealth concentration are growing political concerns.
