During December 2025, the Governor of Puerto Rico, Jennifer González Colón, signed into law four (4) legislative measures amending the Puerto Rico Internal Revenue Code of 2011, as amended (hereinafter, the “PR Tax Code”), as well as the Puerto Rico Incentives Code (hereinafter, “PR Incentives Code”). These measures are intended to ease certain tax burdens on taxpayers and enhance savings and investment incentives for tax years beginning after December 31st, 2024 (reported on the Puerto Rico income tax return to be filed in 2026). A summary of the enacted legislation follows:
1. Act No. 177-2025 (Senate Bill No. 486), incorporates a new Section 1081.07 into the PR Tax Code for establishing tax-advantage savings accounts for certain eligible individuals with disabilities also known as Achieving a Better Life Experience (ABLE) accounts (“ABLE Accounts”). Its purpose is to promote financial independence and quality of life by allowing savings to be used for housing, education, transportation, health care, and other qualified disability-related expenses of the eligible individual with disabilities. Contributions to ABLE Accounts pursuant to Act 177-2025 are capped at $5,000 per beneficiary per tax year, with only one ABLE Account permitted per eligible individual. Although the statute does not expressly provide that contributions to ABLE Accounts are deductible for Puerto Rico income tax purposes, earnings on, and distributions from, such ABLE Accounts that are used exclusively to pay qualified disability-related expenses are excluded from gross income for income tax purposes. Distributions not used for qualified disability-related expenses are includible in gross income and generally subject to a 10% additional tax, unless such distributions are made after the beneficiary attains sixty-five (65) years of age.
2. Act No. 178-2025 (Senate Bill No. 487) amends Sections 1033.15 and 1081.05 of the PR Tax Code to strengthen incentives for education savings by increasing the maximum annual deductible contribution to an Education Savings Account from $500 to $1,000 per beneficiary for tax years beginning after December 31st, 2024. Accordingly, this increase applies to contributions attributable to taxable year 2025 and claimed on the Puerto Rico income tax return to be filed in 2026.
3. Act No. 179-2025 (Senate Bill No. 494) amends Section 1033.15 of the PR Tax Code aimed at increasing the deduction limit for contributions to Individual Retirement Accounts (“IRA”) by aligning it with the federal maximum allowed under the U.S. Internal Revenue Code, as adjusted annually by the Internal Revenue Service, for tax years beginning after December 31st, 2024. Accordingly, for tax year 2025 (reported on the Puerto Rico income tax return to be filed in 2026), the maximum deductible IRA contribution is increased from $5,000 to $7,000 for individual filers, and from $10,000 to $14,000 for married taxpayers filing jointly.
This amendment also appears to impact Puerto Rico dual-qualified retirement plans. Prior to the effectiveness of Act No. 179-2025, the maximum aggregate individual contribution to such dual-qualified plans was generally capped at the $20,000 pre-tax ($15,000) plus IRA ($5,000) contribution limits, notwithstanding the higher federal elective deferral limit, as a result of the elective deferral cap imposed under Section 1081.01(d)(7)(iii) of the PR Tax Code. In those cases, the maximum allowable individual contribution to the dual-qualified plan for tax year 2026 seems to increase from the prior cap of $20,000 to $22,500 (comprised of a $15,000 elective deferral and the $7,500 IRA-based contribution applicable for tax year 2026), or up to $24,000 (in the case of participants age 50 or older who are eligible to make a $1,500 catch-up contribution), provided that the employee does not make a separate IRA contribution during the same taxable year.
Notwithstanding the foregoing, all deductions and contributions remain subject to applicable earned income limitations, marital filing rules, and any additional restrictions imposed under the PR Tax Code and the governing plan documents.
4. Act No. 180-2025 (Senate Bill No. 502) amends the PR Incentives Code to exempt from Puerto Rico income tax and alternative minimum tax any capital gain realized on the sale of a qualifying principal residence located in Puerto Rico, for tax years beginning after December 31st, 2024 (reported on the Puerto Rico income tax return to be filed in 2026). To qualify for the exemption, the seller must not be a beneficiary of the special tax for Resident Individual Investors on net capital grains under Section 2022.02 of the PR Incentives Code or Act 22-2012, and the property must have been the seller’s principal residence, generally occupied continuously for at least two (2) of the five (5) years preceding the sale and not rented during that period. Also, special rules apply to inherited property, requiring prior occupancy by the deceased during the last two (2) years prior to the date of death and no rental afterwards.
Prior to the enactment of Act No. 180-2025, Section 6060.05 of the PR Incentives Code, as amended by Act No. 1-2024, limited the availability of the capital gains exemption under the Housing Stimulus Program for sale transactions of a principal residence realized on or after January 10, 2024, such that the exemption was only recognized if (i) the property was not sold by a beneficiary of the incentives provided under Section 2022.01 of the PR Incentives Code, or (ii) the property had been acquired for a purchase price that did not exceed one hundred fifty percent (150%) of the applicable Federal Housing Administration (FHA) loan limit for the municipality in which the property is located. Sales of properties acquired prior to January 10, 2024, were not subject to these limitations; however, principal residences acquired on or after January 10, 2024, became subject to such limitations upon their subsequent sale.
This document has been prepared for information purposes only and is not intended as and should not be relied upon as legal advice. If you have any questions or comments about the matters discussed in this notice, wish to obtain more information related thereto, or about its possible effect(s) on policy or operational matters, please contact us.