Puerto Rico Crypto Tax Break: Federal Bill Aims to Exempt Digital Asset Income for Island Residents

The Fair Taxation of Digital Assets in Puerto Rico Act of 2025 is short, but it packs a punch for anyone living in Puerto Rico who holds crypto. Essentially, this bill changes how the IRS views income from digital assets—think Bitcoin, Ethereum, or even just a financial interest in a blockchain project—for qualifying residents. If you are a bona fide resident of Puerto Rico (meaning you qualify under Section 933 of the tax code), this income will not be treated as coming from sources within Puerto Rico for federal tax purposes. This exclusion applies to income earned from mining, staking, holding, selling, or trading these assets and would kick in for tax years beginning after the Act becomes law.

The Crypto Residency Perk

To understand why this matters, you need a quick tax refresher. Puerto Rico residents who meet certain criteria under Section 933 are generally exempt from U.S. federal income tax on income sourced within Puerto Rico. The problem is that the IRS hasn't always been crystal clear on where digital asset income is sourced, which can create a gray area for federal taxation, potentially limiting the existing tax benefits for these residents. This bill cuts through that ambiguity. By explicitly stating that digital asset income is not considered Puerto Rican-sourced income for federal tax purposes, the bill ensures that this specific income stream falls outside the scope of U.S. federal taxation for qualifying residents.

Who Benefits from the Fine Print?

This is a huge win for the specific group of people it targets: individuals who are already bona fide residents of Puerto Rico and active in the digital asset space. If you moved to the island to take advantage of existing tax incentives and you’re a miner, a high-volume trader, or just someone whose portfolio is heavy on crypto, this bill provides a clear federal shield for that income. This move essentially doubles down on making Puerto Rico an attractive hub for the digital asset industry, clarifying a complex part of the tax code and removing a potential headache for these high-net-worth individuals and entrepreneurs. The bill defines “digital asset” broadly, covering anything recorded on a secure, shared ledger system, which keeps it future-proof for new crypto innovations.

The Real-World Friction

While this is a clear benefit for the target audience, it does introduce some complexity and potential friction points. First, the entire benefit relies on the individual successfully qualifying as a bona fide resident under Section 933, which involves strict tests regarding physical presence and connection to the island—it’s not a simple checkbox. Second, while the bill offers clarity, it also means the U.S. Treasury and IRS would see reduced federal tax revenue from this specific class of wealthy resident, effectively creating a targeted federal tax exclusion. Finally, the broad definition of “digital asset” is helpful, but it could still lead to administrative disputes as new types of tokenized assets emerge that may or may not fit the intent of the law.