New Bill Shakes Up Crypto Taxes in Puerto Rico: Digital Asset Income May No Longer Be Taxed Locally

A new piece of legislation, the "Fair Taxation of Digital Assets in Puerto Rico Act of 2025," proposes a significant shift in how income from digital assets is treated for residents of Puerto Rico. Specifically, this bill aims to amend Section 865 of the Internal Revenue Code of 1986. If passed, income earned by Puerto Rican residents from activities like crypto mining, staking, holding, or trading digital assets would not be considered income sourced from Puerto Rico for tax purposes. This change would apply to taxable years beginning after the bill's enactment.

Digital Dollars, Different Rules

So, what does this mean in plain English? Currently, where you earn your money often dictates where you pay taxes on it. This bill, under a new subsection (i) to Section 865, says that if you're a resident of Puerto Rico and you're making money from digital assets – whether that's by "mining" new coins, earning rewards through "staking," simply holding onto your crypto as it appreciates, or selling or exchanging it – that income wouldn't be classified as Puerto Rican income. The bill defines a "digital asset" pretty broadly as "any digital representation of value recorded on a cryptographically-secured distributed ledger," and even includes financial interests in such assets. Think Bitcoin, Ethereum, NFTs, and potentially a whole lot more as the digital landscape evolves.

The Island's Bottom Line: Who Foots the Bill?

Here’s where things get a bit sticky. While this might sound like good news for crypto enthusiasts in Puerto Rico, there's a flip side. If a whole category of income is suddenly not considered local, it could mean a significant hit to Puerto Rico's tax revenue. Public services – think schools, roads, healthcare – are funded by taxes. Section 2 of this bill, by reclassifying this digital asset income, could shrink the pot of money available for these essential services. For the average person on the island, this could eventually translate into underfunded public programs or a potential shift in the tax burden to other areas to make up the shortfall.

A New Crypto Haven or a Taxing Question?

One of the big questions this bill raises is whether it might turn Puerto Rico into a magnet for individuals looking to minimize their tax on digital asset profits. If you can live in Puerto Rico and your crypto gains aren't taxed as local income, it could incentivize people to relocate primarily for these tax advantages, as highlighted by the concerns stemming from Section 2. While attracting new residents can sometimes boost an economy, there's a concern that this could encourage a form of tax avoidance, where individuals benefit from the island's status without necessarily contributing broadly to its economic foundation through diverse taxable activities. The effectiveness and fairness of such a system will likely be a hot topic if this moves forward, especially considering the broad definition of "digital asset" which could cover future financial innovations we haven't even thought of yet, potentially leading to unforeseen tax loopholes.

What's Next?

This proposed change is slated to take effect for taxable years starting after the Act is officially signed into law. It’s a straightforward change on paper, but its ripple effects on Puerto Rico's finances and its appeal as a place to live and work for those in the digital asset space could be substantial.