Puerto Rico Estate Taxes
Before you rush out to buy a new U.S. flag, hold on. Puerto Rico is not our newest state. It still retains its commonwealth status, although it continues to be closely associated with the United States. It is because of this close association, however, that Puerto Rican estate taxes are discussed along side state estate taxes.
It may surprise you to learn that about a quarter of Puerto Rico's residents work in jobs that contribute taxes to our Social Security and Medicare system. About 20 percent of its population also receives benefits under the Social Security program. At the same time, Puerto Rico is exempt from the Internal Revenue Code and has its own local taxation system (including estate taxes).
Puerto Rico's estate tax system exempts $400,000 from the net taxable estate of a resident decedent. The remaining amount in the estate is taxed at the following rates:
| Puerto Rico Estate Tax Rates |
| Taxable Estate After Exemptions, Deductions, and Credits Taken |
Tax on Col. (1) |
Rate on Excess Over Col. (1) |
| (1) |
(2) |
(3) |
(4) |
| $0 |
$10,000 |
$0 |
18% |
| $10,000 |
$20,000 |
$1,800 |
20% |
| $20,000 |
$40,000 |
$3,800 |
22% |
| $40,000 |
$60,000 |
$8,200 |
24% |
| $60,000 |
$80,000 |
$13,000 |
26% |
| $80,000 |
$100,000 |
$18,200 |
28% |
| $100,000 |
$150,000 |
$23,800 |
30% |
| $150,000 |
$250,000 |
$38,800 |
32% |
| $250,000 |
$500,000 |
$70,800 |
34% |
| $500,000 |
$750,000 |
$155,800 |
37% |
| $750,000 |
$1,000,000 |
$248,300 |
39% |
| $1,000,000 |
$1,250,000 |
$345,800 |
41% |
| $1,250,000 |
$1,500,000 |
$448,300 |
43% |
| $1,500,000 |
$2,000,000 |
$555,800 |
45% |
| $2,000,000 |
$2,500,000 |
$780,800 |
49% |
| $2,500,000 |
and up |
$1,025,800 |
50% |
Deductions. Before taking the $400,000 exemption, the following items are first deducted from a decedent's estate when calculating Puerto Rico estate tax liability:
- decedent's debts and claims against decedent on the date of death
- funeral expenses not exceeding $4,000
- 50 percent of the value of capital invested or to be invested in activities tending to a greater development of the economy of Puerto Rico
- property received by a surviving spouse from a testator by bequest or inheritance (provided the transfer does not exceed the amount that the decedent was entitled to transfer without impairing the rights of the forced heirs)
- accountant's, appraiser's, executor's, surveyor's, partitioner's and attorney's fees
- fortuitous losses not compensated by insurance or otherwise
- outstanding mortgages or debts at the date of death
- Puerto Rico taxes
- estate, inheritance, and gift taxes paid to the United States, its states, or a foreign country
- value of property located in Puerto Rico, including all personal and real property owned by a resident of Puerto Rico
- transfers to a U.S. or Puerto Rican government entity or a charitable organization
Returns. The executor of the estate must file an estate tax return with the Secretary of the Treasury within 270 days of the decedent's death. Any estate taxes owed must be paid within the same period of time.
Generation-skipping transfer tax. Puerto Rico does not impose this type of tax.
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