Puerto Rico: Worked Example of Tax on Rent

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Last Updated: Mar 14, 2007

Tax Example: Rent

ELECTING TO TREAT RENTAL INCOME AS INCOME EFFECTIVELY CONNECTED WITH BUSINESS
Non-resident couple's joint monthly rental income¹		US$1,500	US$6,000	US$12,000
Annual Rental Income		18,000	72,000	144,000
Less Costs²		(900)	(3,600)	(7,200)
Less Depreciation³		(9,000)	(30,286)	(75,571)
= Taxable Income		8,100	38,114	61,229
Income Tax Rates⁴
Up to US$2,000	7%	140	140	140
Up to US$2,000	7%	140	140	140
US$2,000 - US$17,000	10%	610	1,500	1,500
US$17,000 – US$30,000	15%	-	1,950	1,950
US$30,000 – US$50,000	28%	-	2,272	5,600
Over US$50,000	33%	-	-	3,706
Annual Income Tax Due		US$750	US$5,862	US$12,896
Tax Due as % of Gross Income		4.17%	8.14%	8.96%
Thanks to:

DISCLAIMER:The information contained above is marketing material only and is not written tax advice directed at the particular facts and circumstances of any person and should not be relied upon. We encourage you to discuss your particular situation with us or an independent tax advisor. This information was last updated on March 14, 2007.

Notes

Kevane Grant Thornton LLP is a member firm of Grant Thornton International. Grant Thornton International is not a worldwide partnership. Member firms of the international organization are independently owned and operated.

¹ The property is jointly owned by husband and wife, but then taxed separately (50% upon each partner).

² Estimated values. Income-generating expenses such as maintenance fees, repairs, and property taxes are all deductible.

³ Estimated values.

⁴ The income tax rates in the table are for married couples filing jointly. For individuals, the tax bands are all divided in half as follows:

INCOME TAX
TAXABLE INCOME US$	MARGINAL TAX RATE
Up to US$1,000	7%
US$1,000 – US$8,500	10% on band over US$1,000
US$8,500 – US$15,000	15% on band over US$8,500
US$15,000 – US$25,000	28% on band over US$15,000
Over US$25,000	33% on all income over US$25,000
Source: Global Property Guide

NOT ELECTING TO TREAT RENTAL INCOME AS INCOME EFFECTIVELY CONNECTED WITH BUSINESS
Non-resident couple's joint monthly rental income¹		US$1,500	US$6,000	US$12,000
Annual Rental Income		18,000	72,000	144,000
= Taxable Income		18,000	72,000	144,000
Income Tax Rates²
Flat Rate	29%	5,220	20,880	41,760
Annual Income Tax Due		US$5,220	US$20,880	US$41,760
Tax Due as % of Gross Income		29%	29%	29%
Thanks to:

Notes

¹ The property is jointly owned by husband and wife, but then taxed separately (50% upon each partner).

² Non-resident foreigners not electing to treat their rental income as income effectively connected with business are taxed at the standard 29% rate which is levied on the gross income.