Your First Year Depends on Your Next Three: The Year of Move Rule for Puerto Rico

What does the year of move rule say when you move to Puerto Rico?

The year of move rule gives you relief on the tax home and closer connection tests for the year you change your residence to Puerto Rico, but only if you also meet conditions that reach three years before and three years after that year. The rule sits in 26 CFR 1.937-1(f)(1), and it has three parts.

The year of move is the taxable year in which your residence changes to Puerto Rico. For that year, the regulation treats you as meeting the tax home and closer connection requirements if all of these are true:

1. For each of the 3 taxable years immediately preceding the year of the move, you were not a bona fide resident of Puerto Rico.
2. For each of the last 183 days of the year of the move, you did not have a tax home outside Puerto Rico, and you did not have a closer connection to the United States or a foreign country than to Puerto Rico.
3. For each of the 3 taxable years immediately following the year of the move, you are a bona fide resident of Puerto Rico.

Form 8898 instructions describe the same structure for a move to a territory: no bona fide residence in the three preceding tax years, and bona fide residence for the three tax years immediately following.

Why does the first year depend on years that have not happened yet?

Because the third condition is written about the future. A bona fide resident is a person who meets the presence test, the tax home test, and the closer connection test for a tax year. The year of move relief is only available if you meet those tests, as a bona fide resident, in each of the three years after you arrive.

When you file your first return, those three years have not happened. Your position for the first year is real, and you can take it, but whether the regulation's conditions are satisfied is settled only by what you do later. A first year position that looks clean today rests on years you still have to live.

The middle condition, the last 183 days, is the part you can see and document within the year. The other two conditions bracket it. One looks back, and one looks forward.

What does the year of move rule relax?

It relaxes two of the three bona fide residence tests for the year of the move: the tax home test and the closer connection test. The regulation says that if the conditions above are met, you satisfy the requirements of paragraphs (d)(1) and (e)(1), which are the tax home and closer connection paragraphs.

In practice that matters for a mover who arrives partway through the year. A person who landed in the spring cannot say they had a Puerto Rico tax home on January 1. The rule replaces that full-year question with a narrower one: from the start of the last 183 days of the year, was your tax home in Puerto Rico, and was your closer connection to Puerto Rico? For the mechanics of arriving mid-year, see your first partial year.

The tax home test asks where your main place of business or work is. The closer connection test compares your connections to Puerto Rico against your connections to the United States or a foreign country. Both are explained in the three test framework.

Are the last 183 days the same as the 183 day presence test?

No. The last 183 days in the year of move rule are a separate measurement period. They are counted back from the end of the year of the move, and the question for each of those days is where your tax home and your closer connection were.

The 183 day presence test is a different count. It asks whether you were present in Puerto Rico for at least 183 days during the tax year. Publication 570 states it that way. Mixing the two is an easy error. Being in Puerto Rico for the last 183 days of the year does not by itself satisfy the presence test. For the headline count itself, see the 183 day rule.

Does the rule change the presence test?

No. The year of move rule, as written, covers the tax home and closer connection requirements. It does not say you are excused from the presence test.

The presence test can be met more than one way, and two of the day counts matter here. Publication 570 says you meet it if you were present in Puerto Rico for at least 183 days during the tax year. It also describes a three year route: 549 days over a three year period, with at least 60 days in each year. The 549 day presence test runs across a three year window, so it overlaps the years the year of move rule cares about.

If your arrival date leaves you short of 183 days in the first year, the rule above does not fix that. Check which presence route applies to your year before you rely on anything else.

What if one of the next three years falls short?

Published guidance does not address the first-year consequences in detail in the sources reviewed for this article. The regulation states the condition: you are a bona fide resident in each of the 3 following taxable years. It does not, in the paragraph reviewed, walk through what happens to a filed first year if a later year fails.

So treat it as unsettled. The condition is clear, the outcome of missing it is not something this article can state, and the answer will depend on your facts and on how the year is handled on a return. If a later year turns on a close call, get the position in writing from a licensed tax professional before you file. The general question of what a short year means is covered in failing the presence test for a year.

How does Form 8898 fit in?

Form 8898 is the notice you file when you take the position that you became, or ceased to be, a bona fide resident of a U.S. territory. The instructions require it when your worldwide gross income in the tax year is more than $75,000 and you take that position.

The year of move is the year the form is usually about, which is another reason the conditional nature of the first year matters. You are making a statement to the IRS about a year whose conditions are still running. For the filing steps, see Form 8898 line by line.

Is the rule the same when you leave?

No. The rule for leaving a territory is a different test. For most territories it mirrors the move-in rule: bona fide resident in each of the 3 preceding years, and not a bona fide resident in each of the 3 following years. Puerto Rico has its own provision in paragraph (f)(2)(ii), which requires only 2 prior years of residence and works differently. That rule is covered in the year you leave Puerto Rico. Do not carry the "three years" shape from one direction to the other.

What should you keep for the three years after the move?

Keep the same day-by-day record every year, not just the first. The first year relief is only as strong as the years that follow it, and each of those years is judged on its own presence, tax home, and closer connection facts. A record kept on the day, not rebuilt later, is what you will want if any of the four years is questioned. One83 builds that record from your calendar so it exists before anyone asks for it.

Put the dates on a calendar you can see: the move year, the last 183 days of that year, and the three years that follow.

Frequently Asked Questions

What are the three conditions for the year of move rule when moving to Puerto Rico?

You were not a bona fide resident in any of the 3 prior taxable years, you had no tax home outside Puerto Rico and no closer connection elsewhere for the last 183 days of the move year, and you are a bona fide resident in each of the 3 following taxable years.

Does the rule excuse me from the presence test in the move year?

No. It addresses the tax home and closer connection tests. The presence test is a separate requirement, described in Publication 570.

Are the last 183 days the same as the 183 day presence test?

No. The last 183 days are a separate measurement period counted at the end of the year of the move. The presence test counts days you were present in Puerto Rico during the tax year.

Is the rule the same when I leave Puerto Rico?

No. The rule for leaving uses different conditions. For Puerto Rico residents, paragraph (f)(2)(ii) requires at least 2 prior taxable years as a bona fide resident rather than the three year shape used for moving in.

One83 is a tracking tool, not tax advice. Consult a licensed tax professional about your situation.