Bona fide residents of Puerto Rico cannot claim deductions and/or credits allocable to or chargeable against Puerto Rican source income that is excluded from a U.S. tax return. The deductions and credits not attributable to specific income must be divided between excluded income from sources in Puerto Rico and income from all other sources to find the part that can be deducted or credited on a U.S. tax return. Examples of deductions not attributed to specific income include alimony, the standard deduction, and certain itemized deductions such as medical expenses, charitable contributions, and real estate taxes and mortgage interest on your personal residence. Personal exemptions are generally allowed in full.

If you have taxable Puerto Rican source income on your U.S. income tax return, then you can claim a credit for foreign taxes paid to Puerto Rico. However, you are not allowed to claim a credit for foreign taxes paid with respect to Puerto Rican source income that is excluded from a U.S. tax return. Therefore, to properly calculate your foreign tax credit, you must reduce your foreign taxes paid by the amount of taxes corresponding to excluded Puerto Rico source income.

For more information about how to allocate deductions and credits to excluded income, refer to Publications 570 and 1321

Page Last Reviewed or Updated: December 22, 2008

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