I’ve heard about it but it’s unclear what it actually is
the 10 year rule applies to gains on securities which:
- were acquired before your move to PR
- are sold as a BFR-PR, after having continuously been a BFR-PR for 10+ years
If you have appreciated stock before you relocate, either some or all of the appreciated amount (depending on whether or not you choose to bifurcate) will be taxed by the IRS. That is, unless you are a BFR-PR for 10+ years and subsequently sell them as a BFR-PR then the gains on the securities are treated as PR-sourced, and therefore taxed at 5%, and there is no liability to the IRS.
from IRS publication 570:
"There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U.S. citizen or resident alien prior to becoming a bona fide resident of a territory. You are subject to these special rules if you meet both of the following conditions.
"For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant territory.
"For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant territory).
“If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant territory for purposes of the Internal Revenue Code. Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U.S. tax return. (See chapter 3 for additional filing information.) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those territories to reduce or obtain a rebate of taxes on income from sources within the relevant territories.”