Bona Fide Residency in U.S. Territories: Federal Tax Rules for Puerto Rico, Guam, USVI, American Samoa, and CNMI

Tax residency in a U.S. territory is not determined by a single 183-day rule. For federal tax purposes, a person who wants to be treated as a bona fide resident of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, or the Commonwealth of the Northern Mariana Islands must satisfy a broader set of requirements. The rules examine where the individual is physically present, where the person’s tax home is located, and whether the individual has a closer connection to the territory than to the United States or another country. Those determinations can directly affect where an income tax return must be filed, which income must be reported to the IRS, whether territory-source income can be excluded from U.S. federal income tax, and whether additional reporting such as Form 8898 is required.

The IRS addressed these rules in its September 22, 2026 presentation on determining residency in a U.S. territory for federal tax purposes. The material focused on the definition of a bona fide resident, the physical presence, tax home, and closer connection tests, the different filing systems used by U.S. territories, special filing rules for residents and nonresidents, Form 8898, and Puerto Rico’s individual investor rules. The result is a framework that is far more detailed than simply asking whether a person spent 183 days in one place.

Why U.S. Territory Residency Is a Separate Federal Tax Question

American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands each have their own tax systems and tax departments. Their individual income tax systems are coordinated with the U.S. Internal Revenue Code through federal rules that apply specifically to U.S. territories. For federal tax purposes, the territories are generally treated as foreign countries unless the Internal Revenue Code provides otherwise. At the same time, special coordination rules determine whether an individual reports income to the IRS, to the territory, or to both.

This is why a person’s status as a bona fide resident matters. The status is not merely descriptive. It can change the tax return that must be filed, the jurisdiction in which income is reported, and the treatment of territory-source income. It is also why residency should be analyzed before assuming that a move to Puerto Rico or another U.S. territory automatically changes federal tax obligations.

What Bona Fide Residency Means

For a particular tax year, an individual generally must satisfy three separate requirements to qualify as a bona fide resident of a U.S. territory: the physical presence test, the tax home test, and the closer connection test. These are cumulative requirements. Passing the physical presence test alone does not establish bona fide residence if the person still has a tax home outside the territory or maintains a closer connection to the United States or another country.

This three-part structure is one of the most important points in the federal rules. A taxpayer may spend substantial time in a territory and still fail the residency analysis because the person’s work, home, family, voting registration, or other significant connections remain elsewhere. Conversely, the regulations provide several ways to satisfy the physical presence component, so 183 days is not the only route to meeting that particular test.

The Physical Presence Test

The basic physical presence rule is straightforward: an individual can satisfy the test by being present in the relevant territory for at least 183 days during the taxable year. The complexity begins with the alternatives. Federal regulations provide several other methods of satisfying the physical presence test, which means that a taxpayer should not assume that falling below 183 days automatically disqualifies the person from bona fide resident status.

Alternatives to the 183-Day Requirement

One alternative looks at a three-year period instead of a single year. An individual can satisfy the presence requirement by being present in the territory for at least 549 days during the taxable year and the two immediately preceding taxable years, provided that the individual was present in the territory for at least 60 days during each of those three years. This test recognizes a sustained pattern of residence even when one individual year does not reach 183 days.

Another alternative applies when the individual is present in one of the 50 states or the District of Columbia for no more than 90 days during the taxable year. The regulations also include an alternative based on spending more days in the territory than in the United States while keeping earned income from U.S. jurisdictions within the applicable threshold. A further alternative can apply when the individual has no significant connection to the United States during the tax year.

For this purpose, a significant connection to the United States can include maintaining a permanent home there, being registered to vote there, or having a spouse or minor child in the United States. These factors show why the physical presence test is broader than a simple day count. Time spent in the territory matters, but certain continuing connections to the United States can also matter.

How a Day of Presence Is Counted

As a general rule, a person is treated as present in a U.S. territory on any day when the person is physically present there at any time during that day. The IRS presentation illustrates this with an example in which an individual is in Puerto Rico from midnight until 6 p.m. and then spends the remainder of the day in the United States. That day is still counted as a day of presence in Puerto Rico for purposes of the physical presence test.

If an individual is present in two different U.S. territories on the same day, the day is generally counted as a day of presence in the territory where the individual’s tax home is located. This can become important for people who travel frequently among U.S. territories and need to maintain accurate records of their location throughout the year.

Days Outside the Territory That Can Still Count

Certain absences do not necessarily break the presence calculation. Days outside the territory can count as days of presence when an individual leaves to receive qualified medical treatment or accompanies a parent, spouse, or child who is receiving qualified medical treatment on a full-time basis. Certain disaster-related absences can also count. This includes qualifying periods when an individual leaves or is unable to return during a major disaster for which a federal disaster declaration has been issued, as well as certain periods affected by a mandatory evacuation order covering the area where the individual’s place of abode is located.

Days in the United States That May Be Disregarded

The rules also identify circumstances in which days spent in the United States are not counted as U.S. days for purposes of the physical presence analysis. Examples include being in the United States for less than 24 hours while traveling between two places outside the United States, temporary presence as a professional athlete competing in a charitable sporting event, temporary presence as a full-time student, and certain periods spent serving as an elected representative, elected or appointed official, or qualifying employee of a territory government or its political subdivisions.

These exceptions matter because they can affect whether a taxpayer remains within one of the alternative presence tests. A person whose travel appears to exceed a numerical limit may still qualify once the specific statutory and regulatory exceptions are applied.

The Tax Home Test

Physical presence alone is not enough. A bona fide resident generally cannot have a tax home outside the relevant territory during any part of the taxable year. The tax home concept focuses primarily on where the individual works rather than simply where the individual owns or rents a residence.

In general, an individual’s tax home is the area of the person’s principal place of business or duty station, regardless of where the individual maintains a family home. If the person does not have a regular or principal place of business, the tax home is generally the individual’s regular place of abode in a real and substantial sense. If neither situation applies and the person is itinerant, the tax home is generally wherever that individual works.

This distinction is particularly important for remote workers, business owners, consultants, and individuals whose personal residence and principal work location are not the same. A person can spend many months in a territory yet still face a problem with the tax home test if the person’s principal business activity remains outside that territory.

Exceptions to the Tax Home Test

The rules contain several exceptions. Temporary days in the United States as a student can be disregarded. Certain periods spent in the United States while serving as an elected representative of the territory or as a full-time elected or appointed official or employee of the territory government can also be disregarded. A special rule applies to seafarers: an individual is not considered to have a tax home outside the relevant territory solely because the person works on ships or other seafaring vessels used predominantly in local waters near the territory or in international waters. A separate exception may also apply in the tax year in which an individual moves to or from a territory.

The Closer Connection Test

The third requirement asks where the individual’s life is more closely connected. A bona fide resident cannot have a closer connection to the United States or to a foreign country than to the relevant territory. Unlike a fixed numerical test, this determination depends on the individual’s facts and circumstances.

The taxpayer’s connections with the territory are compared with the taxpayer’s connections to the United States and foreign countries. The analysis is therefore broader than physical location. It looks at the practical center of the individual’s life and requires the closer connection test to be satisfied for the entire taxable year, subject to special rules that can apply in a year of relocation.

The interaction of the three tests is critical. A taxpayer may be physically present in Puerto Rico long enough to satisfy the presence test but still fail bona fide residency because the person’s tax home remains in a state or because the person’s personal and economic connections are stronger elsewhere. For federal tax planning, the three requirements must be reviewed together rather than independently.

Special Rules for the Year of a Move

A move to a U.S. territory creates an obvious timing problem because the person may have lived and worked elsewhere for part of the same tax year. Federal regulations therefore provide special rules for the tax home and closer connection tests in the year an individual moves to a territory.

Under the rule described by the IRS, an individual can be deemed to satisfy the tax home and closer connection tests for the year of the move if several conditions are met. The individual must not have been a bona fide resident of the territory during any of the three tax years immediately preceding the move. During the final 183 days of the year of the move, the individual must not have a tax home outside the territory or a closer connection to the United States or a foreign country than to the territory. The individual must then be a bona fide resident of the territory for the three tax years immediately following the year of the move.

The future-year requirement makes the rule especially significant. Residency in the year of relocation may depend in part on what happens during the following three years. A taxpayer who relies on this special rule should therefore view the move as a continuing tax position rather than a one-year election.

Special Rules for U.S. Servicemembers and Their Spouses

The general rules are modified for U.S. servicemembers and their spouses. The IRS presentation notes that special residency and sourcing rules can allow a servicemember to retain tax residency status in the servicemember’s home of record and can keep military income sourced to that home of record. These rules should be considered separately from the ordinary bona fide residency analysis because military status can change how residence and income sourcing are treated.

Mirror Code and Non-Mirror Code Territories

After determining whether an individual is a bona fide resident, the next major issue is the filing system used by the territory. U.S. territories fall into two general categories for individual income tax purposes: mirror code territories and non-mirror code territories.

The Commonwealth of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands are mirror code territories. Their territorial income tax systems generally mirror the U.S. Internal Revenue Code. American Samoa and Puerto Rico are non-mirror code territories. Their income tax laws do not mirror the Internal Revenue Code, although they may contain similar concepts. This distinction affects where returns are filed and how federal and territorial income tax liabilities are coordinated.

Bona Fide Residents of Puerto Rico and American Samoa

Puerto Rico and American Samoa use non-mirror income tax systems. Bona fide residents of these territories have an income tax filing obligation with the relevant territory and may also have a federal filing requirement depending on their income sources.

A bona fide resident of Puerto Rico or American Samoa who has income from sources outside the territory generally files U.S. Form 1040 reporting worldwide income, but excludes qualifying income from sources within the territory. Wages received for services performed as an employee of the U.S. government are not excluded under this rule. If all of the bona fide resident’s income is sourced within the territory, the individual generally is not required to file a U.S. federal income tax return.

A U.S. nonresident alien can also be a bona fide resident of Puerto Rico or American Samoa. In that situation, the IRS presentation states that the individual files Form 1040, rather than Form 1040-NR, to report worldwide income while excluding qualifying income from the territory. However, for federal tax purposes other than this income reporting rule, the taxpayer continues to be treated as a nonresident alien. That treatment can affect matters such as eligibility for the standard deduction, joint filing, deductions, and credits.

U.S. Citizens and Residents Who Are Not Bona Fide Residents of Puerto Rico or American Samoa

A U.S. citizen or resident who has income from Puerto Rico or American Samoa but is not a bona fide resident of that territory is subject to a different filing framework. The individual may be subject to territorial income tax, but the person must also file U.S. Form 1040 and report worldwide income without excluding the territory-source income under the bona fide resident rules.

To prevent the same income from being taxed twice without relief, the taxpayer may be able to claim a credit for income taxes paid to Puerto Rico or American Samoa on the same income. The key difference is that the territory-source income remains part of worldwide income reported on the U.S. return because the taxpayer did not qualify as a bona fide resident.

Nonresident Aliens Who Are Not Bona Fide Residents of Puerto Rico or American Samoa

A U.S. nonresident alien who is not a bona fide resident of Puerto Rico or American Samoa generally files a territorial return reporting income from sources within that territory. Wages for services performed in the territory are treated as territory-source income whether the employer is a private business, the U.S. government, or another employer. The individual also files a U.S. Form 1040-NR to report U.S.-source income under the federal rules applicable to nonresident aliens.

Bona Fide Residents of CNMI, Guam, and the U.S. Virgin Islands

The filing system is different for bona fide residents of the Commonwealth of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands because these are mirror code territories. Bona fide residents generally follow a single filing rule and file an income tax return only with the relevant territory.

The territorial return generally reports income from all sources. Wages earned as an employee of the U.S. government are also reported on the territorial return rather than on a separate federal income tax return. A bona fide resident may receive a credit on the territorial return for federal income tax withholding or estimated tax payments previously made to the IRS, and the territory may allow other credits under its rules.

The IRS also notes that a bona fide resident of a mirror code territory can include an individual who would otherwise be treated as a U.S. nonresident alien but is subject to taxation by the territory. Residency status therefore remains the starting point for determining the correct filing jurisdiction.

Non-Bona Fide Residents of CNMI, Guam, and the U.S. Virgin Islands

U.S. citizens and residents who are not bona fide residents of a mirror code territory follow different rules depending on the territory involved. For income connected with the Commonwealth of the Northern Mariana Islands, the taxpayer generally files U.S. Form 1040 with the IRS reporting worldwide income and uses Form 5074 to allocate tax to the CNMI. A similar approach applies to Guam: Form 1040 is filed with the IRS reporting worldwide income, and Form 5074 is used for the allocation of tax to Guam.

The U.S. Virgin Islands uses a different procedure for a U.S. citizen or resident who is not a bona fide resident. The individual files a U.S. Form 1040 reporting worldwide income and also files an identical copy with the U.S. Virgin Islands together with Form 8689. Form 8689 is used to apportion income tax liability between the IRS and the U.S. Virgin Islands.

Individuals Who Are Neither U.S. Citizens nor Residents and Are Not Bona Fide Residents of a Territory

An individual who is not a U.S. citizen or U.S. resident and is also not a bona fide resident of a U.S. territory must determine the territorial income tax requirements that apply to income from that territory. Any U.S.-source income is generally reported to the IRS on Form 1040-NR under the rules applicable to nonresident aliens. Because each territory administers its own tax system, territorial filing requirements must be considered separately from the federal return.

Form 8898: Reporting the Beginning or End of Bona Fide Residence

Changing bona fide residency can create an additional federal reporting requirement even when the taxpayer’s main income tax return is filed correctly. Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Territory, is required for certain individuals who become or cease to be bona fide residents of American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands during the tax year.

According to the IRS presentation, Form 8898 applies when the individual’s worldwide gross income for the year exceeds $75,000. The form is filed with the IRS by the due date, including extensions, for filing Form 1040 or Form 1040-NR. Failure to file Form 8898 or to provide all required information can result in a $1,000 penalty.

Form 8898 makes residency changes visible to the IRS and should not be treated as an optional informational attachment. A taxpayer who moves to or from a U.S. territory should therefore evaluate not only the substantive residency tests but also whether the move triggers this separate reporting obligation.

Puerto Rico Act 22 and Individual Investor Tax Benefits

The IRS presentation also addressed Puerto Rico Act 22, commonly associated with tax incentives for individual investors who become bona fide residents of Puerto Rico. The presentation described a full Puerto Rico tax exemption for certain financial income, including interest, dividends, and capital gains on qualifying Puerto Rico-related income, for applicants covered by the pre-January 1, 2027 framework discussed in the webinar.

The benefits described by the IRS are generally tied to Puerto Rico and are aimed at individuals willing to become bona fide residents. The presentation notes that the program can involve investments in Puerto Rican businesses and real estate and that gains involving stocks, bonds, and other investment assets can also be relevant. The central residency point remains the same: the tax benefits depend on bona fide resident status, so the presence, tax home, and closer connection requirements cannot be ignored merely because an individual has obtained or is seeking a Puerto Rico incentive decree.

Puerto Rico Incentives Do Not Exempt All U.S.-Source Income

The federal treatment is equally important. Puerto Rico-related income of a bona fide resident can generally receive favorable U.S. federal treatment under the applicable territorial rules, but income from U.S. sources or other non-Puerto Rico sources is not automatically exempt from U.S. federal income tax. The IRS presentation specifically notes that income such as dividends or interest from U.S. portfolio securities and income from U.S. real estate does not become exempt merely because the taxpayer is a bona fide resident of Puerto Rico.

The presentation also discusses capital gain from investment assets that were owned before the individual moved to Puerto Rico. It states that gain from stocks, bonds, and other investment assets held before the move can become eligible for U.S. tax exemption after ten years under the rules discussed in the webinar. Alternatives can include a mark-to-market election on the date of the move or proration of the portion of gain attributable to the period before bona fide resident status. These rules are highly dependent on timing and the history of the asset, so pre-move appreciation and post-move appreciation cannot simply be treated as though they arose entirely after the relocation.

Why the 183-Day Rule Is Only One Part of the Analysis

The most practical lesson from the federal territory residency rules is that 183 days is not a complete definition of tax residency. For bona fide residence in a U.S. territory, 183 days is one method of satisfying one of three required tests. The regulations provide alternative presence tests, while the tax home and closer connection requirements independently examine where the individual works and where the individual’s strongest ties are located.

This distinction matters for taxpayers who relocate for tax reasons, entrepreneurs who operate businesses across multiple jurisdictions, remote workers, investors, and individuals who divide the year among several locations. Counting travel days is necessary, but it is not sufficient. A correct analysis should also identify the taxpayer’s principal place of business, examine whether the person retains a permanent home or significant family connection in the United States, determine where the person’s economic and personal life is centered, and confirm the filing system that applies to the specific territory.

What Taxpayers Should Determine Before Filing

Before preparing a federal or territorial return involving a U.S. territory, the first question should be whether the individual is a bona fide resident for the tax year. That requires analyzing the physical presence test, the tax home test, and the closer connection test together. The next question is whether the territory is a mirror code or non-mirror code jurisdiction. Only after those questions are answered can the correct filing obligation be determined.

For Puerto Rico and American Samoa, the taxpayer must distinguish between bona fide residents and non-bona fide residents and determine whether income is sourced inside or outside the territory. For the CNMI, Guam, and the U.S. Virgin Islands, the taxpayer must determine whether the single filing rule applies or whether federal forms such as Form 5074 or Form 8689 are required. A taxpayer who begins or ends bona fide residence must also consider Form 8898 and its separate filing requirement.

The source of income is just as important as residency. A person can live in a U.S. territory while continuing to receive U.S.-source income, territory-source income, or income from other countries. Different categories can receive different tax treatment. This is especially significant in Puerto Rico, where territorial tax incentives are often discussed broadly even though federal tax treatment depends on both residency and the source and timing of the income.

The Bottom Line

Bona fide residency in a U.S. territory is a federal tax status built on three separate elements: physical presence, tax home, and closer connection. The familiar 183-day threshold is important, but it is neither the only way to satisfy the physical presence test nor the only condition for becoming a bona fide resident. Federal regulations recognize alternative presence tests and specific exceptions, while the tax home and closer connection rules examine the actual center of the taxpayer’s work and personal life.

Once residency is established, the filing rules depend on the territory. Puerto Rico and American Samoa operate non-mirror tax systems, while Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands use mirror code systems. Bona fide residents and non-bona fide residents can therefore have very different filing obligations even when they receive income from the same territory. Form 8898 may add a separate reporting requirement when bona fide residency begins or ends, and Puerto Rico investor incentives do not eliminate the need to analyze federal income sourcing and pre-move investment gains.

For taxpayers considering a move to a U.S. territory, the correct question is not simply, “Will I spend 183 days there?” The more complete questions are: Can I satisfy one of the federal physical presence tests? Where will my tax home actually be? Where will my closer personal and economic connections be located? What type of tax system does the territory use? Where is each category of my income sourced? And what federal and territorial forms will I be required to file? Answering those questions before the move is far more reliable than trying to reconstruct residency after the tax year has ended.