tax rules for americans owning property in mexico

Property Tax Rules in the USA for Owners of Mexican Property

Understanding Tax Rules for Americans with Mexican Property

Tax rules in the United States for Mexican property ownership may be confusing for some homeowners. This article explains the regulations so you can benefit from your tax return.

There are various types of property in Mexico, and the regulations vary widely depending on the type of property.

Types of Properties and Regulations

Primary Residence

If your property in Riviera Maya Mexico is a primary residence, the tax rules in the USA and in Mexico will be similar.

As an owner, you are allowed to reduce taxable income through interest deduction on your $1.1 million mortgage as well as your property taxes; you may also take itemized deductions for these amounts on your U.S. taxes.

According to the tax rules in the USA, if you own and live in a property for at least 24 months out of the last 5 years, you will be able to get tax relief for up to $500,000 of the amount gained from the sale.

Plus, if you meet all Mexican regulations, you may also qualify for exemption from Mexican taxes. To make sure you comply with the Hacienda federal requirements, it’s recommended to ask the advice of a local CPA.

Secondary Residence

The tax rules for secondary residences in Mexico are the same as those in the USA. You can claim tax and mortgage interest deductions for your Mexican property, just as you would for a second home in the United States.

However, remember that there are limits to the amount of interest you can deduct on either mortgage.

Rental Property

Mexican rental property is popular with investors, mainly because they can use the Fideicomiso bank trust to hold title.

Like the tax rules in the USA, owners have to pay rental income taxes and use Schedule E to offset their federal debt.

However, unlike in the USA, you have to use a 40-year depreciation period when calculating your deductions.

Commercial property

Commercial property that is located in the Riviera Maya restricted zone must be owned through an entity (or a Mexican corporation) if you are a foreigner.

This is required by the federal Financing of Foreign Operations law, and failure to comply with it can result in the forfeiture of your assets.

IRS Form 5471 and Form 926 must be submitted to report all profits from transactions involving Mexican real estate.

In summary, to better understand the tax rules and laws for US citizens owning property in Mexico, consult with an accountant who is an expert in this area.

We are in touch with Mexican accountants who have the knowledge of these laws and rules and who can guide you. You can contact us here and ask us for a referral to these experts. Click here to contact us today.

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