La Paz, BCS - As with other countries the Mexican government expects nationals and foreigners alike to pay taxes on income in the country. Failure to do so can and has led to substantial actions and penalties. Even if the funds are received outside the country they are still subject to taxes here because the income was generated in this country.
The Mexico tax code clearly states that taxes must be paid on rental income from apartments, houses, and commercial properties. The Settlement Company answers frequently asked questions about property rental income and how to avoid penalties and legal problems with the Mexican tax authorities.
Q: As a non-resident of Mexico how can I pay taxes on the income I receive from my Mexico rental property?
A: If you are a non-resident of Mexico it is necessary to engage a Mexican company (such as The Settlement Company) to file and pay these taxes. The Settlement Company in Baja California Sur, Mexico has developed a legal method whereby these taxes can be paid by non-residents.
Q: How are these taxes treated on my US tax return?
A: You must report your rental income and expenses on your US tax return on Schedule E (if you are an individual taxpayer). A Mexican rental is treated the same as US rental in most respects. You can deduct the IVA tax and local lodging taxes. You can claim the Mexican income tax paid on your rental income as credit directly offsetting your US tax on the same rental income dollar for dollar. This is because Mexico has tax treaties with more than 30 countries, including the U.S.A. and Canada. You do not get double taxed on your US or Canadian tax return.
Paying tax on your rental income from Mexican properties is a MUST, whether you live in Mexico or not. Get legal and avoid the consequences of tax evasion!
Related article: Vallarta to Begin Collecting Property Rental Income Tax
John Glaab is Director, International Marketing at The Settlement Company, Mexico's oldest title and escrow company. A Certified International Property Specialist, he is a founding member of AMPI Los Cabos and the new Global Mexico Real Estate Institute. In 2012, John was named the International Real Estate Member of the Year by NAR. For further information, contact John at John.Glaab(at)settlement-co.com.