What Are Your Tax Obligations with Vacation Rentals in Mexico? (2024)

Owning real estate in Mexico, and especially in the Riviera Maya, can have many advantages for you and your family. Having a vacation home in one of Mexico’s most popular destinations and earning extra income is considered having the best of both worlds. Throughout the years, many foreign investors have created a nice rental income for themselves. But like anywhere else in the world, you have to forfeit a portion of your profits by way of taxes. Learning the local tax laws should be researched and studied before and/or during the purchasing process. Remember, being up to date with your tax obligations will

What Tax Obligations Do You Have?

Here are some simple tax tips that might help when investing in Mexico’s growing real estate market:

• If you work and/or gain income from an investment in Mexico (even if you’re not a citizen), you will most likely have to pay income taxes. A good place to start is by contacting the Servicio de Administración Tributaria (SAT or Hacienda).
• All income earned in the country of Mexico carries a certain taxation. No matter how it is distributed or gifted, payed in pesos or USD, or any other monetary valued payout. It needs to be reported as income.
• When you own property in Mexico and are a partial or full-time resident, you need to register with Mexico’s Registro Federal de Contribuyente (RFC). This is similar to your Tax ID number.
• All rental income is subject to Impuesto Sobre la Renta (ISR). Your residential status is independent from it. You must pay taxes on your rental income. The ISR tax rate is based on 25% of your gross income earned.
• If the rental property is furnished, on top of the ISR tax, there is an Impuesto al Valor Agregado (IVA), or valued added tax (VAT). The IVA is collected from the renter and paid to the Mexican government by the landlord. This is an additional 16% tax charged directly to the tenants.

Frequently Asked Questions

If I have my income deposited in a U.S. bank, do I still have to pay taxes to the Mexican government?

No matter where you deposit the money generated from your Mexico rental property, it is still subjected to taxation under Mexico’s tax laws. One advantage is that Mexico has a tax treaty with 32 countries including the United States. Simply put, the taxes you pay to Mexico can be deducted on your domestic US tax return. This eliminates double-taxation.

How will the Mexican government know that I am charging rent for my property?

There are many regulations that the Mexican government is putting forward to control rental properties and charge their corresponding tax. It is not fully regulated yet. But they are now working with AriBnB and other platforms to make sure people don’t go around the taxes. However, if for any reason you get investigated and found cheating on tax obligations, you will be given a fine and charged back taxes on the property’s maximum earning potential.

What can be expected if I ignore the tax rules? Will the government take my property?

Mexico’s version of America’s IRS is Servicio de Administracion Tributaria (SAT) and they both have similar practices. They also share and compare bank account records. Therefore, the SAT will assess the maximum penalty on all taxes owed, exile or deport the individual who is responsible for the property and yes, the Mexican government will take possession and sell the property to satisfy the amount owed.

Do I need to declare income if I only rent my condo a few times?

Technically, yes. It doesn’t matter how small the amount of revenue generated is, you still need to report any income earned to stay within Mexico’s tax laws.

Any other questions like maintaining a SAT account, deducting any property improvements or repairs, and what exactly can be deducted against rental income should be directed to a specialist. Of course, it is highly advised to get a certified Mexican accountant or lawyer. Make sure they have experience working with foreigners and their tax concerns. While tax obligations may seem scary, investing in a vacation rental in Mexico is perhaps one of the smartest real estate decisions you can make right now.

The ever-growing tourism influx and demand for alternative accommodation are great indicators that investing in vacation rentals in Mexico is a sure-fire way to make an extra income. Don’t let taxes discourage you from investing. It is no different, and it is definitely more rewarding, than investing in your own country. Mexico offers a great way to help secure your financial future. At the same time, you get to have a nice vacation getaway home to enjoy.

Start your search by looking through our list of properties and contact our professional Buyer’s Representatives. They will help you find the perfect vacation rental home for you.

And remember, at Top Mexico Real Estate…we make it happen!