What are the Tax Benefits of Mexico Real Estate?
15 July 2008
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Owning real estate in Mexico is great for people who don’t like to pay taxes. Although you are still obligated to pay US income taxes if you are a US citizen, significant tax savings can be achieved.
Interest is Tax Deductible
Like in the US, the interest you pay on your home loan in Mexico can be deducted from your income taxes as long as it is your primary or secondary residence. Personal use must exceed the greater of 14 days or 10 percent of rental days for mortgage interest to be fully deducted. It would be wise to consult an accountant to determine how much interest you can safely deduct.
Tax Benefits When Renting Out
If you choose to rent out your property, you can claim itemized deductions for depreciation, maintenance expenses, operating expenses, property taxes, and some insurance expenses. The property must meet requirements as a rental business, so you can’t personally use the property more than 10 percent of the rental days. Maintaining the house does not count towards personal use days.
You are required to pay taxes to Mexico’s government when you receive income from renting out property in Mexico, however you can deduct this from your US taxes so you don’t have to pay it twice.
Lower Property Taxes
Property taxes are considered a bargain compared to rates in the US. This can result in a significant savings depending on the rates set by the local government.
Deduct Taxes You Pay in Mexico
Often taxes that you pay in Mexico, such as property taxes, can be deducted from your US return.
No Death Tax
Mexico does not have an estate tax or an inheritance tax, which can be quite high in the US.
Capital Gains Taxes
If you own and use a property in Mexico as your principal residence for at least two of the last five years, you are exempt from capital gains taxes of up to $250,000 if you are single and $500,000 if you are married.
Source: Cashing in on a Second Home in Mexico
Disclaimer: This is a general overview of potential tax breaks. Consult a professional accountant for your personal situation.
Great information. As for deductibility of interest on your home loan, according to IRS Publication 936, mortgage interest paid on a primary or second home is tax deductible in the U.S. This publication does not specify whether the property needs to be located in the U.S. Of course, as mentioned above, you should consult your tax professional about this. But this one great advantage of taking a home loan out on your Mexico real estate.
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