Does Mexico Have Property Taxes? A Comparison with the US
US citizens buying property in Mexico have to contend with the country’s property taxes. Fortunately, taxes on property in Mexico are generally lower than in the US.
Property Taxes in Mexico
The Mexican property tax is known as “predial.” These taxes are generally lower than those in the United States, with rates varying by state and typically ranging from 0.05% to 1.2% of the property’s “cadastral value.” That means the assessed value, as determined by local authorities, is often significantly less than the market value.
Property owners are responsible for paying the predial tax annually, with payments due by the end of February. Early payments made in January or February may be eligible for discounts, which vary by state but can be up to 20%.
Additionally, buyers are subject to a property acquisition tax when acquiring property in Mexico. The tax varies by state and typically ranges from 2% to 5% of the property’s assessed value.
Mexico vs. US Property Taxes
There are several key differences between property taxes in Mexico and the US.
| Differences | Mexican Predial | US Property Tax |
| Tax Rate | Generally low; varies by state, typically ranging from 0.05% to 1.2% of the property’s cadastral value. | Varies by state and locality; can range from less than 1% to over 2% of the property’s assessed market value. |
| Assessment Basis | Based on the cadastral value — an assessed value determined by local authorities, often significantly lower than market value. | Based on the property’s market value, assessed periodically to reflect current market conditions. |
| Payment Schedule | Typically paid annually or semi-annually, payment schedules vary by state and locality. | Various exemptions and deductions are available, such as homestead exemptions, senior citizen discounts, and deductions for property used for certain purposes |
| Tax Increases | Less frequent reassessment leads to relatively stable tax amounts. | Regular reassessments can lead to annual tax increases, especially in areas with rising property values. |
| Exemptions and Deductions | Limited exemptions; some states may offer discounts for early payment or for senior citizens. | Various exemptions and deductions available, such as homestead exemptions, senior citizen discounts, and deductions for property used for certain purposes |
How Property Taxes in Mexico Affect US Citizens
Unlike foreign bank accounts, owning real estate abroad does not require direct reporting to the IRS. However, if the property generates income or is held through certain foreign entities, additional reporting obligations may arise. For example, if you rent out your Mexican property, the rental income must be reported on your US tax return, regardless of whether it’s taxed in Mexico.
Under current US tax laws, property taxes paid in Mexico are not deductible on your US federal tax return from 2018 through 2025. This rule, introduced by the Tax Cuts and Jobs Act, limits deductions for property taxes to US properties only.
Paying Property Taxes in Mexico
Paying property taxes in Mexico involves the following steps:
- Assessment: The local municipality assesses the property’s value, determining the tax amount.
- Payment: Property owners must pay the Predial tax annually, typically by visiting the local tax office or using authorized online platforms.
- Deadlines: Payments are due by the end of February. Early payments may be eligible for discounts.
Tips for Reducing Property Taxes
- Early payment discounts: Most Mexican municipalities offer significant discounts for early payment of property taxes. Paying in January or February can yield discounts of up to 20%, reducing your overall tax bill.
- Accurate property valuation: Ensure that your property’s cadastral value — the assessed value used for tax purposes — is accurate. Overvaluation can lead to higher taxes, so it’s advisable to review and, if necessary, contest the assessed value with local authorities to reflect the true value of your property.
- Permanent residency: Obtaining permanent residency in Mexico can provide tax advantages. Permanent residents may be eligible for exemptions or reductions in property taxes, especially if the property serves as their primary residence.
- Tax incentives: Mexico rarely offers various tax exemptions and incentives for property owners, but you may have options depending on where the property is located.
- Consulting a tax professional: Engaging with a tax advisor experienced in overseas property taxes can provide personalized strategies to minimize your tax obligations. They can offer insights into local tax laws, potential exemptions, and optimal payment strategies tailored to your unique situation.
Common Misconceptions
Myth: Foreigners Cannot Own Property in Mexico
Reality: Foreigners can own property in Mexico, including within restricted zones (areas near the coast or borders), through a special arrangement known as a fideicomiso. This arrangement allows foreign buyers to hold property rights comparable to those of Mexican citizens.
Myth: Mexico Has No Property Taxes
Reality: While Mexican property taxes are low, the predial is indeed a tax on Mexican property.
Myth: A Fideicomiso is a Foreign Trust
Reality: The IRS does not consider a fideicomiso (a bank trust that allows foreigners to own property in Mexico) as a foreign trust for tax purposes. This means that US citizens do not need to file IRS Forms 3520 or 3520-A, which are typically required for foreign trusts.
Myth: Property Taxes Are Automatically Billed to Owners
Reality: Unlike in some countries, Mexican municipalities may not send property tax invoices. Property owners are responsible for remembering to pay their taxes annually, typically by the end of February, to avoid penalties.
Still Have Questions? We Have the Answers!
If you still have questions about your Mexican property taxes, you’re in the right place. Greenback Expat Tax Services helps Americans around the world understand and optimize their taxes at home and abroad. Contact us today, and our Customer Champions will be happy to help you in any way we can.
And if you’d like to optimize your expat taxes, our team of CPAs and IRS enrolled agents are standing by.
