U.S. Income Tax Treatment For Your Mexican Home
Note: Information has been published with copyright authorization from Emerald Coast.
Complete and very useful information can be found at http://www.emeraldcoastinvest.com
In addition to filing Forms 3520 and 3520-A, additional US income tax obligations
may arise, depending on how you use your Mexican home. As long as you are a US
citizen, you are subject to US income tax obligations, even if you live in Mexico. Contrary
to what you might read, living out of the US does not relieve you of your US tax obligations.
Only giving up your US citizenship does that!
If you use your Mexican house as a second home, and you don’t rent it out or use
it to generate any income, the IRS treats it as a vacation home. Real estate taxes,
casualty losses, and mortgage interest are deductible on your US federal income tax
return (see 26 U.S.C. Section 280A).
If you use the house yourself and rent it, you can still deduct rental expenses, if
you stay in the home yourself for less than 14 days per calendar year or less than 10%
of the number of days per calendar year in which you rent the home. How much rental
income is includable as income on your US tax return, and how depreciation, maintenance
expenses, operating expenses, mortgage interest, property taxes, and insurance are
allocated between personal use and rental use on your tax return depend on how many
days the property is used for each purpose (see 26 U.S.C. Section 280A4).
If your Mexican property is strictly a rental, the same rules apply as for US rental
real estate. You can take deductions on Schedule E of your US federal income tax return
for mortgage interest, insurance, operating expenses, repairs, and maintenance, and
you can offset those expenses against gross rental income.
If you “actively participate” in the management of the property, you may be able
to use up to $25,000 of real estate losses to offset other income on your US tax return.
However, this benefit only applies if your adjusted gross income is $150,000 or less.
If your Mexican home is your principal residence, you can take the same deductions
that apply to a US principal residence. You can also deduct foreign property taxes
(see 26 U.S.C. Section 164(a)(1)(3)).
Wolf Property Management can offer you strategies to have in order your rental income and comply with the Mexican tax issues. Remember that all taxes you pay in Mexico are deductible in the US. Feel free to contact and ask us anything regarding this matter. If you need to manage all your income individually, Wolf Property Management can recommend you professional and trusted Accountants that may assist you thoroughly.
(*) This article is only intended to provide general information. It is not intended
to be relied upon as legal, accounting, tax or other professional advice or services.
Please consult with legal counsel and a tax advisor to address your concerns.