Taxes on Rental Income

by linda jones neil, settlement co.

Many foreigners, thinking ahead to eventual retirement, will buy a small home or an 
apartment building, rent it out to cover costs and maintenance while they are still working
at their jobs in the US or in Canada.   They let appreciation work for them..

There are three ways to declare and pay taxes on rental income.

Option one is to become a Mexican resident or Mexican citizen with taxpayer ID and electronic signature and make monthly filings of income.    Deductibles  are property taxes, potable water, property management, insurance, improvements, replacement of furniture, paper and office supplies.   In order to declare these deductions the taxpayer must have legal Mexican invoices facturas as a backup. Tax will be paid at the rate of 1.92 % to 35% of net income, depending upon total income.   Cost to make declaration will be about 150. USD per month including annual declaration.

Option two is to become a Mexican resident or a Mexican citizen with taxpayer ID and electronic signature and file monthly The taxpayer will declare the full monthly income, deduct 35% of that income and pay on the balance from 1.92 to 35.% of income.   No receipts or facturas are  required but an annual income declaration must be made in addition to the monthly filings.. The cost for the declaration will be about 150. USD per month including annual declaration.

The tourist who owns rental property can appoint a Mexican company to represent you and make the required monthly declarations to fully comply with Mexican tax law.  Tax is 25% of GROSS (plus 16% collected from the tenant if furnished.)   There is no annual declaration required.      The cost for filing the declaration is about 90. USD per month.   Very important! DEDUCTIONS AND TAXES PAID in Mexico are deductions or credits in US or Canada.

Penalties for non-payment.  
Many people think that it is perfectly OK TO collect money in the US and Canada, pocket it AND never say a thing to the Mexican authorities.

This IS OK, isn’t it?    After all the money never came to mexico so how can it be taxed???

The SOURCE of the income is Mexican,   your MEXICAN property It is not important where the money was collected but the SOURCE is very important and the justification for the taxation.

Yeah………….but no one is checking!   

Do you want to bet on that?     More and more SAT and immigration officials are using the internet, checking the Air BnB and rental ads.   They LEARN who is offering their property for rent.

Recent news from Zihuatanejo-    authorities are requesting proof of declarations of income.
Recent news from Cancun airport………visitors are greeted with the request for information on the properties they own.

Air BnB has just signed an agreement with state authorities in BCS to collect the 3% hospitality tax.   They forgot about SAT and Hacienda however and the authorities at the local SAT offices are not happy about that ………..but do have another source of information by checking Air BnB records.

IN OTHER WORDS, the game is up.!!  

And penalties range from 2700 to 8230 pesos for not enrolling as a tax payer.   Failure to make a declaration can range from 1100. To 13,720. PER MONTH, plus interest at the rate of 1.13% per month on the amount owed.    That is 13.56% per annum is compounded and can add up very quickly.!!

The good far SAT IS NOT levying fines on back taxes prior to enrollment   It makes great sense to get legal NOW, rather than wait for the authorities to come to audit your rental records.!

about the author:

LINDA NEIL is the founder of The Settlement Company, which specializes in real estate transfers, escrows,and consultations.  A core service, Settlement will prepare monthly tax declarations on rental properties, file them and perform additional essential landlord accounting services.

For reprints of this article or for further information on tax paying services, please contact The Settlement Company® at, and website: