Rental taxes on foreign property owners in Mexico, municipal taxes, IVA, and Mexico Income Taxes

               According to some very sharp Mexican  rental tax accountants, foreigners renting a home or condo (or even two of them) should not be liable for the 3% hospitality tax.   It is a municipal tax designed to be paid by hotels and larger establishments who do business generated from tourism, not the little guy with a unit or two who rents periodically.  

AirBnB is currently negotiating with collecting  the  tax for local governments who love them by promising increasing income.  No tall vacation rental sites are doing this.

What they do not consider is the FEDERAL taxes that are all important and charged by SAT.  For the non-resident owner of a home or a condo who rents it out the tax is 25% of gross income and there is an additional obligation to collect the 16% IVA tax and send it to the SAT authorities.   Additionally it is necessary for the non-resident foreign owner to appoint a Mexican company or individual to collect and pay their taxes for them.

All these payments are then deductible or can be taken as credits on that same rental income as required to be reported on their US federal and state tax returns. Therefore there is no double taxation

Failure to declare and pay Mexico's FEDERAL taxes can result in heavy fines or even loss of the property.  The same can be said for failure to report to the IRS.

If you need information on the US tax consequences of your foreign rental property and how to reflect it on your return email: ddnelson@gmail.com