Buying property in Mexico as an American: trust, steps, costs and tax

03

How a fideicomiso (bank trust) works

A Mexican bank, as trustee, buys and holds the title. You are the beneficiary (fideicomisario). The law gives you the use and enjoyment of the property, including renting it out and keeping the income (Foreign Investment Law art. 12); the trust deed adds the rest, such as the right to instruct the bank to sell or to transfer your rights. What you hold is a contractual right, not direct ownership (art. 11), which is why the wording of the trust deed matters. The trust lasts up to 50 years and can be renewed when you ask (art. 13). The Foreign Ministry (Secretaría de Relaciones Exteriores, SRE) must grant a permit for each trust; the bank files for it, and the law gives the SRE 5 working days to decide, or 30 if the application goes through a state office, after which it counts as approved (art. 14).

You name substitute beneficiaries in the trust deed, so the property can pass to them without going through probate in Mexico. That is one reason buyers who could own directly sometimes still choose a trust.

Ask for the bank’s written fee schedule before you choose it: the annual fee runs for as long as you own the property, and changing banks later costs money.

04

Buying through a Mexican company: not for a home

A Mexican company with foreign partners can own real estate in the restricted zone directly, but only for non-residential use: a hotel, a rental business, commercial premises, an industrial plot. It has to notify the SRE within 60 working days of the purchase (Foreign Investment Law art. 10-I). For homes, the same law sends the company back to the trust (art. 10-II).

A company that buys a beach house you then live in is a residential use under a non-residential label. It also means running a company with an accountant, monthly tax filings and annual returns. It only makes sense if the property really is a business. Our guide to doing business in Mexico explains how a company is set up.

05

Outside the restricted zone: direct ownership

Inland, a foreigner can own property in their own name after signing a written agreement with the SRE, known as the Calvo clause (cláusula Calvo): you agree to be treated as a Mexican national with respect to that property and not to ask your own government to intervene, at the risk of losing the property to the Nation if you do (Constitution art. 27-I; Foreign Investment Law art. 10 A). The SRE charges MXN 5,252.02 (about USD 280) to receive and approve it (Federal Fees Law art. 25-XV).

If the municipality is entirely outside the zone, the permit counts as granted unless the SRE publishes a refusal within 5 working days. If the municipality is partly inside, the SRE has 30 working days (art. 10 A). Your notary usually handles this filing.

06

Ejido land: where most land scams start

Ejidos are communal landholdings created by Mexico’s land reform, and they still cover large areas around Tulum, the Riviera Maya and Baja. Ejido land isn’t private property, and it isn’t recorded at the ordinary property registry but at the National Agrarian Registry (Registro Agrario Nacional).

The Agrarian Law is blunt. Common-use land is inalienable, save for the narrow case of contributing it to a company (arts. 74 and 75), and so is the land set aside for the village itself (art. 64): any sale of that land is void. House lots (solares) in the ejido’s urban zone are the exception: they are full private property once titled and recorded at the public property registry (arts. 68 and 69). An individual parcel can only be sold to another ejido member or resident (avecindado) of the same ejido, after notifying the seller’s spouse and children, who have a right of first refusal (art. 80). A foreigner can buy only after the ejido assembly has approved dominio pleno (full private ownership) and the parcel has been taken off the Agrarian Registry and given a title recorded at the public property registry (arts. 81 and 82). Even then, on the first sale the seller’s family, anyone who has farmed the parcel for more than a year, the ejido members, the residents and the ejido itself have a right of first refusal for 30 calendar days; skip that notice and the sale can be annulled (art. 84). In the restricted zone, a converted parcel still has to be bought through a trust.

The usual scam is a lot with an ejido “certificate” or a cesión de derechos (assignment of rights) signed in front of witnesses, sold in dollars and sometimes even through a trust. None of that gives you title. Before you pay anything for land, have a lawyer get the Agrarian Registry record and the public property registry record and confirm the parcel is private property.

07

The buying process step by step

1. Offer. A written offer, usually with a refundable good-faith deposit. The listing agent works for the seller and is paid when the deal closes.
2. Promise contract (contrato de promesa de compraventa). It fixes the price, the deposit (often 10%), the closing date and the penalties. The civil code of the state where the property is governs it; under the Federal Civil Code model it must be in writing, contain the essential terms of the final sale and be limited to a set time (art. 2246), and if the seller refuses to sign the deed a judge can sign in their place (art. 2247). Pay the deposit into escrow: a US escrow company or a Mexican trust account, never into the seller’s personal account.
3. Due diligence, usually 2 to 6 weeks. The notary or your lawyer orders the certificado de libertad de gravámenes (lien certificate) from the Registro Público de la Propiedad (public property registry). Ask for certificates showing no debt on predial (property tax) and water; check land use (uso de suelo) and building permits; for a condo, the condominium regime and a letter showing no unpaid HOA fees (cuotas de mantenimiento); and an appraisal (avalúo). On the beach, check the 20-meter federal zone along the shore (zona federal marítimo terrestre), which is federal public land and can only be used under a federal concession (General Law of National Assets arts. 7-V, 8 and 119).
4. Trust or SRE waiver. In the restricted zone, choose the bank and let it request the permit; inland, file the Calvo clause agreement. The notary will ask for your passport and proof that you are in Mexico legally; a visitor (tourist) entry is a regular status and is enough (Migration Law arts. 52-I and 65).
5. Closing. You, the seller and the notary sign the escritura (public deed). The notary withholds the seller’s income tax, collects the acquisition tax and fees, and records the deed. Allow 30 to 90 days from the accepted offer. You can sign through a power of attorney if you can’t travel.
6. After closing. The registered deed can take a few months to come back. Put predial, water and HOA fees in your name, and diary the trust’s annual fee.

In Mexico the notario público is a senior lawyer appointed by the state, not a notary in the US sense. The notary certifies the deed, checks the title and collects the taxes, but acts for the deal, not for you, and won’t negotiate the contract or chase the seller. Title insurance isn’t required, but US title insurers do sell policies for Mexican property.

10

Renting the property out

You can rent out a home held in a trust: the right to its income is part of what the trust gives you (Foreign Investment Law art. 12). Tax is due in Mexico on the rent.

A non-resident pays income tax (ISR) of 25% of the gross rent with no deductions; a Mexican payer withholds it, and if the rent comes in through the trust, the bank issues the invoice and withholds (Income Tax Law art. 158). Long-term rentals of an unfurnished home are VAT-exempt, but furnished rentals and short stays pay 16% VAT (VAT Law art. 20-II). Rental platforms withhold part of the VAT from hosts, and all of it if you haven’t given them a Mexican tax ID (RFC) (VAT Law art. 18-J); the platform income tax withholding in Income Tax Law art. 113-A is designed for Mexican-resident hosts. Many states also charge a local lodging tax and ask for a tourist rental registration.

Your US tax return still has to include the rental, and the treaty between the two countries decides which tax is credited. Ask your tax adviser; this guide doesn’t replace one.

11

Selling: the tax a non-resident pays

The buyer’s notary calculates and withholds the seller’s income tax and pays it to the SAT, Mexico’s tax authority, within 15 days of signing. A seller who isn’t a Mexican tax resident chooses between two methods (Income Tax Law art. 160):

• 25% of the full sale price, with no deductions.
• 35% of the gain, if the sale is made by public deed (in that case you don’t need a legal representative in Mexico). The gain is worked out in pesos: the original cost is indexed for inflation, the building part of the cost goes down 3% for each year owned (never below 20% of the original), and documented improvements, notary fees and the taxes paid on the purchase and the sale are deducted (arts. 121 and 124). If land and building can’t be split, the land is taken as 20% of the cost.
• The exemption for a main home, which covers a sale price of up to 700,000 UDIs (about MXN 6.2 million, or USD 330,000), only applies to Mexican tax residents who can prove it is their home and haven’t claimed the exemption on another home sold in the previous three years (art. 93-XIX). A resident card alone doesn’t prove it.

Worked example: you bought for USD 350,000 and sell five years later for USD 450,000. At 25% of the price the tax is about USD 112,500. If, after indexing and deductions, the gain comes to about USD 90,000, the tax at 35% is about USD 31,500. The difference is why it pays to keep every invoice, the original deed and receipts for improvements from day one.

The sale must also be reported on your US return, and the Mexican tax may be credited there. Ask your tax adviser.