US citizens and permanent residents owe taxes on worldwide income, regardless of where they live or where their property sits. Owning a condo in Cabo does not change that — it adds new obligations. FBAR, FATCA, Schedule E, foreign tax credits, the 14-day rule — here is everything the IRS expects from you as a US owner of Mexican real estate.
Key Takeaways
- • FBAR required if aggregate foreign accounts (including fideicomiso bank accounts) exceed $10,000 at any point during the year
- • FATCA Form 8938 required if foreign financial assets exceed $50,000 ($200,000 married filing jointly)
- • Rental income reported on Schedule E — deduct management fees, HOA, insurance, predial, fideicomiso fees, depreciation
- • 14-day rule: rent <15 days/year = no income reporting (but no deductions either)
- • Foreign tax credit (Form 1116) offsets Mexican taxes dollar-for-dollar — better than itemized deduction
Need a Cross-Border Tax Specialist?
I work with CPAs who specialize in US-Mexico cross-border property taxation. Getting this right saves you money and keeps you out of trouble.
Contact MeFBAR: The Filing Most Owners Miss
FBAR (FinCEN Form 114, Report of Foreign Bank and Financial Accounts) is a filing with the Financial Crimes Enforcement Network — not the IRS directly, though the IRS enforces it. You must file if the aggregate value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year.
The question for Cabo property owners: does a fideicomiso bank account count? The answer is nuanced. The fideicomiso is a Mexican bank trust that holds title to your property on your behalf. The trust typically has an associated bank account for paying predial taxes, HOA fees, and maintenance costs. If that account — combined with any other foreign accounts you hold (Mexican bank accounts, Canadian accounts, etc.) — exceeds $10,000 at any point during the year, you must file.
Many property owners do not realize they have this obligation because the fideicomiso account may be managed by the bank and they never see a statement. That does not excuse the filing requirement.
- Filing deadline: April 15 (automatic extension to October 15)
- Filed electronically: Through the BSA E-Filing System (not with your tax return)
- Penalty for non-filing: Up to $10,000 per account per year for non-willful violations. Willful violations can reach $100,000 or 50% of the account balance, whichever is greater, plus criminal penalties.
The penalties are severe enough that this filing should be non-negotiable. If you have not been filing, talk to a cross-border tax specialist about making a voluntary disclosure before the IRS finds you.
FATCA: Form 8938
FATCA (Foreign Account Tax Compliance Act) requires disclosure of "specified foreign financial assets" if they exceed threshold amounts:
- Single filers living in the US: $50,000 on the last day of the year or $75,000 at any point
- Married filing jointly living in the US: $100,000 on the last day or $150,000 at any point
- Living abroad: Thresholds double ($200,000/$300,000 for single; $400,000/$600,000 for MFJ)
Form 8938 is filed with your tax return (unlike FBAR, which is filed separately). The assets that count include foreign bank accounts, foreign brokerage accounts, and financial interests in foreign entities. The fideicomiso itself is a grey area that cross-border specialists navigate differently — get professional guidance on whether and how to report it.
Rental Income: Schedule E
If you rent your Cabo property, the income is taxable in both Mexico and the United States. On the US side, rental income and expenses are reported on Schedule E (Supplemental Income and Loss) of your Form 1040.
Deductible Expenses
You can deduct the following against your rental income:
- Property management fees (typically 25-35% of gross rental income in Los Cabos)
- HOA fees
- Fideicomiso annual fees ($1,000-$2,500/year depending on the bank)
- Mexican property taxes (predial)
- Insurance premiums (see our insurance guide)
- Maintenance and repairs
- Cleaning and turnover costs
- Depreciation (the property, not the land — calculated over 30 years for foreign residential rental property, not the 27.5 years used for US rental property)
- Travel expenses to the property for management purposes (not personal vacations)
- Advertising and listing fees (Airbnb, VRBO commissions)
- Utilities paid by the owner
The 14-Day Rule
Under IRS Section 280A, if you rent your property for fewer than 15 days during the tax year, the rental income is entirely tax-free — you do not report it at all. The trade-off: you also cannot deduct any rental expenses against the income.
If you rent for 15 days or more, all rental income becomes reportable and expenses become deductible. There is no gradual phase-in. Day 15 is the cliff.
Many Cabo owners who use their property primarily for personal use but rent during peak weeks (Christmas, New Year, Easter, Spring Break) structure their rental calendar to stay under 14 days. At peak Cabo rates — $500-$2,000+ per night for a quality property — 14 nights of tax-free rental income can be worth $7,000-$28,000.
Personal Use Days
If you rent your property for 15+ days AND use it personally for more than the greater of 14 days or 10% of the rental days, the property is classified as a personal residence, and your deductible expenses are limited to the ratio of rental days to total use days. This is a common trap for owners who rent for several months but also use the property extensively.
Getting the Math Right Matters
The interaction between rental days, personal use days, deductions, and depreciation is where mistakes happen. A cross-border CPA pays for themselves in the first year.
Book a CallForeign Tax Credits: Avoiding Double Taxation
Mexico taxes rental income and capital gains. The US taxes your worldwide income. Without relief, you would pay taxes twice on the same money.
The US-Mexico Tax Treaty and the Foreign Tax Credit (Form 1116) solve this. You can credit Mexican taxes paid against your US tax liability, dollar-for-dollar. This is almost always better than claiming Mexican taxes as an itemized deduction (which only reduces taxable income, not tax).
For property taxes specifically, you have two options:
- Itemized deduction (Schedule A): Deduct Mexican predial as a foreign property tax, similar to deducting US property taxes. Subject to the $10,000 SALT cap.
- Foreign tax credit (Form 1116): Credit Mexican predial dollar-for-dollar against US tax. Not subject to the SALT cap.
For rental properties, predial and other ownership costs are deducted as rental expenses on Schedule E — separate from the itemized deduction / foreign tax credit choice. The foreign tax credit is used for Mexican income taxes (ISR) paid on rental income or capital gains.
For the Mexican side of capital gains, see our capital gains tax guide.
When You Sell: Capital Gains
When you sell Mexican real estate, Mexico charges capital gains tax (ISR) at the time of sale, handled by the notario. The tax is calculated based on the gain (sale price minus acquisition cost, adjusted for inflation using INPC indices).
On the US side, the gain is reported as either short-term (held less than one year) or long-term (held more than one year) capital gains. Long-term rates (0%, 15%, or 20% depending on income) apply to most Cabo sales since most owners hold for years.
You claim a foreign tax credit for the Mexican ISR paid, which typically eliminates or significantly reduces the US tax on the same gain. In some cases, the Mexican tax exceeds what you would owe in the US, creating an excess foreign tax credit that can be carried back one year or forward ten years.
A Note for Canadian Owners
Canada has similar worldwide taxation rules. Canadian owners report Mexican rental income on Form T776, can deduct similar expenses, and claim foreign tax credits for Mexican taxes paid. The Canada-Mexico tax treaty provides similar double-taxation relief. See our Canadian buyer's guide for the full picture.
Bottom Line
The US tax obligations for Cabo property owners are manageable but non-trivial. The biggest risks are not the taxes themselves — they are the penalties for not filing disclosures you did not know about (FBAR, FATCA) and the missed deductions you did not know you could take (depreciation at 30 years, foreign tax credits for Mexican ISR).
Get a cross-border CPA. The fee — typically $500-$2,000 per year above what a general CPA charges — pays for itself in properly applied treaty benefits and avoided penalties. This is not an area where "my accountant back home can figure it out" works well.
For the full legal framework, see our guides on fideicomisos, Mexican property taxes, cross-border estate planning, and Mexican wills and inheritance.
Let Me Connect You With the Right CPA
Cross-border tax is a specialty, not general practice. I have worked with CPAs who handle this daily — for buying, renting, and selling Mexican property. Let me make the introduction.
Contact MeFrequently Asked Questions
Do I have to report my Mexico property to the IRS?+
The property itself is not reported to the IRS. However, if you hold a Mexican bank account associated with the property (even the fideicomiso trust bank account), you may have FBAR filing obligations if the aggregate value of all your foreign accounts exceeds $10,000 at any point during the year. If you have foreign financial assets above $50,000 ($200,000 for married filing jointly living in the US), you must file Form 8938 under FATCA.
Is rental income from my Cabo property taxable in the US?+
Yes. US citizens and residents are taxed on worldwide income. Rental income from your Cabo property must be reported on Schedule E of your US tax return. You can deduct operating expenses (management fees, HOA, maintenance, insurance, fideicomiso fees, depreciation) and claim a foreign tax credit for any Mexican taxes paid on the rental income to avoid double taxation.
What is the 14-day rule for Mexico rental property?+
Under IRS rules, if you rent your property for fewer than 15 days per year, the rental income is not taxable and does not need to be reported. However, you also cannot deduct any rental expenses. If you rent for 15 days or more, all rental income becomes reportable and expenses become deductible on Schedule E. Many Cabo owners structure their rental calendars around this threshold.
Can I deduct Mexican property taxes on my US return?+
Yes. Mexican property taxes (predial) can be claimed either as an itemized deduction (Schedule A) or as a foreign tax credit (Form 1116). For rental properties, predial taxes and all other ownership costs are deductible as rental expenses on Schedule E. The foreign tax credit is generally more valuable because it reduces your tax dollar-for-dollar rather than just reducing taxable income.
Do I need a cross-border tax specialist for my Mexico property?+
Strongly recommended. The intersection of US tax law, Mexican tax law, the US-Mexico tax treaty, FBAR, FATCA, and the fideicomiso structure creates complexity that most general CPAs are not equipped to handle. A cross-border specialist costs more per hour but typically saves you money through proper treaty application and credit optimization. The penalty for getting FBAR wrong alone can exceed $10,000 per account per year.
What happens when I sell my Mexico property — US tax consequences?+
When you sell Mexican real estate, the gain is taxable in both Mexico and the US. Mexico charges capital gains tax (ISR) at the time of sale, handled by the notario. The US taxes the gain as either short-term or long-term capital gains depending on your holding period. You can claim a foreign tax credit for the Mexican ISR paid to avoid double taxation. See our capital gains tax guide for the Mexican side of the calculation.
Aaron Cuha
Real Estate Advisor & Los Cabos Market Expert
Real estate advisor and founder of Living In Cabo. 15+ years helping families navigate complex real estate decisions. Strategic partner with Ronival — Baja's largest brokerage.
