Quick Answer
As a US citizen or resident, you must report worldwide income including rental income from Mexican property. However, you can claim a foreign tax credit for taxes paid to Mexico, which helps avoid double taxation. Capital gains from selling Mexican property must also be reported. The Foreign Tax Credit and FBAR (foreign bank account) reporting rules apply. Work with a cross-border tax advisor.
Detailed Answer
US citizens and permanent residents are taxed on worldwide income regardless of where it is earned. That means rental income from your Cabo property, as well as capital gains when you sell, must be reported to the IRS on your annual tax return. The good news is that the Foreign Tax Credit (Form 1116) allows you to offset US tax liability dollar-for-dollar with income taxes already paid to Mexico, effectively preventing double taxation on the same earnings.
If you hold a Mexican bank account with an aggregate balance exceeding $10,000 at any point during the year, you must also file an FBAR (FinCEN Form 114). Additionally, Form 8938 (FATCA) may apply depending on the total value of your foreign financial assets. These are informational filings — they do not create additional tax — but penalties for non-compliance are steep. Our team connects every buyer with experienced cross-border CPAs who handle these filings routinely.
With the right professional guidance, owning property in Mexico is tax-efficient for US owners. Deductions for depreciation, management fees, insurance, and repairs can reduce or eliminate US tax on net rental income. Learn more in our FAQ hub or reach out for a referral to a qualified cross-border tax advisor.