Taxes on STR in Puerto Vallarta, Mexico

[Alecia Ashby]

Hi All!

Looking for a little guidance here for my STR that I just purchased in Puerto Vallarta, MX this year. Things are already working out really well, but I know I'm going to hit questions/issues come tax time. I noticed Airbnb is charging a VAT with every rental, so there is automatically some accountability there. Does anyone have STRs in PV? Do you have an accountant? How are your taxes figured there vs here in the US? Any advice to make sure I'm above board and not going to have any issues down the road? So far the largest pain is needing to prepay a decent amount of the bills in person as online accounts and paying online isn't a regular thing for some vendors. :)

Thanks in advance!

[Mike Lambert]

Rental income is subject to a 21% withholding tax if you rent out the property while residing outside of Mexico.

There is a 2% acquisition tax when you buy the property.

Annual property taxes in Mexico are very low. It is quite common to have annual property taxes of $100 or less, and they seldom run higher than about $300.

There are two ways Mexico allows you to calculate your capital gains. Your first option is to pay 25% of the declared value. Your second option is to pay 30% of the net value—the difference between the assessed values at the time you bought the property and when you sell it, taking into consideration how long the property was held, any improvements made, any commissions paid, and other allowable expenses.

The United States taxes its citizens and permanent residents on their worldwide income. If you earn any income or capital gains in Mexico it must be declared on your U.S. tax return. You will get credit on your US taxes, however, for taxes you have already paid in Mexico.

You can 1031 exchange after selling as long as the property you buy is outside of the US.

For the capital gains tax, the net profit route will be the most advantageous in most situations. As a result, Americans often end up paying less capital gain taxes in Mexico than they would at home. In that case, they'd end up crediting their Mexican taxes against their US taxes, whereby they'd end up paying the same in total capital gain taxes as if the property was located in the US. While the capital gains taxes would be the same, the property taxes that you have to pay every year are much lower in Mexico and are actually close to 0.

Don't consider any of this as legal advice. It's always a good idea to get professional advice when it comes to taxation.