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Rental taxes on furnished rentals for non-resident Americans?


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Hey all you rental experts. I do plan on consulting an accountant but I was curious to hear advice from those of you that are renting furnished properties.  I just bought an apartment in Guadalajara that I will turn into a high end luxury short-term rental.   I'm currently researching what the all in taxes are renting out the property on a short-term rental.   Besides the annual property tax, which seems quite low compared to the USA and other places I own real estate, what are all the other taxes involved that are required as a non-resident American renting out their furnished property?

I understand that there is an IVA tax (16% for interior of Mexico counties) as well as income/rental taxes.  If someone can shed light on their experiences renting out short-term.   I realize many probably don't declare all their income and therefore don't pay all the proper taxes but I always prefer to do everything legal.  I also understand that there are several items deductible against the income tax like utilities, repairs, cleaning supplies, staff salaries, property management fees, property taxes and replacement of items, etc for Mexican citizens but looks like flat 25% tax on gross income for non-resident foreigners.

I'm just trying to do some estimates of what the net taxes will look like. A huge thanks in advance for any information or insight you can provide on this topic along with your experiences.

 

PS. I found this link online but it's a few years old so I wanted to see if this falls in line with your experiences:  http://www.theyucatantimes.com/2014/11/facts-to-know-about-taxation-when-renting-your-condos-houses-or-villas-in-mexico/

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Your Mexican accountant will get you set up with the proper government tax people and file for you or show you how to do it yourself. It is also taxable income on your US return and remember that you will be subject to special reporting rules if at any time of the year you have a Mexican account over $10,000 US. The accountant will be the one to tell you the rules and rates. Anything on this forum may or may not be accurate.

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I just bought an apartment in Guadalajara that I will turn into a high end luxury short-term rental

Wow  talk about  jumping into the deep end...A strange Country and City.....I would be interested, as would many others, to hear the details of your expertise and formula  for making money in the rental business

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25 minutes ago, canmex87 said:

You may want to consister talking to an accountant?

Yes, I already mentioned that I have reached out to an accountant.  Still the purpose of the Internet is to share information.  It's quite valuable to do that.  If you don't have any experience or knowledge on this topic then feel free not to share any information.  This not only helps the OP, but potentially many other future people in years to come.   I've been a part of many public Internet forums (including being the Moderator of several) and from my perspective, the sharing of information is never a bad thing.

 

24 minutes ago, pappysmarket said:

Your Mexican accountant will get you set up with the proper government tax people and file for you or show you how to do it yourself. It is also taxable income on your US return and remember that you will be subject to special reporting rules if at any time of the year you have a Mexican account over $10,000 US. The accountant will be the one to tell you the rules and rates. Anything on this forum may or may not be accurate.

Yep, I realize this.   I do realize that any information on message forums may not be accurate. Again, I'm asking for real life experiences from those that are in this situation.

 

10 minutes ago, lakeside7 said:

I just bought an apartment in Guadalajara that I will turn into a high end luxury short-term rental

Wow  talk about  jumping into the deep end...A strange Country and City.....I would be interested, as would many others, to hear the details of your expertise and formula  for making money in the rental business

This isn't the "deep end" for me. Mexico is actually easy compared to other places I've purchased property and own real estate.  For example, in Argentina it's physical $100 US bills and you literally pay with cash. (It's gotten much better the last year or two with Macri as the new President but still the majority of people want to be paid with cold hard CASH).   I have successfully purchased and rented out many luxurious short-term rental properties in Argentina, Uruguay and Brazil.

The target market is multi-national corporations, affluent tourists, US/Canadian/UK Embassies and Consulate offices employees that are traveling to/from these cities.   Also, cosmetic surgery patients that are traveling to that country for surgery as well as to recuperate after the surgeries.   From my experience, they don't want to stay in hotels. They want to stay in a high end luxurious property.   I'm certainly not new to this.  I've done the same thing in several cities and several countries.

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Then you also know that it is easy to find the actual law online, no need to go onto a forum. Your accountant will tell you how it works in reality and you probably won't be sharing that online either.

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2 hours ago, pappysmarket said:

Then you also know that it is easy to find the actual law online, no need to go onto a forum. Your accountant will tell you how it works in reality and you probably won't be sharing that online either.

Sure, I'm more than happy and willing to share any information that my accountant passes along as well as my experiences renting once it's up and running.  

Also, if anyone on this forum that owns real estate and renting has a good referral for an ethical accountant in Guadalajara, I'd also welcome any recommendations.

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36 minutes ago, Bontekoe said:

Be aware, you CAN NOT run a business if you do not have a working permit.

YOU are BREAKING the Mexican Law and can be deported

NO worries. I have gone through the proper residency visa process in all the places I own real estate.  I have also set up several S.A.'s and SRL's in various countries.

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Assume you have a Mexican attorney based on your comments and he/she would be your best source of advice for an accountant. Best of luck in your endeavors.

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3 minutes ago, pappysmarket said:

Assume you have a Mexican attorney based on your comments and he/she would be your best source of advice for an accountant. Best of luck in your endeavors.

I'm just starting the process now. The property is being built now and not done until April 2018 so I have some time to do due diligence.  I totally understand what some of you are getting at that there is no substitution for proper accountants and legal assistance.  But I've also gotten a LOT of helpful information via public forums with the sharing of information.   I understand that lawyers can refer accountants (and others) but I'm really interested in hearing opinions from actual people as well.

I'd also appreciate any referrals to ethical and competent Notaries.  I see Luis Enrique Ramos Bustillo listed in a few threads.

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4 hours ago, pappysmarket said:

Your Mexican accountant will get you set up with the proper government tax people and file for you or show you how to do it yourself. It is also taxable income on your US return and remember that you will be subject to special reporting rules if at any time of the year you have a Mexican account over $10,000 US. The accountant will be the one to tell you the rules and rates. Anything on this forum may or may not be accurate.

Taxes paid to a foreign tax authority are deductible from your US Tax return.

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My office can set you up tax wise to be able to file taxes and pay zero tax the first year and do your returns online and then only pay a small amount increasing every year thereafter

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Interesting post and topic..

I am just back from Miami and would suggest that "all" the South American "cash" looking for a safe haven is coming into the downtown Miami area, the Bricknell development is a project example. In fact you go into any store etc you hear more Spanish than English conversation. The days of Yiddish are over.

I agree that this area has the better climate etc., but I guess the people fleeing with cash are fed up with the S. American politicians and culture  and , sadly, see Mexico as a similar challenge.

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3 hours ago, Intercasa said:

My office can set you up tax wise to be able to file taxes and pay zero tax the first year and do your returns online and then only pay a small amount increasing every year thereafter

Great Intercasa! I just emailed you to your work email from your website.

 

3 hours ago, lakeside7 said:

Interesting post and topic..

I am just back from Miami and would suggest that "all" the South American "cash" looking for a safe haven is coming into the downtown Miami area, the Bricknell development is a project example. In fact you go into any store etc you hear more Spanish than English conversation. The days of Yiddish are over.

I agree that this area has the better climate etc., but I guess the people fleeing with cash are fed up with the S. American politicians and culture  and , sadly, see Mexico as a similar challenge.

Yes, there are lots of South Americans that have invested in Florida.  But also tons of Argentines are investing in their own country.  Macri (President of Argentina) did a tax amnesty that brought back $100 BILLION back into Argentina in less than a year.   I own many properties in Argentina and sold a few of them last month due to the increase in values.  One of the conditions for those bringing their cash back into Argentina was they had to invest it in real estate or a business.  All three that I sold were people that brought back their cash back into Argentina.

Another reason why I sold some properties in Buenos Aires is inflation is a whopping 40% a year so my expenses were skyrocketing.  I like that the inflation in Mexico is traditionally very low.  The banking system works extremely well too.  Guadalajara seems like it's growing tremendously so I think there are some good opportunities with capital appreciation as well. 

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