Renting Out Your Condo in Mexico? Be Careful!
By Orlando Gotay
Many expats who own condos in Mexico actually spend only some part of the year in them. Rather than having them empty when away, many logically choose to rent them. That makes sense.
It also makes sense that the SAT, the Mexican Tax Authority, would also be eager to become your ever-present, silent partner. The second that you derive income from rentals, the SAT expects to get its share. That is ostensibly fair. It is also fair that when those condos are income-producing properties, a deduction against that income is allowable for some things. Condo fees are available as a deduction. Here’s where it gets murky. The latest Mexican income tax regulations came out this month.
Expenses for condo maintenance have to be made by an administrator, on behalf of the condo association. Payment of condo fees have to be made via deposit to a bank account kept by either the condo association itself or the administrator.
Fiscal receipts (facturas) for condo maintenance expenses have to be made out to the condo association. Monthly, the administrator must provide each condo owner a document outlining the expenses for that month, breaking out VAT paid, along with a breakout of the expense according to each owner’s percentage share of the condominium. The administrator must also turn over copies of all facturas to condo owners. Administrator’s fees must have a separate factura made out to the condo association (and of course, broken out in owner’s shares, like other facturas).
Mexican tax law specifies that to allow deductibility, the administrator must have specific authority in writing to make expenditures on behalf of the condo association.
Make sure you get these things on an ongoing basis and whenever the association changes administrators. The last thing you want is to have to include your rental income in your Mexican income tax computation, only to be denied a deduction as important as the condo maintenance fees. And if you are a person subject to US income taxation and your condo is in a fideicomiso, you may want to keep the fideicomiso people away from managing any of this for you.
Keep as much salsa as you can!
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the US Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of US expats in Mexico. He can be reached at email@example.com.