A US citizen can legally buy property anywhere in Mexico. The catch is that buying property in Mexico as a US citizen works one way in most of the country and a different way along the coasts and borders, where a Mexican bank has to hold the title in trust for you. That trust, called a fideicomiso, gives you every practical right of ownership; it is not a lease and it is not a workaround. The harder problems are the ones buyers don’t see coming: land that cannot legally be sold to a foreigner, tax obligations in two countries, and reporting rules with automatic penalties.
Where You Can Buy and How Title Works
Article 27 of the Mexican Constitution creates a “restricted zone” covering all land within 100 kilometers (about 62 miles) of an international border and 50 kilometers (about 31 miles) of the coast.1Mexican Consulate in the UK. Acquisition of Properties in Mexico That zone covers most of the destinations Americans actually shop in: Cancún, Playa del Carmen, Puerto Vallarta, Los Cabos, and everywhere along the Baja Peninsula and the Pacific coast.
Inside the restricted zone, foreigners cannot hold direct title to residential land. You buy through a fideicomiso, a trust in which a Mexican bank holds the legal title as trustee while you, the beneficiary, keep the right to live in the property, rent it, renovate it, sell it, or leave it to your heirs. The trust runs for 50 years and can be renewed for successive 50-year terms. Renewal is not automatic. You apply to the Secretariat of Foreign Affairs between 180 and 365 days before expiration, and the same beneficiaries must appear on the new trust.1Mexican Consulate in the UK. Acquisition of Properties in Mexico Budget roughly 3% to 4% of the property value for renewal, which covers the permit, bank fees, notary, and registry filing.
Outside the restricted zone, you can hold direct title (an escritura) the same way a Mexican national does. San Miguel de Allende, Guadalajara, Mérida, and Mexico City sit in this category. You still need a permit from the Secretariat of Foreign Affairs, and you sign the Calvo Clause, a constitutional provision under which you agree to be treated as a Mexican national with respect to the property and to not seek diplomatic protection from the US government in any dispute over it.2Gob MX. Real Estate Regime
Stay Away From Ejido Land
This is where foreign buyers lose everything. Ejido land is communal agricultural land governed by Mexico’s Agrarian Law, and foreigners cannot legally purchase it. No informal agreement, no “transfer of rights” document, and no verbal promise makes the sale valid. If you pay for unprivatized ejido land, you have no deed, no registration, and no legal recourse, and the ejido community can reclaim the parcel at any time.
Ejido land can be converted to private property through a process called dominio pleno, which requires a two-thirds vote of the ejido assembly, government certification, and formal registration. That process can take months or years, and plenty of parcels never finish it. A seller who says the land “will be privatized soon” is offering you a promise, not a property. Only buy former ejido land after dominio pleno is complete and a proper escritura has been issued. Your attorney can verify the status through the Registro Agrario Nacional.
What to Line Up Before You Buy
A Mexican Real Estate Attorney
Hire your own attorney before you sign anything. The attorney verifies the seller’s title chain at the Public Registry of Property, checks for liens and encumbrances, confirms zoning, and confirms the land is not ejido. This is separate work from what the Notario Público will do at closing, and it gives you an independent set of eyes on the transaction. Find one through professional referrals rather than through the seller or the seller’s agent.
An RFC (Mexican Taxpayer ID)
Every buyer of Mexican real estate needs a Registro Federal de Contribuyentes number. Without one, the Notario cannot complete the closing. Since late 2020, foreigners can apply for an RFC without holding Mexican residency, which removed a real barrier for buyers who visit but don’t live in Mexico. Your attorney can help you apply through the tax authority (SAT). Start early; bureaucratic delays hold up closings.
The SRE Permit
Both fideicomiso purchases and direct-title purchases require a permit from the Secretariat of Foreign Affairs. For a fideicomiso, the trustee bank applies. For a direct-title purchase outside the restricted zone, your attorney handles it, and the permit incorporates the Calvo Clause described above.2Gob MX. Real Estate Regime
How the Purchase Runs
Once you and the seller agree on price, you sign a contrato de promesa, a promise-to-purchase contract that locks in the price, sets a closing date, and specifies an earnest money deposit into escrow. Deposit amounts are negotiable. The contract should spell out exactly when you get the deposit back if the deal falls through.
Closing happens before a Notario Público, who carries far more authority than a US notary. A Mexican Notario is an attorney with at least five years of practice who passed a state exam and was appointed by the governor. The Notario drafts the deed, verifies the legality of the transaction, calculates and collects the applicable taxes, and registers the new title with the Public Registry of Property. The transaction is not legally complete until the Notario records it.1Mexican Consulate in the UK. Acquisition of Properties in Mexico If the property sits in the restricted zone, the Notario also drafts the fideicomiso agreement with the bank. From signed contract to recorded deed, 60 to 90 days is typical.
Closing Costs and Annual Taxes
Closing costs generally run 5% to 10% of the purchase price, depending on the state and the property value. The main pieces:
- Property acquisition tax (ISAI): a one-time state tax of roughly 2% to 5% of the assessed or transaction value, whichever is higher. Some states, including Mexico City, use progressive rates that can exceed 5% at the top.3Finanzas CDMX. Impuesto Sobre Adquisicion de Inmuebles
- Notario fees, typically 1% to 2% of the purchase price, sometimes in the $5,000 to $10,000 USD range.
- Bank-authorized appraisal (avalúo), generally 0.1% to 0.5% of the property value.
- Public Registry fees, usually 0.5% to 1%.
- Fideicomiso setup in the restricted zone: bank fee plus SRE permit fee, roughly $1,000 to $2,000 total.
After closing, ongoing costs are modest by US standards. Annual property tax (Impuesto Predial) is dramatically lower than in the US, often a few hundred dollars a year even on substantial homes. A fideicomiso carries an annual trustee fee, typically $500 to $800.
Capital Gains Tax When You Sell
Mexico taxes gains on real estate, and non-residents (most American owners) can choose between two methods:
- 25% of the gross sale price with no deductions, or
- Up to 35% on the net gain, meaning sale price minus documented acquisition costs, improvements, notary expenses, and commissions. This method requires a legal representative in Mexico and execution before a Notario.4Servicio de Administración Tributaria. Sale of Real Estate Income
The net-gain method almost always produces a lower bill, but it works only if you kept the paper: original deed, receipts for every renovation, and all notary and commission invoices from the day you bought. Without a legal representative or without documentation, you are stuck paying 25% on the gross.
Foreigners who hold Mexican residency and can prove the property was their primary residence for at least three years may qualify for a full exemption. That path also requires an RFC and a CURP (Mexico’s national ID number), and the lot cannot exceed three times the footprint of the home.
US Tax Obligations You Cannot Skip
Owning property in Mexico creates reporting and tax obligations back home, and the US penalties for missing them are steep.
Rental Income
If you rent the property, you report the income on Schedule E of your US return, the same as you would for a US rental. You can deduct ordinary expenses (repairs, utilities, insurance, management, Mexican property tax). The building depreciates over 30 years under the Alternative Depreciation System required for foreign residential property; bonus depreciation and Section 179 don’t apply. Rental losses are passive unless you or your spouse qualifies as a real estate professional.
Capital Gains and the Foreign Tax Credit
When you sell, you also owe US capital gains tax on the profit. The US-Mexico tax treaty prevents full double taxation: under Article 13, Mexico has the right to tax gains from real property located there, and under Article 24, the US grants a credit for the Mexican income tax you paid on the same gain.5Internal Revenue Service. United States – Mexico Income Tax Convention If the Mexican tax exceeds your US tax on the gain, you owe the IRS nothing more. If your US rate is higher, you pay the difference.
FBAR and FATCA
Mexican bank accounts tied to the property or its rental income can trigger two separate reports. FBAR (FinCEN Form 114) is required if your foreign financial accounts total more than $10,000 at any point during the year. FATCA (Form 8938) kicks in at higher thresholds: $50,000 on the last day of the year or $75,000 at any time for single filers living in the US, with higher thresholds for married filers and taxpayers living abroad.6Internal Revenue Service. Summary of FATCA Reporting for US Taxpayers
Fideicomiso Reporting
The IRS has historically treated a Mexican fideicomiso as a foreign trust, which would mean annual filing of Forms 3520 and 3520-A with penalties starting at $10,000 for failure to file.7Internal Revenue Service. Instructions for Form 3520 In 2020, the IRS issued Revenue Procedure 2020-17, a safe harbor exemption from those filings for certain Mexican land trusts that meet specific conditions. Whether your fideicomiso qualifies depends on how it is structured, and this is not a determination to make on your own. Use a US tax professional experienced with cross-border Mexican real estate. Filing unnecessarily is a hassle; failing to file when required is an automatic penalty.
Financing
Most Americans pay cash for Mexican property, and there is a reason. Mainstream Mexican banks (BBVA Mexico, Santander Mexico, Scotiabank Mexico, HSBC Mexico) do offer mortgages to foreigners but strongly prefer applicants who hold at least temporary residency. Foreign applicants typically face 30% to 50% down payment requirements, compared to 10% to 20% for Mexican nationals.
Cross-border lenders such as Moxi, MortgageHub, and MEXLend serve US and Canadian buyers regardless of residency. Their loans are denominated in US dollars, which removes currency risk, but interest rates run higher (roughly 5% to 9%), down payments run 35% to 50%, and terms may be shorter than a 30-year US mortgage. A third option some buyers use is a home equity loan or line of credit against US property, then buying in Mexico with cash. The rate is often better than any Mexican financing, though it puts your US home on the line.
Estate Planning for Your Mexican Property
If you die owning Mexican property without planning, your heirs face a slow process. A US will is technically valid in Mexico, but using it means probating in the US first, apostilling it, sending it to Mexico for official Spanish translation, and then going through a second proceeding before a Mexican judge. Six to nine months, sometimes longer.
The cleaner route is a separate Mexican will covering only your Mexican property, signed before a Notario and kept in Mexico’s national will registry. Your heirs then deal with one system, not two.
A fideicomiso adds a third option that is often the fastest of all: naming substitute beneficiaries directly in the trust. When the primary beneficiary dies, the trust rights pass to the named substitutes without probate. You can add or change beneficiaries at any time by request to the trustee bank. It is one of the underappreciated advantages of the trust structure, even for buyers who resent paying for it.