Foreigners can own real estate in Mexico, but where the property sits determines how they can hold it. Article 27 of the Mexican Constitution bars non-citizens from taking direct title within 100 kilometers of any international border or 50 kilometers of any coastline. Inside that restricted zone, foreign property ownership in Mexico runs through one of two legal structures: a bank trust called a fideicomiso for residential use, or a Mexican corporation for commercial use. Outside the zone, a foreigner can buy in their own name the same way a Mexican citizen would. Every route carries its own costs, paperwork, and tax obligations, and Americans in particular face IRS reporting rules that catch many owners by surprise.
Where the Restricted Zone Begins and Ends
The restricted zone covers all land within 100 kilometers of Mexico’s borders with the United States, Guatemala, and Belize, and all land within 50 kilometers of the Pacific, Gulf, and Caribbean coastlines.1U.S. Embassy & Consulates in Mexico. Maps of Restricted Areas Nearly every popular beach destination falls inside it: Cancún, Puerto Vallarta, Los Cabos, Playa del Carmen, Tulum. If the property you want is near a coast or a border, assume the zone applies and plan for a fideicomiso or a corporation.
Cities well inland sit outside the zone. Mexico City, San Miguel de Allende, Guadalajara, the historic center of Mérida, and Oaxaca all allow direct foreign ownership. There, a foreigner takes title through a standard public deed prepared by a Mexican notary public, no trust required.
Buying Outside the Restricted Zone
Direct ownership works like a conventional purchase. The notary handles title verification, drafts the public deed, withholds taxes, and registers the property in the local Public Registry. The one formality specific to foreigners is the Calvo Clause: a declaration that you agree to be treated as a Mexican national regarding the property and will not ask your home government to intervene in any dispute over it.2Consulado de México en el Reino Unido. Acquisition of Properties in Mexico The Constitution’s stated penalty for violating that agreement is forfeiture of the property to the Mexican nation. Every foreign buyer signs it, inside or outside the zone.
The Fideicomiso for a Home Inside the Zone
A fideicomiso is a bank trust. A Mexican bank holds legal title to the property as trustee, and you hold the beneficial rights: you can live in the home, rent it, renovate it, and sell it. In practical terms you control the property. What you don’t have is direct title, which is what the Constitution reserves for Mexican nationals inside the zone.
The trust runs for 50 years, a term set in 1995 under Mexico’s NAFTA commitments. You can renew for another 50 years by applying to the Ministry of Foreign Affairs between 180 and 365 days before the trust expires. The renewal must keep the same beneficiaries and general terms; changing beneficiaries at renewal triggers acquisition tax and potentially capital gains tax.
Setting Up the Trust
The bank you choose applies to the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores) for a permit on your behalf. You provide a valid passport, proof of your legal status in Mexico (a residence card or tourist permit), the property’s legal description and address, and the names of substitute beneficiaries who would inherit your trust rights if you die. Once the Ministry approves the permit, a notary formalizes the transaction through a public deed and registers it. The full process usually runs several weeks to a few months depending on the state and the bank’s workload.
What the Trust Costs
The SRE permit fee and the bank’s initial setup charge together run roughly $1,000 to $2,000. After that, the bank charges an annual administration fee to maintain the trust, typically between $500 and $2,000 depending on the institution and the property value. Some banks also charge transaction fees when you sell or transfer the trust. These are permanent costs of holding property in the zone as a foreigner.
The Corporation Route for Commercial Property
A Mexican corporation, as a Mexican legal entity, can take direct title inside the restricted zone. The catch is that the property cannot be used for residential purposes. Hotels, restaurants, manufacturing, and retail qualify. A vacation home does not.
To form the corporation, founders submit three potential company names to the Ministry of Economy, along with shareholder identification, tax ID numbers, and a description of the non-residential commercial purpose. The bylaws must include a clause regulating foreign participation. A notary issues the deed of incorporation, which is then registered in the Public Registry of Commerce. Formation costs typically run $1,500 to $3,500.
The ongoing burden is the real difference from a fideicomiso. Mexican corporations file monthly estimated income tax payments by the 17th of each month, an annual corporate income tax return by March 31, and information returns by February 15 for the prior year’s transactions. Depending on size and activity, a corporation may also owe an annual tax-compliance audit by a registered accountant. Companies with employees must distribute a share of profits to workers by May 31. These obligations continue whether or not the corporation earns significant revenue, which is why most foreign buyers with a personal residence in mind end up with a fideicomiso instead.
Ejido Land: A Trap Worth Knowing About
Ejidos are communal landholdings created through Mexico’s post-revolutionary agrarian reform. Historically the land belonged to the collective and could not be sold. Since 1993, Mexico has allowed ejido parcels to be privatized, but the process is slow and much land across the country is still in ejido status.
Ejido land cannot be sold to a foreigner unless it has been fully privatized and issued a registered individual title. Buying unconverted ejido land is illegal, the “sale” has no legal standing, and there is no recourse to recover the money. Scams involving ejido parcels near developing coastal areas are common. Before any purchase, verify the property’s status in the Public Registry of Property to confirm it is not ejido or communal land.
Closing Costs and Annual Property Tax
Closing costs run higher than most foreign buyers expect. The largest line item is the acquisition tax, ISAI (Impuesto Sobre Adquisición de Inmuebles), which ranges from roughly 2% to 6% of the assessed value depending on the state. Notary fees for title verification, the public deed, tax withholding, and registration typically add another 1% to 2% of the purchase price. A certified appraisal is also required. Budget 5% to 10% of the purchase price for closing costs, on top of any fideicomiso setup fees.
Annual property tax, called predial, is much lower than in the United States. Rates vary by municipality but generally run 0.05% to 1.2% of the cadastral value, an assessed value set by local authorities that often falls well below market price. Many municipalities offer discounts for early payment in January or February.
Capital Gains When You Sell
Selling triggers Mexican income tax (ISR) on the gain, and the rules split based on tax residency. Foreigners who are not Mexican tax residents choose between two calculations at closing.3Servicio de Administración Tributaria. Fiscal Obligations – Foreigners – Sale of Real Estate Income
- A flat 25% of the total sale price, with no deductions. Simpler, often more expensive.
- 35% of the actual capital gain after subtracting your acquisition cost (adjusted for inflation), construction and improvement costs, notary fees, appraisal costs, and real estate commissions. This route requires a representative in Mexico and a sale conducted through a notary with a public deed.
Mexican tax residents can exempt roughly the first 700,000 UDIs of gain on a primary residence sale, about $313,000 USD as of late 2025. Foreign tax residents do not qualify for that exemption. The notary calculates and withholds the tax at closing, so the seller receives net proceeds. Keep every receipt from the original purchase and every improvement invoice. Without documentation, you lose those deductions and your tax bill grows accordingly.
US Tax Reporting for Americans With a Fideicomiso
The IRS treats a fideicomiso as a foreign trust: no U.S. court supervises it, and no U.S. person controls its substantial decisions, so it fails both tests for domestic status.4Internal Revenue Service. Instructions for Form 3520 That classification pulls in two separate reporting obligations.
Form 3520
A U.S. person who owns a foreign trust or receives distributions from one files Form 3520 annually. The penalty for failure to file is the greater of $10,000 or 35% of the gross reportable amount, meaning the value of the trust assets or distributions involved.5Internal Revenue Service. Failure to File Form 3520/3520-A Penalties If the failure continues more than 90 days after the IRS sends a notice, another $10,000 accrues every 30 days until you file. On a $400,000 beachfront condo, the initial penalty alone could reach $140,000.
FBAR (FinCEN Form 114)
Because a Mexican bank holds the trust, the fideicomiso may count as a foreign financial account. U.S. persons with a financial interest in foreign accounts totaling more than $10,000 at any point during the year file the Report of Foreign Bank and Financial Accounts.6Financial Crimes Enforcement Network. BSA Electronic Filing Requirements for Report of Foreign Bank and Financial Accounts The non-willful penalty for failing to file reaches $16,536 per account per year. Willful violations carry penalties of the greater of $165,353 or 50% of the account balance per account per year.
Neither filing generates additional tax in most cases. They are informational returns. But the penalties are steep and the IRS enforces them. Any American buying through a fideicomiso should work with a tax professional familiar with foreign trust reporting; compliance costs a fraction of a single penalty assessment.
Getting a Mexican Tax ID
A foreigner buying or selling Mexican property needs a Registro Federal de Contribuyentes (RFC), the Mexican tax ID. You need it to close the purchase, and you need it again at sale to submit the tax receipts (facturas) that document your acquisition costs and improvements. Without an RFC, you cannot claim those deductions against your capital gain.
To get one, schedule an appointment at a local SAT (Servicio de Administración Tributaria) office. Bring proof of a Mexican address (a utility bill no older than 90 days), an official ID such as your residence card, and a Mexican phone number. The appointment also sets up your electronic signature (e-Firma) for future tax filings. Temporary residents may need a letter of intent explaining why they need the RFC. The appointment itself is free, but a bilingual accountant or immigration attorney is helpful if you don’t speak Spanish.