1003 / What are the tax and reporting obligations of U.S. purchasers of real property in Mexico?
Based on the scenario described in Q 1002, the primary issue becomes whether or not the U.S. individual is required to report his interest in the fideicomiso to the IRS as required pursuant to current Code provisions.1
Recent guidance issued by the IRS has indicated that the fideicomiso is not deemed a trust for U.S. tax purposes, thus it is treated as a disregarded entity.2 This means that the trust is not subject to otherwise applicable reporting requirements.3
Accordingly, any gains resulting from the sale of the Mexican property by the trust will be recognized by the U.S. beneficiary and subject to the favorable maximum current capital gains rate of 20 percent, as opposed to the maximum rate of 37 percent applicable to ordinary income. However, the receipt of any rental income must be reported as income on the U.S. individual’s return.