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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28976
Experience:  Taxes, Immigration, Labor Relations
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My dad and I are buying land in Mexico for investment purposes.

Resolved Question:

My dad and I are buying land in Mexico for investment purposes. When we sell, what taxes will we owe to Mexico and the US? I have been told if we set up a certain type of Mexican corp, we will get a US forgein tax credit. Do you know what type of corp we need to setup in order to get this credit?
Submitted: 8 years ago.
Category: Tax
Expert:  Lev replied 8 years ago.

As non-residents of Mexico you may opt to use the residence section and permit deductions, but to be eligible you should appoint a tax domicile and representative in Mexico.

If you choose a flat tax on the sale of the real estate - it is 25% income tax on the gross income (sale price received).

if the normal (resident) tax is used, then there is about 40% rate income tax on the net income.


As you are US citizens - you should report and pay taxes on all your income worldwide.

Because the same income is taxable abroad - you may claim a credit for taxes paid abroad by using form 1116 -

You do not need to have a corporation to use this credit.

As Mexico taxes are likely higher - there will not be any additional tax liability in the US, but you still need to report the income.


Customer: replied 8 years ago.
So...even if we buy about 5 acres of ocean front raw land ...with no house or improvement of any kind...we don't need to set up a corporation? Since this land is in the restricted zone and won't be used for residential purposes, I thought we might need to set up a corporation. Just not sure if it matters which type of corp we choose in order to get a US tax credit??
Expert:  Lev replied 8 years ago.
You do not need a corporation to claim a credit for taxes paid abroad on your US tax return.
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