Anyone who has “bought” property in Mexico near its borders or near the water is familiar with the concept of the fideicomisos. Fideicomisos are trust arrangements with Mexican banks, where the banks holds title to a property on behalf of a foreign buyer. Since foreigners can’t legally own property in these restricted zones, fideicomisos offer home buyers a way around this restriction. Paying taxes on these properties, however, can be complicated in the U.S., and the amount paid depends on the owner’s ability to differentiate that property as a real estate fideicomiso, and not a trust. If successfully navigated, the tax burden can be minimized by a considerable amount without fear of losing title to the property or breaking the law. For more on this continue reading the following article from JDSupra.
A Rude Awakening
One Sunday in late February 2012, my wife walks into the home office and points me to a tax attorney’s website about fideicomisos, foreign trusts, and Form 3520 / 3520-A–and ruins my whole summer.
A few years back, we bought a condo in Mexico. A Notaria Publica caused a Mexican bank to hold our property title “in trust” so that we could not petition like Texas settlers for the USA to annex beautiful Banderas Bay. I was perfectly happy with this limited understanding until that morning when I became suddenly aware of the possibility that the IRS could seize 35% of our Mexico paradise in penalties for never filing 3520[-A]s (since 2007).
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