International Taxation of Inheritances in Mexico: Who Can Tax It and When?

Do Inheritances Get Taxed in Mexico? A Complete Guide for U.S. Heirs on International Taxation

Inheritance tax in Mexico for U.S. residents – international taxation treaty insights and capital gains rules.

When it comes to cross-border inheritance, the tax implications are not always straightforward. For U.S. residents inheriting assets located in Mexico, the Mexico–U.S. Double Taxation Treaty plays a crucial role in determining taxing rights.

Inheritance as “Capital Gains”, International Taxation under the Mexico–U.S. Treaty

The acquisition of property by reason of death—whether through inheritance or bequest—is treated as “capital gains” for treaty purposes. This means that, under certain conditions, the transfer of assets upon death can fall within the scope of Article 13 of the treaty.

Real Estate Located in Mexico

According to Article 13(1), when the assets involved are immovable property (real estate) situated in Mexico, Mexico retains the primary right to tax such gains—even if the deceased or the heir is a U.S. tax resident. This provision reflects the international principle that immovable property is generally taxed where it is located.

⚖️ Key Case Law: Mexican Tax Court

The Federal Tax Court (TFJA), Ruling IV-P-2aS-184, clarified that the term “alienation” (enajenación) should be interpreted broadly in line with the OECD Model Tax Convention. It includes not only sales but also donations and transmissions mortis causa, such as inheritances or bequests.

This interpretation is binding because Mexico, when adhering to the OECD framework, did not reserve its position on Article 13 or the related commentaries. Therefore, the broader scope of “capital gains” applies.

Practical Implication

If a U.S. resident inherits real estate located in Mexico, the gain is subject to Mexican taxation under domestic law, since Mexican tax legislation explicitly considers transfers by inheritance or legacy as a form of alienation. The U.S. may also impose its own estate tax, but the treaty aims to avoid double taxation by allowing relief mechanisms.

💡 Conclusion

Article 13 of the Mexico–U.S. Treaty gives Mexico broad taxing rights over capital gains derived from property situated within its territory, even when the transfer occurs through inheritance and the deceased is not a Mexican tax resident.

This underscores the importance of carefully analyzing treaty provisions, OECD commentaries, and domestic tax rules when planning for cross-border succession. Proper interpretation can make the difference between efficient estate planning and unexpected tax liabilities.

📩 At VAF Asesores, we specialize in international tax and estate planning. If you or your clients face cross-border inheritance involving Mexican assets, contact us for tailored advice.