Mexico has two separate income tax treaties that matter to North American property owners: the 1992 convention with the United States, effective since 1994, and the 2006 convention with Canada, in force since April 2007. Both let Mexico tax rental income and capital gains on Mexican real estate with no rate cap, both break dual-residency ties with the same four-step cascade, and both leave the home country to cure double taxation through a foreign tax credit.[IRS, Mexico tax treaty documents (1992 convention and 2003 protocol), 2026-07]
The practical read: neither treaty makes a Mexican property cheaper to own or sell. What they decide is which country you are a resident of when both claim you, how hard cross-border dividends, interest, and pensions get taxed at source, and whether the tax you pay Mexico comes back as a credit at home. On the property itself, the treaties concede the field to Mexican domestic law, so the ISR mechanics on the Canadian-buyer and American-buyer pages matter more to your closing statement than any treaty article.
The two treaties side by side
The conventions were negotiated fourteen years apart and it shows. The US treaty carries a savings clause preserving citizenship-based taxation and a tiered interest schedule; the Canada treaty is a cleaner OECD-pattern document with a pension withholding cap Canada writes into most of its treaties.
| Provision | US–Mexico (1992) | Canada–Mexico (2006) |
|---|---|---|
| Signed / effective | September 18, 1992; effective January 1, 1994 | September 12, 2006; in force April 12, 2007 |
| Rental income from real property | Taxable in Mexico, no cap; net-basis election available (Article 6(5)) | Taxable in Mexico, no cap; no treaty net-basis election |
| Gains on real property | Taxable in Mexico, no cap (Article 13) | Taxable in Mexico, no cap (Article 13) |
| Portfolio dividends | 10% | 15% |
| Direct dividends (company owning 10%+ of voting stock) | 5% | 5% |
| Interest | 4.9% / 10% / 15% depending on lender and instrument | 10% |
| Private pensions | Residence country only (Article 19) | Source country may withhold, capped at 15% of periodic payments (Article 17) |
| Social security | Paying country only (Article 19(1)(b)) | Falls under the Article 17 pension rules |
| Double-tax relief | Foreign tax credit (Article 24) | Foreign tax credit (Article 21) |
The rate columns are the treaty ceilings for a resident of the other country who owns the income beneficially. Domestic law can charge less; it cannot charge more without breaching the treaty.[Canada–Mexico Tax Convention Act, 2006, Articles 10, 11 and 13, 2026-07]
Who counts as a resident when both countries claim you
Every downstream treaty benefit keys off residence, which is where retirees splitting the year between a Mexican condo and a home in Arizona or Ontario get into trouble. Mexico claims tax residency through a permanent home and center of vital interests, Canada through factual residential ties plus a 183-day sojourner rule, the US through the substantial presence test. Two countries claiming the same person in the same year is routine.
Both treaties resolve the collision with the standard four-step Article 4 cascade: permanent home, then centre of vital interests, then habitual abode, then nationality, with the two tax authorities settling anything left over. How the cascade runs, step by step, is covered in how tax treaties work.
Two consequences for property owners. First, keeping a home available in both countries pushes you straight to the center-of-vital-interests test, which weighs family location, banking, health coverage, and where the income arises. That test is factual and argued on evidence, not elected on a form. Second, winning the tie-breaker toward Mexico has home-side costs the treaty does not soften: a Canadian who ceases Canadian residency triggers the departure-tax deemed disposition covered in departure tax on foreign property, and a US citizen stays subject to US tax on worldwide income no matter what Article 4 says, because the savings clause lets the US tax its citizens as if most of the treaty did not exist.
Rental income from the property: the treaty concedes, the credit rescues
Article 6 of both treaties lets the country where the property sits tax the income, with no rate ceiling, no exemption threshold, and no carve-out for casual Airbnb income. Mexico’s full domestic regime applies to a nonresident’s gross rents.
The US treaty adds one lever Canada’s does not: a US resident taxable in Mexico on real property income may elect net-basis taxation, as if the rental were a permanent establishment, and the election binds all later years unless Mexico’s competent authority agrees to end it. The fine print sits in Article 25(3), which lets Mexico deny its presumed-expense deduction to a US resident who elects, so going net means real Mexican bookkeeping with receipts, not the flat deduction Mexican landlords take.[United States–Mexico Income Tax Convention (1992), Articles 6(5) and 25(3), 2026-07]
Home-side, the rental is taxed again in full. A Canadian reports Mexican rent on the T1 under CRA foreign rental income rules, a US person on Schedule E, and each claims a credit for the Mexican tax. The treaty’s contribution is the credit itself, plus the rule that keeps the rent Mexican-source in the credit-limit math.
Withholding on dividends and interest
Most retirees funding a Mexican property hold their portfolio at home, so these articles bite in the other direction: they cap what the US or Canada withholds on payments to someone the tie-breaker has made a Mexican resident, and what Mexico withholds on Mexican investments held from home.
The ceilings sit in the table; the detail that matters is which interest tier applies. Under the US treaty, 4.9 percent covers interest on bank loans and on bonds regularly traded on a recognized securities market, 10 percent covers other bank-paid interest and credit sales of equipment, and 15 percent is the residual, while government and pension-fund interest can escape source taxation entirely under Article 11(4). The Canada treaty exempts interest paid to governments, central banks, Export Development Canada, Bancomext, Nafinsa, and qualifying pension funds.[Department of Finance Canada, backgrounder on the Canada–Mexico tax convention (2006), 2026-07]
None of the caps arrive automatically: the payer applies treaty rates only when the recipient certifies residency, and over-withholding gets chased through a refund claim or the credit at filing.
Selling the property: Article 13 gives Mexico the gain
Both treaties let Mexico tax the gain on Mexican real estate without limit, and both define real property widely enough to catch indirect ownership. The US treaty pulls in interests in partnerships, trusts, and estates to the extent their assets are Mexican real property, plus shares of companies whose assets are at least 50 percent Mexican real property by value. Structuring the condo into an entity does not move the gain out of Mexico’s reach.
The residence country then taxes the same gain under its own rules and credits the Mexican tax, which works cleanly when both countries tax the sale in the same year at comparable amounts. For Canadians it can collide with the principal-residence rules examined in the PRE and foreign property: a Mexican home designated for the exemption produces little or no Canadian tax, which leaves the Mexican ISR on the sale with nothing to credit against.
For US citizens the savings clause bites again at sale: the gain lands on the US return in full, in US dollars, with Mexican tax credited through the foreign tax credit rather than excluded.
Pensions and Social Security across the two treaties
The pension articles are where the two treaties part ways, and where residency changes monthly cash flow.
The US treaty sends private pensions and annuities to the residence country only, and social security to the paying country only. A US citizen retired in Mérida keeps US Social Security taxable only by the US; the allocation survives the savings clause by explicit exception.[United States–Mexico Income Tax Convention (1992), Article 19, 2026-07]
The Canada treaty follows Canada’s usual pattern instead: the source country may tax periodic pension payments, capped at the lesser of 15 percent of the gross payment or the tax a resident would pay on total annual pension receipts, with annuities capped at 15 percent of the taxable portion.[Canada–Mexico Tax Convention Act, 2006, Article 17, 2026-07] A Canadian who becomes a Mexican tax resident keeps paying Canadian withholding on periodic pension income, then reconciles in Mexico.
One absence to plan around: no US–Mexico totalization agreement is in force. One was signed at Guadalajara in June 2004 and never took effect, so a split career gets no combined social security credit the way a US–Canada career does; the full coverage map is in totalization agreements.[US Social Security Administration, U.S.–Mexican Social Security Agreement, 2026-07]
How the relief mechanics work at filing time
Both treaties use the credit method. The US allows Mexican income tax as a credit under Article 24, claimed on Form 1116 with its per-category limitation math.[IRS, About Form 1116, Foreign Tax Credit, 2026-07] A return-level treaty position, like claiming Mexican residence under the tie-breaker, goes on Form 8833.[IRS, About Form 8833, Treaty-Based Return Position Disclosure, 2026-07]
Canada credits Mexican tax under Article 21 through the foreign tax credit computed per country on the T1, subject to the limits in CRA’s Folio S5-F2-C1.[CRA, Income Tax Folio S5-F2-C1, Foreign Tax Credit, 2026-07] The credit is capped at the Canadian tax on the same income; Mexican tax above the Canadian rate is absorbed.
Neither treaty touches information reporting. A Canadian’s Mexican rental property still lands on the T1135 once the cost threshold is crossed, and a US person’s Mexican financial accounts stay subject to FBAR and Form 8938 regardless of any treaty position.
What neither treaty fixes
The treaties allocate taxing rights; they do not rewrite Mexico’s ISR, and the gap between the two is where owners get surprised.
Mexico’s default for nonresident rent is withholding on gross with no deductions; only the US treaty offers the net-basis escape, on Mexico’s terms. Mexico’s own primary-residence exemption at sale is tied to Mexican tax status and documentation most nonresident owners cannot produce, so it rarely rescues a foreign seller. Predial and IVA sit outside both conventions because they are not income taxes, so neither is creditable at home.
And the gain Mexico taxes at sale is computed under Mexican rules in pesos while the home country computes its own gain in its own currency from its own cost base, so the two taxes routinely diverge even before the credit limitation applies. The working detail, rates included, lives in the two country pages: Mexico taxes for Canadian buyers and Mexico taxes for American buyers.
Frequently asked questions
Does either treaty reduce the Mexican tax when I sell my condo?
No. Article 13 of both treaties lets Mexico tax gains on Mexican real property without any ceiling. The relief arrives at home, as a credit against the residence-country tax on the same gain, capped at that country’s own tax on it.
Which treaty applies to a Canadian snowbird who also spends time in the US?
Each treaty is bilateral: the Canada–Mexico convention governs that pair, the US–Mexico convention its pair, and the Canada–US treaty the third side of the triangle. A three-country year means residency has to be pinned down pairwise, which is the situation to price professional help for.
Do treaty benefits apply automatically?
No. Withholding caps require certifying residency to the payer, and return-level positions on the US side generally require Form 8833. An unclaimed treaty benefit is tax paid twice; neither tax authority applies the other country’s treaty rate on its own initiative.
Is there a totalization agreement between the US and Mexico?
Not in force. The 2004 agreement never took effect, so US and Mexican social security coverage do not combine. The income-tax treaty still allocates the benefits: US Social Security paid to a resident of Mexico stays taxable only by the US.
Where this fits in the library
This page owns the treaty layer for Mexico. Treaty mechanics in general live in the taxes hub, the peso-denominated ISR detail in the Canadian-buyer and American-buyer pages, and the Canadian home-side consequences in their own deep dives: foreign rental income for the T1 treatment, T1135 reporting for the disclosure trigger, departure tax for anyone whose tie-breaker outcome ends Canadian residency, and the principal residence exemption abroad for the credit mismatch a Mexican sale can create.