I bought a house in Mexico through a fideicomiso — how does the IRS treat it?
If your fideicomiso is the plain-vanilla kind — a Mexican bank holding legal title to one property in the restricted zone while you manage it, collect the rent, and pay the taxes yourself — the IRS says it is not a trust at all for US tax purposes. You are treated as owning the house directly, which means no Form 3520 and no Form 3520-A. That is the official position since Revenue Ruling 2013-14 — but the ruling only covers the plain-vanilla case, and that is where the honest debate starts.
Why the fideicomiso exists in the first place
Article 27 of the Mexican Constitution bars foreigners from holding direct title to land within 50 kilometers of the coast or 100 kilometers of a national border — the zona restringida. The fideicomiso (bank trust) is the legal workaround: a Mexican bank holds legal title as trustee while you, the foreign beneficiary, get essentially all ownership rights — sell, rent, remodel, bequeath. The trust runs for 50 years and is renewable, carries an annual bank fee of roughly $500–600, and requires a permit from the Secretaría de Relaciones Exteriores. It is not a lease; the bank cannot act without your written instructions.
What the IRS actually ruled
The confusion comes from history. In 2012 and early 2013, some Americans with fideicomisos received IRS notices and $10,000 penalties for failing to file Forms 3520 and 3520-A. The IRS then studied the standard arrangement and, on June 24, 2013, issued Revenue Ruling 2013-14.
The ruling's conclusion: a typical Mexican land trust is not a trust within the meaning of the US trust regulations. Because the American retains the right to manage and control the property, collects any rent, and pays the taxes directly, the arrangement is treated as a disregarded entity — the bank is effectively a nominee, and you are treated as the direct owner. No 3520. No 3520-A. You report the property like any foreign real estate: rental income on Schedule E, capital gain or loss when you sell.
Where the debate genuinely lives
The ruling describes one fact pattern, and the IRS was explicit that it does not cover fideicomisos that go further. Practitioners still argue over the edges, and both camps have a point:
| Your situation | Likely US treatment |
|---|---|
| Bank holds title to one property; you manage it, collect rent, pay taxes | Covered by Rev. Rul. 2013-14 — not a trust, no 3520/3520-A |
| Trust holds multiple properties or the trustee manages a rental business | Ruling may not apply — possible foreign-trust analysis |
| Trustee has discretion beyond holding title (investment decisions, distributions among family members) | Ruling does not apply — likely a trust for US purposes |
| Fideicomiso used for non-real-estate assets (investment portfolios, business interests) | Separate analysis required — not the land-trust fact pattern |
Some CPAs file "protective" 3520/3520-A returns even for plain-vanilla trusts, arguing the penalty for being wrong dwarfs the cost of the forms (penalties start at $10,000 and can reach 35% of the trust amounts). Others say filing unnecessary foreign-trust returns invites its own problems. There is no consensus, which is exactly why the entry's pain point ("most CPAs can't figure it out") is real.
What still applies even when the trust isn't a trust
Rev. Rul. 2013-14 removes the trust forms, not everything else:
- FBAR: if the fideicomiso has Mexican bank accounts and your aggregate foreign accounts exceeded $10,000 at any time in the year, FinCEN Form 114 is due April 15 (automatic extension to October 15).
- Form 8938: the property interest may count toward the FATCA thresholds ($200,000/$300,000 single, $400,000/$600,000 joint for taxpayers living abroad).
- Rental income: reported on Schedule E, in dollars, with Mexican tax credited via Form 1116. Mexico taxes the rental income on its side too.
- Sale: capital gain or loss on the US return when you dispose of the beneficial interest — Mexico also taxes the gain, with its own rules for non-residents.
Frequently asked questions
Do I need an FBAR for the fideicomiso's bank account?
If the combined maximum of all your foreign accounts — including any account inside the fideicomiso — exceeded $10,000 at any point in the year, yes. The ruling changed the trust analysis, not the account reporting.
My CPA insists on filing Forms 3520/3520-A "just in case." Is that wrong?
Not wrong — it is the cautious camp. The ruling says you don't have to; the penalty for guessing wrong about a real foreign trust starts at $10,000. If your fideicomiso is strictly the one-property, title-holding pattern the ruling describes, the filing is unnecessary. If it does anything more, listen to the cautious camp.
I rent the property out on Airbnb. Does that change the analysis?
Collecting rent is expressly contemplated by the ruling — the American in the ruling's fact pattern had the right to collect rent. But if the trustee is running the rental operation rather than you, the facts start drifting away from the ruling.
Sources
- https://www.threads.com/@lafamiliakellermx/post/DX7Nknmjz7u
- IRS, Revenue Ruling 2013-14, Internal Revenue Bulletin 2013-26 — http://www.irs.gov/pub/irs-irbs/irb13-26.pdf
- "IRS Revenue Ruling: Fideicomiso is Not a Foreign Trust" — https://www.artiopartners.com/blog/irs-revenue-ruling-fideicomiso-trust/
- Fideicomiso analysis and the ruling's limits — https://yucalandia.com/living-in-yucatan-mexico/tax-issues-for-americans-living-and-working-in-mexico-a-redux-for-2012/
- Foreign trust classification, Rev. Rul. 2013-14 scope — https://calawyers.org/wp-content/uploads/2024/05/Paper-7-Graham.pdf
- Restricted zone and fideicomiso mechanics — https://mexlaw.com/details-bank-trust-property-purchased-restricted-zone-fideicomiso-en-zona-restringida/