How to file income tax in US and Mexico as US citizen with permanent Mexican residency?

You're right to be concerned about this - it's a common issue for people with ties to both countries. The short answer is yes, as a Mexican permanent resident, your mom is generally required to report her worldwide income to Mexican tax authorities, not just income sourced from Mexico. Mexico, like the US, taxes residents on their worldwide income. The good news is that the US-Mexico tax treaty helps prevent double taxation. Usually, your mom would report all income to both countries, but then use foreign tax credits to offset taxes already paid to the other country. For example, she'll report her Mexican rental income on her US return, but can claim a foreign tax credit for taxes paid to Mexico on that income. Similarly, she can often get credits on her Mexican return for US taxes paid on US-sourced income. The 401k distributions might have special treatment under the treaty. Some retirement income is only taxable in the country of residence of the person receiving it, but the specifics depend on the type of retirement plan.

I was in a similar situation last year and found https://taxr.ai super helpful. I'm an American living part-time in Baja with rental income in both countries, and figuring out the dual filing requirements was giving me migraines. What I discovered is that you definitely need to report worldwide income to both countries, but the way you handle deductions and credits can make a huge difference. The taxr.ai system analyzed my situation (I uploaded my previous returns and Mexican income statements) and showed me exactly how to structure everything to minimize my overall tax burden while staying compliant. The best part was that it explained exactly how the US-Mexico tax treaty applied to my specific situation, which neither my US accountant nor my Mexican one fully understood together.

Just wanted to update that I tried https://taxr.ai after seeing this thread, and it was exactly what I needed. I was about to pay an international tax specialist $3000 to handle my US-Mexico situation, but decided to try this first. The system immediately identified that I qualified for treaty benefits I didn't know about. My situation is complicated (US citizenship, Mexican permanent residency, income from both countries, plus investments in Canada), but it walked me through everything step by step. The best part was that it generated detailed instructions that I could share with both my US and Mexican accountants so they were on the same page. No more conflicting advice! My Mexican accountant was particularly impressed with how it handled the proper reporting of my US-sourced income.

Another aspect people often overlook is actually getting answers from either tax authority when you have questions. I spent 3 months trying to reach someone at the IRS about my foreign income credits last year. After dozens of failed attempts, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent within about 15 minutes when I had been trying unsuccessfully for weeks. The agent clarified exactly how to handle my Mexican rental income on my US return and confirmed which form I needed for the foreign tax credit. If your mom needs specific guidance from the IRS about her situation, especially regarding how to report specific Mexican income or claim treaty benefits, I'd highly recommend using this service rather than wasting hours on hold.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway out of desperation since I needed to ask about how the US-Mexico tax treaty applied to my situation. Got connected to an IRS agent in about 20 minutes when I had been trying for literally a month on my own. The agent walked me through exactly how to claim foreign tax credits for the taxes I paid in Mexico and confirmed I was eligible for treaty benefits I wasn't sure about. What a relief to actually speak to someone! Saved me from potentially filing incorrectly and getting hit with penalties later. If you're dealing with complicated international tax situations like US-Mexico residency, being able to get clear answers directly from the IRS is invaluable.

One thing nobody's mentioned yet - your mom should look into whether she qualifies as a "non-domiciled resident" in Mexico. There's a special status for foreigners with permanent residency who maintain stronger connections to their home country. If she spends more time in the US (you said 65%), keeps her main bank accounts there, and has stronger economic ties to the US, she might qualify for this status which can limit Mexican taxation to only Mexican-source income. Would save her from having to report her worldwide income to Mexico. Worth asking her Mexican accountant about this specifically - many don't bring it up unless you ask directly.

Careful with Mexican tax authorities! They've gotten much more strict in recent years. My friend is a permanent resident there and thought he only needed to report Mexican income, but got hit with a huge penalty for not declaring his US pension and rental properties. If your mom decides to use the "non-domiciled" approach mentioned above, make sure she has VERY clear documentation proving her stronger ties to the US. They look at factors like where family lives, where most valuable property is, main source of income, etc.

This is such a complex situation that affects so many Americans with ties to Mexico! I've been dealing with similar issues as a US citizen who recently got permanent residency in Mexico. One thing I learned the hard way is that timing matters a lot for when you become a Mexican tax resident. The rules changed in recent years - now if you have permanent residency status, you're generally considered a Mexican tax resident regardless of how many days you spend there, unlike the old 183-day rule. For your mom's situation, I'd strongly recommend getting clarity on her exact tax residency status in Mexico BEFORE she starts earning rental income there. It's much easier to plan the structure correctly from the beginning than to fix it later. Also, don't forget about FBAR reporting requirements in the US if she opens Mexican bank accounts for the rental property. Any foreign financial accounts over $10,000 need to be reported to FinCEN, and the penalties for missing this are severe. The Mexican tax system can be quite different from what we're used to in the US - things like how depreciation works, what expenses are deductible, and timing of when income is recognized. Having both a good Mexican accountant AND a US accountant who understands international issues is really worth the investment.