Guide · Updated for tax year 2026
The US Exclusion Americans Living in Mexico Ask Us About First
The Foreign Earned Income Exclusion (FEIE) is the single most valuable — and most misunderstood — tax benefit for US citizens moving to Mexico. Here is how it actually works, in plain English, and how it interacts with your Mexican obligations.
What the Exclusion Does
$132,900
Maximum foreign earned income you can exclude from US federal tax per qualifying person, for tax year 2026. Married couples who both qualify: over $265,000 combined. You may also exclude part of your housing costs on top of that (base amount $21,264 for 2026).
You claim it by filing Form 2555 with your US Form 1040. If your foreign earned income is below the limit and you have no other US-taxable income, your US federal tax on that income is zero.
Important: qualifying for the exclusion does not exempt you from filing. US citizens must file a US return every year, no matter where they live. The exclusion reduces the tax, not the obligation.
How You Qualify
Physical Presence Test
You spend at least 330 full days outside the US in a rolling 12-month period. Days commuting to work in the US, and days in the US for any reason, break the count. Most full-time Mexico residents qualify this way.
Bona Fide Residence Test
You are a resident of Mexico for an entire calendar year with no clear intention of returning to the US. Slower but more flexible — business trips to the US do not break it.
Earned Income Only
The exclusion applies to earned income: salary, wages, professional fees, and self-employment income. It does not apply to rental income, dividends, capital gains, pensions, or interest.
What the Exclusion Does NOT Cover
- Rental income from Mexican property (Airbnb, long-term rentals)
- Capital gains from selling Mexican property or investments
- Dividends, interest, pensions, and social security
- Self-employment tax (15.3%) — the FEIE does not reduce it
- Your US filing obligation — you still file Form 1040 every year
The trap most new expats fall into
People hear “$132,900 exclusion” and assume they owe no tax anywhere. Then Mexican rental income, SAT registrations, and IVA appear — and the surprise is expensive. The FEIE is a US-side mechanism only. Mexico taxes income earned in Mexico under Mexican law, from the first peso, whether or not the US excludes it. Planning both sides together is the whole game.
The Mexican Side of the Picture
If you work remotely for a US company while living in Mexico
Mexico taxes salaries for services physically performed in Mexico, regardless of where the employer is. Living in Mexico year-round generally makes you a Mexican tax resident — meaning you should be registered with SAT (RFC) and reporting that income in Mexico too.
The practical upside: most remote workers qualify for RESICO, a simplified regime with effective rates around 1-2.5%, and Mexican taxes paid are then creditable against your US return — so you are rarely taxed twice, but only if both sides are declared correctly.
If you earn rental income in Mexico
Rental income is taxed in Mexico where the property sits — it is never covered by the FEIE. Airbnb withholds IVA and reports to the SAT. You need monthly filings and an RFC. On the US side, you report the same income and usually claim a foreign tax credit. We handle the Mexican side and document it so your US CPA can finish the credit in minutes.
The 183-day rule cuts both ways
Spend more than 183 days in Mexico in a calendar year and you are generally a Mexican tax resident. Below that, you are generally not — but “generally” is doing real work in that sentence. Center of vital interests, family location, and economic ties can tip it. If you split your year, your exact day count matters; keep records and get your specific situation reviewed before assuming either way.
Every situation is different. Yours included.
This guide is general information, not personalized advice. A consultation maps your exact situation: your days, your income types, your US filing status, and a concrete plan for both countries.
Book a Consultation