Capital Gains Taxes on Mexican Properties

August 1, 2014 Update:
The original version of this article was written in 2010 to describe the huge changes in Mexican tax law (aka ISR). There have been yet more substantive changes to the ISR (Mexican tax code/law) since then that are worth noting. The good attorney Lic. Spencer McMullen has publicly posted his understandings of the taxes owed on selling a property in Mexico. As always, we offer the clear disclaimer that we are not tax authorities, nor legal authorities, nor accounting authorities, so the information we offer is quoted from other sources we have found to be reliable. As always, the insights offered here on Yucalandia are based upon actual experiences of the experts and their specific local legal workings. Since the laws and rules change, and there are also local variations in how the rules are applied: Final decisions on real estate sale tax matters are up to YOUR individual Notario. Find a good Notario and consult with them. Having said all this, here are Lic. McMullen’s current July 2014 insights:

Sellers can currently exempt gains up to the amount of “700,000 UDIs” which is roughly $3,500,000 pesos, as long as the seller is a citizen or has a residente temporal or residente permanente. The building and property must also be your primary home (see the legal definitons and requirements below on how to qualify a property as being your primary home – principle center of fiscal activities). Further, you can only use the exemption once every 5 years, and your land area must not exceed more than 3 times your building footprint, (“among other things”).

That leaves a question: Are you also required to pay the 16% IVA on the agent’s commission? …. Lic. McMullen replies:

“Yes you pay the IVA 16% sales tax on services, not just goods. This is something foreigners don´t understand, as they are used to paying sales tax on the sale of goods only and not professional services. You pay the sales tax of 16% and they (later) pay income tax on their earnings. This is like purchasing a car in the USA, you pay sales tax and the dealer still pays income tax on their profit. “

Makes sense?

Original Article: Mexico’s tax code on property taxes just changed dramatically in February 2010, nullifying most internet advice given before February. This article addresses some of the current tax requirements and rules, and also addresses the some of the possible tax differences between FMT/FMM & FM3 or FM2…

 

There is a lot of outdated on the internet about how to save on a future Capital Gains taxes when you sell your property. This advice may have worked before Feb. 2010, but the rules have changed:   … dramatically raising the bar . . .
*     *     *     *
Full details and translations can be found in the Main Article (see Header):
Capital Gains Taxes on Mexican Properties
*     *     *     *
Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry

Read-on MacDuff . . .

Advertisements
This entry was posted in Uncategorized and tagged , , , , , , , , , , . Bookmark the permalink.

10 Responses to Capital Gains Taxes on Mexican Properties

  1. Nick says:

    Hello

    We are 2 brothers that owns 1 condo each in the same condo building that we bought new in 1999. We formed a SA de CV that holds both the titles. Now I want to sell my unit to finance and build a new home based business that I want to start in same city but in different area. What would be the smoothest way to do this, and of course pay as little taxes as possible? We are both married to Mexican women and have lived there for several years, but both of us got new jobs in our home country where we now live with our wives. I think value of each unit was set at 500,000 M.N and they should now be worth something around 2,500,000 M.N each.

    Saludos

    Nick

  2. Keith Hahn says:

    Question
    My wife is a Mexican citizen and has a home in Mexico. She has owned the home for four years as her residence. We got married 1 1/2 years ago. She now has obtained her US CR1 visa. She is now a temporary resident for 1 1/2 years. After 1 1/2 years she will be a permanent US resident. She is now a US resident. She wants to sell her home in Mexico. Does she have to pay a capital gain tax to the Mexican Government when she sells the home? For tax purposes she is now a US resident. Under US tax laws she does not have to pay the capital gains because she lived in the house for at least two years
    Thanks
    Keith

    • yucalandia says:

      Hi Keith,
      Because the gain is realized in Mexico, it is taxed under Mexican laws – and US laws are unimportant on what taxes are owed/withheld in Mexico.

      The Buyer’s Notaria almost always determines what taxes she owes and withhold thems from her proceeds from the sale – so, she does not pay the Mex. Gob. herself.
      steve

  3. Brooke says:

    Several months ago I became a Mexican citizen and wanted to convert my Fidecomiso into a deed. I was concerned that there might be capital gains since Merida has increased the value of my property on paper. A asked about this and, since it had not come up before, you were not sure. I went ahead and contacted a notario and have just completed the process. I did have to pay the 2% tax to transfer the name from the bank to my name but there was no capital gains since no money changed hands. This property was not my Primary residence in Mexico, we have another property that is. Furthermore the notario told me that in the event that I do want to sell the property in the future the capital gains tax will be less as a Citizen. Becoming a citizen requires that you do not leave the country for two full years and there are a few other requirements but it is not that difficult. This might be somethng to consider if you are already living her full time and want to sell your property.

    • yucalandia says:

      Hi Brooke,
      Good report.
      Thanks!

      I’m in the process of getting naturalized citizenship right now, for similar reasons.

      I take my oral exam + conversation next Monday AM. What did they have you do for this?

      When did you take the exam (under the “new” SRE delegado – or the previous one)?

      The SRE abogado and the delegado are now saying we have to stand in front of the judges (delegado y abogado), and give a narrative recitation in Spanish describing:
      … all in Spanish …
      ~ The pre-Hispanic period
      ~ The Conquista period
      ~ The Colonial period
      ~ The War for Independence
      ~ Key events and key people of the 19’th Century
      ~ The Revolution
      ~ up through at least Lazaro Cárdenas …
      ~ structure of the Gobierno
      ~ the Symbols of the Patria: Himno, Escudo, Bandera – discussing key elements of each
      ~ say or sing part of the Himno (at least one verse and one chorus – according to my Notario)
      ~ why we want to become Mexicans
      ~ and demonstrate conversational Spanish skills through answering questions and dialoguing with the judges.

      These requirements also include us saying the precise names and precise dates …

      Does this fit your experience?

      Are you over 60?

      They may be more lenient with over-age-60 applicants.

      They gave me an 80 page Mexican history text to study …

      ???
      steve

  4. James Noennig says:

    Hola,
    I found the following on your website:
    Capital Gains Taxes on Mexican Properties
    Oct. 22, 2015 UPDATE
    On October 18, the Mexican Congress amended the tax law for 2016. Under the new rules, our primary residence will be exempt from capital gains after living in the home for just 3 years, instead of the current law’s every 5 years.

    Also:
    Item 1: Fully Exempt from Capital Gains Taxes:
    To qualify for the 5 year Primary Residence exemption, you have to meet a number of requirements: (~ changing to 3 years for 2016 ~)
    ~ * ~ Mexico has to be your “fiscal residence” & the “main center of your professional activities”, etc. for 5 years. (~ changing to 3 years for 2016 ~)
    ~ * ~ In attempting to qualify as a Mexican Resident for tax purposes, you must have 5 years of CFE or JAPAY bills in your name. . (~ changing to 3 years for 2016 ~)
    ~ * ~ The property cannot be used for income generating purposes within the 5 year residency period. (~ changing to 3 years for 2016 ~)

    Do you still believe this is true? From reading the law I can see that, if you have lived in your house for the five years (three years in 2016) immediately preceding the sale, you qualify for an exemption based on 700,000 Udis ($3,764,656.7 pesos) as of today, 12/15/2015. (Article 93, # XIX) If you, or your contributor still believes this to be true, please supply me with the source. I hope it’s true because we’ll be selling our house for over 5 million pesos.
    Thank you, James Noennig
    Patzcuaro, Michoacan

    • yucalandia says:

      Hi James,
      The source of this update and details of the coming changes was the very good, consistently reliable, Licencia Spencer McMullen of Chapala and Guadalajara.

      => http://www.chapalalaw.com/about-us/

      The other basic information (for the 5 year quotes) comes from the ISR as published in the DOF.

      All tax issues on real estate sales must still be approved by the Notario that handles the sale, because Notarios are personally fiscally responsible for their decisions & actions on our taxes – so a few Notarios are dicks about this ~ so, you must use a Notario who agrees to follow the CURRENT version of the law – as too many are still stuck in the past and refuse to learn or follow all the big ISR changes since 2009.

      Further, many Mexicans and some gringos believe and insist that the think the Buyer has the legal right to choose the Notario – forcing a Notario onto you who may not follow the law. There are NO state or federal legal requirements we know of that give the Buyer that exclusive right. It is simply a long-held common practice for the Buyer to choose the Notario, because the Notario is responsible for also protecting the Buyer by checking the property for past liens, outstanding tax obligations, etc.

      Happy Holidays,
      steve

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s