Capital Gains Taxes on Selling Mexican Real Estate 2014 Update

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 latest 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?

**Curious readers who want to calculate the current official UDI-Peso value can go to:  http://www.banxico.org.mx/SieInternet/consultarDirectorioInternetAction.do?accion=consultarCuadro&idCuadro=CP150&sector=8&locale=es

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 information 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 . . .
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Full details and translations can be found in the Main Article (see Header):
Capital Gains Taxes on Mexican Properties
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Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry

Read-on MacDuff . . .

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9 Responses to Capital Gains Taxes on Selling Mexican Real Estate 2014 Update

  1. Hi Steve
    A local realtor has said if you are considerng selling your property you need to go to SAT and get a RFC number for whoever’s name is on the escrituras (ie, both of a couple). Have you heard of this before?

    • yucalandia says:

      Hi Anthony,
      We both have RFCs and have only bought property lately, so, it has not come up for us.

      Since SAT wants to collect taxes on gains, it makes sense that they (SAT/Hacienda) wants us to prove that we are officially registered with them, as proven by the RFC, so the Notario who handles the deal can assess, collect, and pay the taxes owed.
      Does that make sense?

      We’ve had $$ withheld at US closings when the lawyer handling the closing believed that one of the parties might not be paying taxes, especially with foreigners, so the same thing happens both here and the USA.
      steve

  2. Algis says:

    Thanks for your usual informative posts on life south of the border.
    I have been under the distinct impression that capital gains advantages were only provided when one reached ‘permanante’ status …
    Your article states that BOTH temporal as well as Permanente qualify ??
    Please advise..

    • yucalandia says:

      Hi Algis,
      This is one lawyer’s opinion and his experience with his clients in Jalisco (Chapala, Ajijic, Guadalajara) – but he’s a good lawyer with an even better track record.

      As these are one lawyer’s experiences, we emphasize over and over that you must discuss these things with a Notario before you hire them, and be sure you know your Notario’s personal policies on these things.

      Liberal Notarios have been saying: “Yes – I will authorize the exemption for all foreigners who are legal residents of Mexico.” …

      Conservative Notarios have been saying: “No, I only authorize the exemption for foreigners who have applied for citizenship.
      Good Luck,
      steve

      • Algis says:

        THX,
        “Applying for citizenship” ???
        That could be interpreted as FM1,FM2, Temporal, Permanente….Not quedtioming You, just The MX ‘legal’ process
        Will consult locally…

      • yucalandia says:

        Hi Algis,
        Applying for citizenship means that you have formally filed an application with SRE for Mexican citizenship. This was an older standard used 2 – 5 years ago, but still applied by some Notarios. *sigh*
        steve

  3. Kathe says:

    Can you please comment on what the tax implications are on sale with a large piece of property with a small building footprint when the property is held in a SA de CV? I, of course, will also be consulting my accountant and a notario when the time comes.

    • yucalandia says:

      Hi Kathe,
      We don’t have information on gains taxes for corporation owned properties. I would assume you would pay taxes on the gains for the net-basis of the property: Net Profit Basis = (Sales Price) minus (Recorded Purchase Price) minus (Allowed Deductions) ???

      Ask a good tax attorney or good real estate accountant, since Notarios are sometimes not tax experts and the ISR is very dense and is changed/updated frequently,
      steve

  4. kristen says:

    hello, my name is kristen. i have been online looking for 2 friends of mine, emily and ryan (newie). they should be in the merida/yucatan area looking for me too. if you’ve heard of anything at all or know of someone who meets a lot of people passing through, please drop me a line and let me know…
    anything at all would help.
    thanks so much for your time,
    kristen

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