General Summary:
1. The home has to be your primary residence & “principle place of fiscal activity” for the last 3 years.
2. Bills (CFE & JAPAY) in your name, and if the Notario** wants to be a prick, he can require you have copies of all three years of the bills.
3. Sellers can currently exempt gains up to the amount of “700,000 UDIs” which is roughly $4.2 million**, as long as the seller is a citizen or has a residente temporal or residente permanente. … UDIS official current rates can be found at:
4. You can only use the exemption once every 3 years, and your land area must not exceed more than 3 times your building footprint, (“among other things”).
5. **Final decisions on real estate sale tax matters are up to YOUR individual Notario. Find a good Notario who agrees with your goals … and consult with them.
6. Since the laws and rules change and there are also local variations in how the rules are applied: It all comes down to what the Notario decides to give you on your sale, because they are personally fiscally responsible for paying any taxes due, if they make a mistake.
… Get a Notario that agrees in advance to grant you the exemption on the first 700,000 UDIs.
~ See Individual Sections Below for Details ~
Oct. 22, 2016 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.
Soda pop manufacturers got a boost with 50% reductions in taxes on high-calorie drinks.
The tax limit on cars has been raised from 130,000 pesos to $175,000 for 2016.
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 – http://www.diputados.gob.mx/LeyesBiblio/pdf/LISR.pdf ) 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, and we share them here. We also recommend checking out the detailed article: Real Estate Appraisals in Mexico: Catastral, Taxes, Capital Gains & Notarios
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 (~ changing to 3 years for 2016~), and your land area must not exceed more than 3 times your building footprint, (“among other things”). (~ changing to 3 years for 2016 ~)
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§or=8&locale=es
April 28, 2014 Update
Mexico’s tax code on property taxes changed dramatically in February 2010, and again this past 6 months (Nov. 2013 law taking effect on Jan. 1, 2014).
The changes nullified most internet advice given before February, and makes much current internet advice suspect. This article addresses some of the current tax requirements and rules, and it also addresses the tax differences between Visitante, Residente Temporal, and Residente Permanente INM Residency Card options.
The key Mexican statutes addressing these issues are Article 109. XV. of La Ley del Impuesto Sobre la Renta (ISR) and Art. 93 – Frac. XIX.
March 2014 Update:
The Mexican government changed the tax rate on net gains (now 35% of net gain), and they changed the rules on the requirements for being classified as a resident of Mexico for tax purposes – a key requirement to qualify for the Homeowners Exemption to paying gains taxes on selling a home you have lived in for 5 years (Note: this changed to 3 years for 2016) as your RIMARY/PRINCIPAL RESIDENCE: Condición para acreditar que las personas físicas de nacionalidad extranjera que enajenan su casa habitación son residentes en México para efectos fiscales: I.3.10.13. These instructions describe that the foreigner is a resident in Mexico for tax purposes, when the following requirements are met. They must certify under oath:
“I. Declaren, bajo protesta de decir verdad, lo siguiente:
a) Que tienen la condición de residentes en México para efectos fiscales, en los términos del artículo 9, fracción I del CFF y, en su caso, de los tratados para evitar la doble tributación que México tiene en vigor.
b) Su domicilio fiscal o, en su defecto, un domicilio para oír y recibir notificaciones. En ningún caso el domicilio señalado podrá ser o encontrarse en la casa habitación que enajenan.
II. Adicionalmente a lo anterior, acrediten su condición de residente en México. Para tales efectos, se considerará que se acredita dicha condición con la constancia de residencia para efectos fiscales a que se refiere la regla II.2.1.4., o en su defecto, con la cédula de identificación fiscal referida en la regla I.2.4.2.
………………………………………
Cuando la persona física que enajena su casa habitación no sea residente para efectos fiscales en México o no sea residente para efectos fiscales en el extranjero con establecimiento permanente en el país, no será aplicable la exención establecida en el artículo 93, fracción XIX, inciso a) de la Ley del ISR. En este supuesto, los fedatarios públicos, que por disposición legal tengan funciones notariales, estarán a lo dispuesto por el artículo 26, fracción I del CFF, respecto de la enajenación de que se trate, debiendo calcular y enterar el impuesto en los términos de lo previsto en el artículo 160 de la Ley del ISR.
CFF 9, 26, LISR 93, 155, RCFF 5, RLISR 130, RMF 2014 I.2.4.2., I.3.10.6., II.2.1.4.”
Crudely translated:
I declare under oath, to tell the truth:
(a) that he is a resident of Mexico for tax purposes, under the terms of article 9, section I of the CFF and, where appropriate, of the treaties to avoid double taxation that Mexico has in place.
(b) he has a tax home Mexican address to receive notifications. In any case the designated home that is being sold should not be the home address claimed for tax purposes. …
In theory, this should open the door for Notarias to approve foreigners who are not Mexican citizens to qualify for the homeowner’s exemption.
Much past advice on the internet implied that if you got an FM3 or FM2, or a Residente Permanente, then you could automatically save on a future Capital Gains taxes when you sell your property. This was not true in the past, but may work for Residente Temporal and Residente Permanente INM Residency card holders – if you can find a Notaria who accepts this new I.3.10.13. ruling.*
Further: Advice that worked before Feb. 2010, or before Nov. 9, 2012, no longer works since the rules have changed dramatically raising the bar of requirements for foreigners to qualify for the current 5 year Primary Residency requirement for an exemption to Capital Gains taxes.
(~ changing to 3 years for 2016 ~)
The tax calculation & tax status-determination of property sales by foreigners is a murky and dense area in Mexican tax law. Prior to the March 2014 rule change: It was reported that many/most Notarias across Mexico believe that foreigners with FM3’s (equivalent to the new Residente Temporal) did not qualify for the Mexican Residents Primary Residence home-owners capital gains tax exemption**.
*Since each Notaria is personally financially liable for individual choices they make for each client, many Mexican Notarias were not willing to approve foreigners with FM3’s (Residente Temporal) even if they met the 5 year Primary Residence requirement, and individual Notaries still may reject even Residente Permanentes when choosing to grant the Primary Residence 5 year home-owners exemption. (~ changing to 3 years for 2016 ~)
It is worth pointing out the March 2014 rule change to the Notaria handling the sale, to find out if they have a policy of denying foreigners this exemption. Note that in some parts of Mexico, the home Buyers like to choose the Notarias – and their Notario (or the Bank Notario for mortgaged properties) may not be willing to grant the exception.
=====================================================================
**Property Sale Capital Gains Tax (ISR) Exemption Requirements: **
ISR Tax Law has 3 major options for determining property sales taxes on the gains:
1. No taxes are owed on sales of the owners primary residence, when sold after 5 years by qualifying residents of Mexico (Primary Residence exemption ~ changing to 3 years for 2016~). or
2. 25% of the Gross Sales amount. or
3. 35% gains tax on the net profit/gain (reduced by various deductions and depreciation)***.
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 ~)
~ * ~ Some Notarios were accepting property sales tax exemptions for only a few foreigners who had FM2′s / Residente Temporal visas. Many Notarios have required that the foreigner must have applied to become naturalized citizens of Mexico to qualify for the exemption – but since the March 2014 rule-change, THIS IS NO LONGER THE LAW. (see the details in the “March 2014 Update” above). Still: Since Notarios stick-out-their-necks financially, they can add their own personal requirements that are not spelled-out in the law/regs.
This means that getting a Residente Permanente does not ensure that your Notario (or any Notario) will approve your claim for the 5 year Primary Residence exemption, but the Notario has the legal option to approve the claim. (~ changing to 3 years for 2016 ~)
If you really want to be exempt from 25% taxes on the FULL SALE PRICE of future property sales: Expats buying Mexican properties and owning properties really must find and hire a Notaria who agrees, in advance, to support their hoped-for claim of the 5 year Primary Residence exemption. (~ changing to 3 years for 2016 ~)
~ * ~ It is best to be sure your Notario agrees that you meet the requirements, and that he is willing to approve your application for the primary residency exemption, before you plan to try this.
~ * ~ If you own a property using a Fideicomiso or a mortgage, you may be trapped into whatever policy your Bank’s Notaria chooses. e.g. In the worst case: The Bank as Fideicomiso trustee, and their Notaria, can refuse to accept your proposed sale of your property, unless you pay 25% of the full sales price.
…. This works out to be $178,000 USD in taxes on a $9 million peso property sale in one Yucalandia reader’s experience. (with NO deduction of even the original sale price) ….
==================================
Notes: ~ If you do not qualify for the Homeowner’s Exemption, you can use facturas for improvements to reduce the gains. If you do not have facturas you can request a special tax appraisal that can be done to raise your basis and lower capital gains exposure.
~ With the new tax reforms, ISR is capping the amount we can exempt at 700,000 UDIs (UDIs are an index which is currently about 5.02). Further if your property is sold for less than one million five hundred thousand “investment units” (UDI’s) (which was approximately $550,000 USD), then the rules described in this article apply.
If you are a “Fiscal Resident” and the amount of the sale exceeds the above amount, you will pay tax on the amount that exceeds the exemption (550,000 USD) “proportionally to the amount that results from dividing the amount that exceeds by the total amount of the sale”.
Don’t we all love govt. legalese? Let’s cut through that knot with a practical example:
For a purchase price of $300,000 dollars and a sale price of $ 1,000,000 dollars:
$1,000,000 – $ 550,000 (the exempt amount) = $450,000 (net taxable income),
The net gain of $450,000 is 45% of the total sales price. This means you can only apply 45% of your purchase price (this would be 45% of $ 300,000) as the “cost” => $135,000.
The $450,000 (taxable gain) – $135,000 (adjusted basis/cost) = $315,000 final net basis.
This $315,000 is the amount over which your tax will be calculated.
~ Clear as mud? ~
* * * * * * *
NOTE.- The exemptions reported above only apply to the sale of one home per year.
Remember: If you are the “Fiscal Resident” in the home for more than 5 years, the sale of the home is exempt, regardless of the UDI and other complex calculations. (~ changing to 3 years for 2016 ~)
CLARIFYING NOTES:
- Exemptions only apply to construction and on land only “up to 3 times the area covered by the construction.” When claiming the exemption, the value of the construction and land must be separated when the land area is more than 3 times the “footprint” of the construction(s). This existing tax rule is applied by some Notarios, but this rule can be contested and won, making the entire sale exempt. Sharp attornies recommend getting a second opinion on this, if your Notario makes it an issue.
- Even though we qualify for the homeowner’s exemption from the gains tax, we must declare income on our Mexican annual filing for any residential sale that is over $500,000 pesos. ~ Clear as mud? ~
This also means that after January 1, 2014 we can exempt from payment of capital gains tax a gain of up to $3,500,000 pesos, but any gain over that amount will be taxed.
~ Remember that if your land is more than 3 times of your building footprint** you will pay capital gains tax on the sale. Thanks to Lic. Spencer McMullen for these updates.
~ **Finally, note that SAT/Hacienda’s makes the default decision that the land is worth 20% of the total sales price, and that the constructions/buildings are worth the remaining 80%.
* * * * * * *
Further Notes: (for Item 3)
***Capital gains reductions include a 3% per year inflationary credit that reduces the property’s basis every year (10 years of ownership = 30% reduction, but I understand that there is a 5% floor of minimum taxes or minimum 20% Basis of the original listed sale price).
*************************************
Basis Calculation for 35% tax on net profits gains calculation:
Income/Selling Price – Purchase Price – Deductions = Net Taxable Gain
=====================================================================
***Here are a few of the Mexican tax laws other arcane factors in determining the amounts of Capital Gains taxes under Item 3:
* Raw land is taxed differently than improved properties;
* The tax exemption is only on the buildings and the land covered by the buildings (- see the details above);
* Corporations are treated differently than private owners;
* Properties valued under roughly $500,000 USD are treated differently than properties over $550,000 USD (actually using a $1,500,000 peso “UDI”) – sort of a luxury tax;
* There is a 3% per year inflation adjustment on the basis, but you only qualify if you paid the 2% Acquisition Tax at the time of sale (this can give a net 30% tax savings at the time of the sale);
* The 2% Acquisition Tax is an allowed deduction;
* The construction’s costs (building’s basis values) depreciate 3% a year and can not exceed 20% of the initial purchase price, while the resulting cost (basis) will be adjusted up for inflation;
* If your improvements exceed 20% of the purchase price, you need to get your local property tax authority to come and re-value / re-assess your property. Our Yucatan office is called “Catastral”.
* The improvements that imply deductible investments will be subject to the same depreciation treatment, and must be count with its respective documental support (Facturas in seller’s name) – no wonder businesses give you the option for Facturas…
* Maintenance costs are not deductible expenses;
* If the expat has held an FM-2 or Residente Permanente for the past five years, they can apply for Mexican nationality, and then ask their bank to convert the FTD contract to an “escritura”, thus acquiring Real Rights on the property which will enable them to claim the Primary Residency’s capital gain exemption at the time of the sale.
* ~ If you do not qualify for the Homeowner’s Exemption, you can use facturas for improvements to reduce the gains. If you do not have facturas you can request a special tax appraisal that can be done to raise your basis and lower capital gains exposure.
* ~ With the new tax reforms, ISR is capping the amount we can exempt at 700,000 UDIs (UDIs are an index which is currently about 5.02). This means that after January 1, 2014 we can exempt from payment of capital gains tax a gain of up to $3,500,000 pesos, but any gain over that amount will be taxed.
* ~ Finally, remember that if your land is more than 3 times of your building footprint, you will likely pay capital gains tax on the sale – unless you find a Notario who knows the details of the law. Thanks to Lic. Spencer McMullen for these updates.
=====================================================================
Because Mexican tax law is so dense and arcane and parts of it change roughly every 2 years, when buying or selling property in Mexico, it really is best to consult with a good tax lawyer and a Notario to find out how things work in your state or locality under current laws. Also: Feel free to seek second opinions, because many Notarios do NOT know the current law and recently updated rules. If your property is held in a Fideicomiso trust, then, definitely find out in advance what your Bank’s Notario allows.
Mexican tax law is a specialty area within the law, an area where Notarios are not the experts, so, taxes on property sales is one spot where you may likely need both a Notario and a separate tax lawyer (abogado) to accurately determine and pay the lowest legal taxes.
Finally, it is also worth noting that the tax is actually not a “capital” gains tax, but just a tax on gains, and the taxable value is based on the purchase price shown on the bill of sale:
NOTE: When many Mexican sellers list a low price on the bill of sale – with cash payments on the side to make up the balance – they have shifted the taxes THEY OWE ~ over to you to pay for them ~ as future gains taxes when the new owner ultimately sells the property.
Clear as mud???
* * * *
Interested in more on Real Estate, Property, and Gains Taxes in Mexico? See our article on Property Appraisals and Taxes at: Real Estate Property Appraisals in Mexico: Catastral, Taxes, Capital Gains & Notarios
* * * *
Please Continue to Make Comments and Replies to Help Keep This Information Current!
Disclaimer: This information is not meant as legal advice. It is for educational and informational purposes only. Government policies vary between States and offices, and Mexican Government officials have broad discretion in how they individually enforce policies, so, your personal experiences may vary. See a professional for advice on important issues.
* * * *
Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry
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Has anyone info on signing up for the Registro Federal Contribuyentes (RFC)? I have been living in San Cristobal, Chiapas, for over five years, have my FM2 and the CFE bills, predial receipts, etc. to prove it is my primary (full time) residence. I’m thinking of selling a small part of the land I own and wish to avoid paying the 25-28% capital gains tax. Yesterday, a local notario suggested I sign up for the RFC to further bolster my argument that I be a five-percenter. Is there a down side to registering? Help….
Hi
I went back to the Mexican notary that I used when I purchased my condo in 2000 at a price of US$43,000 now that I’m ready to sell this condo at a price of US$43,000 with the new appraisal of US$45,000. The notary tells me that I will have to pay 28% capital gains taxes since it was a second home. But what I cannot figure out is that he saying that my capital gains tax will be over US$13,000 plus US$1400 to handle the transaction. He has used a lot of calculations like what the peso rate was when I bought it and what the peso rate is now and other things that I don’t understand all I know is that the current value of the condo is US$45,000 and I’m selling it for US$43,000 so my capital gains should only be US$2000 times 28% should equal $280 please advise
Hi Boyd,
Based on the superficial details – on the face of things: You would take the current sale value of the home in pesos and subtract off the original sale price of the home (adjusted for inflation) in pesos – to get a first estimate of the total gain.
Specifically, the notary should take the original OFFICIAL REGISTERED sale price** in pesos and add 3% per year for an inflation adjustment to get the current basis (as long as the Notario had you pay a 2% Acquisition Tax when you bought the property). Then rake that inflation adjusted current basis and subtract it from the current sale price to get the taxable gain. Then multiply that gain by the 28% tax rate. The US dollar values play no role in determining the capital gains taxes. As pointed out in the text of this article, most Notarios do NOT know tax laws well, so, it often takes both an experienced tax attorney or tax accountant (abogado o contador de impuestos) AND the Notario to get the sale and the taxes right.
Here’s where the bugs creep in. Many, many, many property sales in Mexico do NOT register the actual sale price, and instead, they list a falsely low sale price to save the seller capital gains taxes. If your notario listed/registered a falsely low value on your previous deal (to sweeten the previous purchase to get the deal to go through), then you are on the hook for your taxes and the previous seller’s taxes. Some notarios do not pay the 2% Acquisition Tax, so the homeowner also loses the 3% per year inflation adjustment.
e.g. For a correctly listed sale price
$43,000 USD estimated at 9.4 : 1 to $404,200 (http://www.tradingeconomics.com/mexico/currency)
Let’s now guess that your Notario does not know about the 3% per year inflation adjustment, and let’s guess that your notario falsely (commonly) reported an original sale price of just $100,000 pesos (to benefit the prior seller),
then at today’s 13.1 : 1 peso rate, current sale price would be $572,000 pesos. Subtracting the guess (INCORRECT $100,000 peso) basis would give a taxable gain of $472,000 pesos = $35,500 USD of gain.
By making these two common errors, we get a capital gains tax owed of 28% of $35,500 USD of gain = $9,950 USD of incorrectly determined taxes…
So, our best guess is that either:
~ you misunderstood your Notario or
~ your Notario is calculating the taxes based on $46,000 USD of gains… or
~ your Notario listed a way-too-low original purchase price and
~ your Notario does not know to take the 3% per year inflation adjustment and / or
~ your Notario made some serious math errors.
Hope this helps you ask the right questions, because it appears that your Notario may have listed your purchase price at 10% of the actual sale price – and we are not attorneys, nor tax accountants – so, we offer these guesses for informational, educational, and entertainment purposes only.
steve
My “purchase” of a beachfront home was a private sale, with only a informal bill of sale from seller (American also) to me The seller just gets cash, from one American bank to another. My application for a fideicomismo does not ask for a purchase price. Not sure where I go from here vis-a-vis future capital gains
Hi Scott,
The law is simple and clear on your circumstances: You pay a flat 25% of the selling price in taxes to Hacienda when you sell the home. Your Notary withholds the 25% tax from the funds you receive from the seller. Maybe, maybe, maybe you can find a Notary who will stick out their neck (to possibly be chopped-off) to consider granting you the homeowners exemption… ??? Also under 2010 IRS rules, you are required to file TD F 90-22.1 annual filings (since TY 2011), and possibly also FATCA filings, depending on your situation. If the IRS finds that you have not filed, they can assess $10,000 to $25,000 annual penalties for not filing. Further, if they find you have dealt with them in bad faith, they can attach your US assets for up to 40% of the value of the Mexican property. Alternately, you can file for an IRS exemption to filing on your fideicomiso, but in the meantime, you are required to make informational filings… (no taxes owed, just give them information)
Considering your US bank to US bank transfers: If you choose not to file, the Treasury Dept & IRS notes that they can also:
` “Withhold a 30 percent tax on certain U.S.-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information. ”
http://www.treasury.gov/press-center/press-releases/Pages/tg1825.aspx
Readers who want more details can also read: Fideicomisos and FATCA: US – Mexico Agreement on FATCA Reporting Requirements
steve
I understand that there is a income tax treaty between US and Mexico preventing double taxation. For example if the property sold in MX is owned by an US LLC, that LLC is given tax exemption in MX and pays the corporate tax rate in the US therefore the tax rate impose would only be 15 percent. Is this Income Tax Treaty for corporations recognized in Mexico and more importantly, are Mexican Notarios willing to use this exemption?
Hi Miriam,
Excellent question.
We have only researched tax laws for private individuals. Please contact knowledgeable business-tax experts in the USA and Mexico for details,
steve
Thanks Steve
The notary did not registered a falsely low value it was $43,000.00 and the new appraisal was $45,000.00 and if I sell it for $43,000.00 what should my tax be by law. When he registered it was N$390,540.00 pesos becuase the pesos rate was 9.4561 to the dollar on 19 dec 2000
Good Morning Boyd,
The answer is in the previous reply:
For educational and entertainment purposes: Using a conservative approach, apply the 3% per year inflation, based on how many Tax Years have elapsed, and the property sells before Dec 19, 2012, then you have 11 years of 3% per year of an inflation adjustment, compounding to a 38% increase in basis between Dec 19, 2000 and Dec. 19, 2011. This inflation adjustment works out to:
$390,540 x 0.3842 = $128,878 Mxn pesos of Inflation between 2000-2011
$128,878 + $390,540 = $540,599 Current 2012 basis without deducting the Acquisition Tax.
Adjusting the Basis for the 2% Acquisition Tax: $390,540 x 0.02 = $7,811 peso adjustment for Acquisition Tax paid in 2000.
$540,599 + $7811 = $548,409 pesos of current basis in 2012, including the Acquisition Tax adjustment.
Your current 2012 sale price in pesos: $43,000 USD x 13.1 = $563,300 MXN Pesos
2012 Taxable Gain = 2012 Sale Price – Net Current Basis in 2012:
$563,300 – $548,409 = $14,891 of net taxable gains on the property for a 2012 sale.
Taxes on the Gain:
$14,891 MXN pesos x 0.28 (tax rate) = $4,169 pesos of Tax = $318 USD of taxes with Acquisition Tax Paid.
(using current exchange rates)
This analysis assumes that your Notario had you pay the 2% Acquisition Tax when you bought the property.
If he made the error of not paying the 2% tax, then you do NOT get the 3% per year inflation adjustment,
which would result in [($563,300 – $390,540) x 0.28]/13.3 = $3,637 USD of Taxes owed with no Acquisition Tax.
So, a good Notario would save the expat homeowner $3,319 USD of taxes by paying the Acquisition tax on a $43,000 property in this example.
Did your Notario pay the 2% Acquisition Tax back in 2000?
(a 2% tax which is recovered if you hold the property for just 3 years of a 3% inflation adjustment)
Hope this hypothetical, educational math exercise helps you,
steve
Steve
Where can I get a copy of the new law for the capital gains to show to the notary
Thanks
Boyd
_____
Hi Boyd,
It was issued in the DOF in February of 2010, as updates to the ISR. You could start checking there, since I don’t have a web-link,
steve
Yucalandia
Where and what would I look for in my papers to see if the 2% Acquisition Tax was paid.
It looks like the max tax I should have to pay is around $3,700.00 USD if the tax was not paid, not $13,000.00 USD .Guess I need to find another Notario and talk to a tax attorney. Can the 2% Acquisition Tax be paid before the sell are only at the time I bought the property
Thanks
Boyd
Hi Boyd,
You need to ask your Notario if the tax were paid at the time of your purchase.
The $13,000 estimate of tax implies that your Notario did not even subtract out the initial purchase cost.
Tax attorney or Tax accountant seems like a good choice to work with the Notario handling the sale of the property.
All the best,
steve
Steve
I found this document in my papers, I think this shows that the tax was paid (PAGO SEGÚN ARTICULO 4TO. LEY DE INGRESOS MUNICIPALIMPUESTO A PAGAR $) A.- PRECIO PACTADO, VALOR FISCAL O AVALUÓ
390,540.00
E.- IMPUESTO (2 % de C )
$ 7,534.13
B.- REDUCCIÓN LEGAL O 13,833.50
BASE SEGÚN ART. 75 BIS B FRACC. III
F.- RECARGOS POR EXTEMPORANE1DAD
MESES % $
C.- BASE GRAVABLE
376,706.50
G- TOTAL A PAGAR
$
7,534.13
D.- BASE GRAVABLE AL APLICAR FACTOR DE AJUSTE
SE DECLARA BAJO PRTESTA DE DECIR VERDAD QUE LOS DATOS QUE SE
ASIENTAN EN EL PRESENTE DOCUMENTO SE APEGAN A LA REALIDAD
FIRMA DEL NOTARIO,
NOMBRE Y FIRMA DEL CAUSANTE O
Looks like good news for your bank account.
steve
This discussion is helpful but doesn’t seem to cover construction of a new house and casitas, after purchasing the land. I have saved all my receipts but it seems my contractor may not have given me valid facturas. Any help is appreciated.
Elaine,
Yes, keep the facturas for the construction costs. Facturas should include the RFC number.
If you live here, and might want to keep 5 years of your comprabantes in your name, in case you want to try to qualify for the tax exempt status.
All the best,
steve
Just like Elaine, we bought land, build a casa and now want to sell. How, do we determine the value of our real estate now?
Kathleen
Hi Kathleen,
The value of the real estate is based on the catastral value (or your purchase price), until you sell it. When sold, the selling price is its value.
(or do I misunderstand what you are asking?)
steve
where can I get a copy of the new tax law on Capital Gains Taxes on Mexican Properties
It is not quite a “new tax law”: It came into force back in Feb. 2010. Maybe search the Mexican “federal register” in that month (or earlier) for the new rules. Maybe see http://dof.gob.mx/ but not everything is listed on the web. The print version of the Diario Official de la Federacion should have it. As posted in the article above, look for Article 109. XV. de La Ley del Impuesto Sobre la Renta (ISR) .
Pay special attention to Articulo 109 Fracción XV inciso a) de Ley del Impuesto Sobre la Renta, artículos 129 y 130 del Reglamento de la Ley del Impuesto Sobre la Renta, Regla I.3.10.7. y articulo Séptimo Transitorio de la Resolución Miscelánea Fiscal for 2012.
steve
Thank you for some very comprehensive information regarding capital gains, we’ve been trying to get the straight goods for years.
Is it your understanding that having FM2 status in and of itself is not an exemption from capital gains?
Is it true that you must prove that your Mexican residence has been your primary residence for 5 years in order to qualify for reduced capital gains, regardless of what type of immigration status you hold?
What is generally required as proof of primary residence and how stringent or scrutinized are these requirements?
Thanks for any help
Dan
Hi Dan,
Is it your understanding that having FM2 status in and of itself is not an exemption from capital gains?
Correct, unless you can find a Notario who will sign off on the waiver in the future.
Is it true that you must prove that your Mexican residence has been your primary residence for 5 years in order to qualify for reduced capital gains, regardless of what type of immigration status you hold?
Correct.
What is generally required as proof of primary residence and how stringent or scrutinized are these requirements?
Here’s a partial list, as noted in the article above:
~ 5 years of continuous copies of CFE and water bills, all in your name.
~ Proof that it really is your primary home, that you have not been away from your home much during that time. e.g. a total of 18 months cumulative of travel away from your home over the 5 years can be used as a legal test for saying that you have not been a resident.
~ You must prove that Mexico and the town your are in is you fiscal home and the main center of your professional activities.
~ The property cannot be used for income generating purposes within the 5 year residency period.
~ Possibly other stipulations, ordered by your Notary.
These are specific requirements of the law, but if you can find a Notario who will sign-off on approving the waiver without meeting these requirements, then their written sign-off gives you the deduction. As with all important legal things, get it in writing.
steve
Could someone please clarify the capital gains tax in more detail with respect to holding and FM 3 vs FM 2? My husband and I have lived in a home in Mexico for almost 5 years (it will be 5 years in early 2013). It is our primary residence, our only residence and we have been out of Mexico for perhaps 4 weeks maximum. We both hold working FM3s. It seems that we should meet all the requirements perfectly to avoid paying any capital gains tax. And it does not make sense that one needs an FM2 to avoid the tax when one cannot obtain an FM2 until you have lived here for 5 years with and FM3.
We are planning to return to Canada next year and have listed our home for sale. If in fact an FM2 is required than when we renew this year we will apply for an FM2, but it really does not make sense that one needs an FM2…
Thank you.
Hi Christy,
You are asking if you qualify for the exemption given to legal fulltime residents. If you translate “No Inmigrante” (a.k.a. FM3), it means you have chosen a visa status that is literally “not an immigrant” or not a resident – which means you registered as a temporary guest.
Temporary guests do not have the same rights or responsibilities as permanent residents or citizens. If you had chosen the INM path to permanent residency, then maybe a notary would agree that you qualify. FM3s are a temporary residency visa. e.g. Working FM3’s allow you to have a Temporarily Imported car, without nationalizing or permanently importing it, because the legal status you chose means you agreed to take the car out of the country when you leave Mexico at the end of your temporary stay.
On a positive note: If you paid the Acquisition tax when you bought the property, then you can deduct the annual depreciation. also If you kept facturas for any improvements, they also reduce any gains taxes owed if you sell the house.
Hope that helps you understand,
steve
Thank you Steve. Yes, your explanation is clear and provides a clear understanding .
Yes, we paid the acquisition tax, so helpful advice. With the FM3 we thought we might change to an FM2 after the five year period, but have changed our minds… So although I understand I don’t agree with the definition/law as applied to Capital Gains tax because we were and still are full time residents… but that’s life.
If we change to an FM2 this year will that make a difference?
Christy,
As we described in the article, you must have a Notario approve the homeowner’s exemption. In our experience, Notarios have not been approving the exemption to either FM2 or FM3 holders, but an FM2 puts you on the track for Permanent Residency (Inmigrado) status, which Notarios do sometimes approve for the exemption.
steve
Thank you for confirming.
Hi Steve,
What are the capital gains if you have Inmigrado status, and want to sell your commercial business? How are the capital gains figured out. The property was bought as a residence, then changed to a commercial interest, then part of it was changed back to a residential interest. Do I have to prove that the residential part was changed 5 years prior to selling, even if it was for many years commercial. (We converted the restaurant part of the property to our house, and have since lived in it for 4 years.) The rest of the property is commercial… So how do you break it up?
Thanks,
Janet
Hi Janet,
Base rates were about 28%, on your current basis. The basis is determined by your Notario, by deducting your recorded purchase price from your sale price, minus various possible additional adjustments – e.g. Do you qualify for this property as your principal residence and your fiscal home (to claim the homeowners exemption)? Did you pay the 2% Aquisition Tax? Did you keep facturas for improvements? etc etc – all of which affect your effective rate of taxes on any gains.
Since any exemptions from taxes would have to be approved by your Notario, and because your Notario is fiscally liable for his choices for you, then you really must talk with your Notario. He knows the details of your circumstances, and clearly we do not have enough information to answer. Also, since Feb. 2010 many Notario’s only approved the homeowner’s exemption for expats who are either naturalized citizens, or who have an active application pending with SRE for citizenship, so your Notario may choose to not allow any exemptions.
All the best,
steve
Hi. Writing for a friend who is internet minded. She bought a house in Merida in 1997 for $5000.00. She spent about US$15,000 to 20,000 to fix this ruin up, does not have her receipts.. She used to have a FM2, however, the last two or three years only had a 180 day tourist visa. She would ;like to sell her modest home, worth about US$75,000. Will she have to pay 28% on the amount for $70,000?. She is in a panic!!
Thank you for any input.
Meant she is NOT internet minded…sorry
Hi katrina,
First, she should seek professional advice from a good attorney or Notario. If she paid the 2% Acquisition tax when she bought the house, she could take the 3% per year depreciation allowance. Otherwise, since she did not become a legal resident of Mexico, then she owes taxes on the net gain. Talk with an attorney-Notario.
steve
Thank you for quick reply. My friend knows nothing about this 2% tax…..she will contact her notary. She is really worried about this 28%.
We purchased a home for 593,000 pesos, made some improvements (did not keep receipts), paid utilities and yearly real estate taxes. We are now trying to sell the home for 700,000 pesos and are being told that we have to pay 25% on the entire 700,000 pesos and not on the capital gain of 100,000 at 28%. We have consulted with a tax attorney and notario, and they say we have to pay the 25% on the entire 700,000 pesos because it was not our primary residence and we are foreigners (US citizens). This is very complicated.
Michele,
What was the purchase price listed on your deed?
Since your notario is financially liable for anything he signs-off, then your tax liability is in the Notario’s hands. Did you discuss his personal opinions on taxes when you bought the property? Your current Notario is taking a non-standard approach. Continuing: If your Notario did not have you pay the 2% Acquisition Tax, then you are liable for gains taxes on the difference between your official selling price minus the official purchase price listed on your deed, while if you did pay the Tax, then you can adjust the basis of the value of your home by deducting the Tax, and also deduct 3% per year due to depreciation (if you paid the Tax). These 2 additional basis adjustments are on top of subtracting out the original listed purchase price. These adjusted basis calculations have nothing to do with whether the home qualifies as your primary residence. If you home qualified as your primary residence, and you qualified as a resident of Mexico, then you would pay nothing…. Time for a new Notario and a new Tax accountant? (Find ones who know the laws.)
steve
We feel like we are at the mercy here. We have the deed with the purchase price of 593,900 pesos, and we did pay the 2% acquisition tax. How do I go about finding a reputable attorney/notario? The two that we spoke with claim to be “experts.” Would you do a calculation of what you describe above with the 3% per year due to depreciation. When does the 700,000 sales price come in?
Michelle.
Adjusted Basis:
700,000
-593,900 Purchase price
-11,878 from the 2% Aquisition Tax
94,222 is your adjusted basis.
Some notarios depreciate whole value of the property 3% per year, while others depreciate only the value of the buildings (excluding the land).
After subtracting the 3% per year depreciation from the 94,222 adjusted basis, you would then calculate the tax owed on that final figure.
Re good Notarios, ask a talented neighbor or maybe ask your physician ? – talking with someone in your local professional community, since professionals typically know who is good and reliable?
Since you know the rules, you could judge which Notario is good based on their knowledge of the rules.
steve
Steve, Thank you SO MUCH for your guidance. I will be meeting with a Notario later this morning to discuss the above.
Steve, After speaking with two notarios and being told that the 25% did not have to apply, I have been told by the bank’s notario (mortgage company for the buyer) that I have no option but to pay 25% of taxes on the sales price. I am paying taxes on my own money. In addition, I have been told that there will be no deductions allowed. So it will be an easy calculation for the notario … 700,000 less 175,000 for 25% taxes plus realtor commission. BTW, because the purchase is through a bank, I have no right to select a notario. I have to go with the bank’s pre-selected notario. It all goes back to I’m an extranjero (foreigner) so the laws are different for us. This is absolutely ridiculous – why would anyone buy in Mexico?
Michele,
So sorry that it is working that way. As the 2 Notarios told you, according to the law, you really should not be paying, but it is your Bank and your Bank’s Notario that is causing the problem. This is why we advise potential buyers to ASK their Notario, BEFORE the sale:
HOW WILL YOU HANDLE THE TAXES if we sell the property in the future?
So, this appears to not be so much a “Mexico” problem, as you have a problem of having a bank and Notario who choose not to follow the Mexican Laws. Is it worth paying a lawyer to fight the payment of excess taxes? This is like having a bad tax accountant or bad tax attorney in the United States, getting bad advice, paying too much, and then wising-up and changing to a good accountant, but with your bank, you are forced to use their guy.
What bank do you use? (so others can avoid them)
It is really crummy that your bank forces you to use their seemingly incompetent Notario.
*sigh*
steve
I had the same problem here in Tijuana so I refuse to sell with the banks notary and told the buyer that if he still wanted the property he would have to go with a notary that honored the new tax code. If we give in to the bank’s request and the notary’s that do not understand the new tax law it will hurt all of us. I had to do some owner financing to get my property sold but I did not pay any capital gains tax at all because of the 3% inflation clause in the new tax law.
_____
Well Done !
Is the 3% inflation clause, linked with the acquisition tax that you paid when you bought the property? What document will show whether or not you paid the acquisition tax?
Dan,
Yes, by “linked”, I think you mean to say that you can claim the 3% per year depreciation only if you paid the 2% Aquisition tax when you purchased the property, plus the Aquisition tax is also deductible. Your payment of the tax should be shown on either your sale document you received from your Notario, or it should be shown on the statement that your Notario gave you. These things vary by State to State and even by office to office (por Catastral?), so we can’t tell you exactly whether you paid the tax nor where to look.
Was there a mysterious 2% increase in what you paid vs. the Sale Price + Notario’s Fees?
steve
Heaven help us if we have to sell the casa we’ve just built before we’re eligible for Mexican citizenship. We’ve just sunk a fortune in to our main casa construction and will be hit with hefty capital gains if we have to sell for some reason. We’re out in the boonies with a dirt road and no street names or address or mail, and no utility services or water bills to prove that this has been our full time residence for 3 years and will continue to be. We’ve found ways around the no-address or utilities issue in the past: To open a Mex bank account we had to spend the night in “town” and used a hotel bill and the hotel became our “residence” address. For FM2’s and 3’s I’ve use our lot number and geographical location to make up an address. I doubt that a notario will be so flexible when it comes time to show proof of primary residency and we’ll get reamed with tax! There must be others who live in remote areas of Mexico and have the same issue.
Hi Cindy,
You certainly do have a unique situation. Have you talked with a good Notario about this? I would talk with several to find out what options they might consider to grant you the gains waiver, since one of them might agree to approve your claim for the waiver. On the other issue, 5 years of proof of official Residency is one step in the requirements to become Naturalized Citizens, so, the same issue may pop up there, when you go to prove residency to SRE? Maybe 5 years of rarely leaving Mexico, as shown by the stamps on your passports might be enough, or maybe a letter from your Notario, certifying your continuing residency might be sufficient (like how renters get a letter from their landlord). It might also be worth a trip to a good immigration attorney with a good track record of getting Naturalized Citizenship applications approved to get their advice on your peculiar situation.
All the best,
steve
The update on my situation is that the Notario has given me only one option – pay the 25% tax on the entire purchase price not on the capital gains. This is ridiculous and unfair. I am paying taxes on my own money. The advice is to find a good Notario, but how do you find one? It’s a small community of Notarios, and each one interprets the law differently or is not willing to change their stance. Because they are responsible for any impuestos that are not paid, they don’t want to take the risk. My lesson learned is to never buy another property in Mexico.
Can you cancel your sale that is forcing you to use the bank and their bad Notario? (giving back any earnest monies?)
Then sell directly to the buyer, using a Notario who knows the law? I would talk with a talented attorney to find out your options.
steve
HI Steve, i’m Maurizio from Italy and i have a question i thought to be very simple..but i was not able to have an answer! I’m going to buy an apartment in mexico city. As i’m foreigner citizen may i rent it? Thank you and sorry for my bad english!!
Hi Maurizio,
Here are your legal options. Legally, you would need to handle it one of 2 ways:
1. Set up a Mexican Corporation and have the corporation buy the apartment, and then you can legally rent it. or
2. Get an INM residency permit that allows you to earn income in Mexico, like “Residente Temporal Lucrativo” or “Residente Permanente“.
steve
Thanks for your quick and clear answer. I forgot to tell you i’m married with a mexican woman. Perhaps this could open a better option?
Maurizio,
Either put the property in her name, or make her a partner in your corporation. Every Mex. Corporation needs 2 stockholders.
steve
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Thank you for this in depth article. A question to follow up on Maurizio’s regarding buying property through a corporation. What are the capital gain rates for someone selling a property owned by a Mexican corporation? In other words, are there any capital gains advantages at the time of sale if the property is initially purchased through a Mexican corporation?
Corporation owes the taxes.
You really have not given enough supporting information to answer your question. e.g. Of the three categories of real estate property: commercial, rustic (no buildings), residential (with a home), which one is yours?
If yours is a commercial property (e.g. a home on which you have collected any rents), then taxes are imposed proportionally with the profit made when calculating the price paid at purchase and the amount paid by the buyer when it is sold. The controlling Article 109. XV. of the Ley del Impuesto Sobre la Renta (ISR) has the rules for capital gains tax on property sales… and has only 28 chapters on exemptions, adjustments, and how the tax is determined.
Since we really are not prepared to address these issues – you should contact a licensed Mexican tax expert, like a good tax attorney or better still, a tax accountant.
steve
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I don’t have a reply but a question. I am about to buy a house in Merida that is sold MX200,000.00 below the valuo catastral. Is this difference of MX200.000 the basis on which the buyer has to pay 20%, in other words pay the seller’s capital gains tax of 5% (he is Mexican) plus the difference of 15%? Since I also want to pay the 2% adquisicion impuesto for tax purposes later when selling, what should I do? Pay up front but have the seller reimburse me the 20% on a separate check or in cash when closing. Thank you for your answer. Viktoria
Good Morning Viktoria,
Only the seller pays gains taxes. You pay the seller his asking price, and you arrange with your Notario to pay the additional 2% aquisition tax.
The question of paying some separate check “up front” and being reimbursed later does not make sense to me.
steve
Thank you , Steve. If it only were this easy. I might not have accurately presented this deal. Unfortunately, in this case where the sales price is lower than the valuo catastral price, the buyer pays 20% on the difference. The seller sells his property for MX600.000 but the valuo catastral is more, it is 800.000 MX. I am being told by my notaria that the buyer pays 20% on the difference between the sales price and the valuo catastral which is 200.000MX. In other words, I would have to add MX40.000 (20%) to the sales price. The Mexican seller obviously is aware of this, therefore sells under price to avoid paying his capital gains tax. Since I am not wiling to pay this 20% on the difference between the sales price and the avaluo catastral price, I was thinking of negotiating with the seller that I pay this amount upfront for it to be part of the escritura and have the seller reimburse me the 20%. Or do you know of another way to solve this problem? tMurky I know.
Hi Viktoria,
Since many past Mexican real estate sellers have intentionally reported artificially low sales prices to not pay gains tax, this appears to be your state’s way of addressing the problem of artificially low reported sales prices. Before this approach, the buyer would ask for $1 million pesos for the house, but he would want $300,000 pesos in cash under the table, and he would report only a $700,000 final sales price (cheating the government out of about $100,000 in taxes).
By forcing the seller to make up part of the difference of an artificially low purchase price, it allows the govt. to effectively nearly recover the missing 28% gains tax owed… This appears to be yet another area where the cheating by a few people cause the honest folks to suffer later – as the government tries to close the loopholes used by the cheaters… bummer.
Could you ask your Notario if this is a nationwide policy?
You could check with another Notario to find out if there are any other options.
steve
If you purchased a home prior to the de-evaluation of the Mexican peso, what buying price do you use to figure you captial gains (the amount you bought if for or adjusted amount due to the de-evaluation of the peso)?
KSW,
I don’t know. It makes sense to use a valuation based on the value corrected for the devaluation (the higher value), but this really should be answered by a tax lawyer or tax accountant.
stev
Hi Steve,
We will be closing on our house in the Lake Chapala area and will be purchasing another home in the same area in a month. We have only lived in Mexico for a year and both my husband and I have the permanent visas. If we decide to sell our second home in a few years, we would not have met the 5 year of residency, however if we sell our house for less than the purchase price would we be subject to a capital gains tax?
Hi Zan,
In theory, no, you would not be subject to a tax on gains, because there would be no gains. Still, the Notary who brokers the deal must agree to this accounting procedure (subtracting the earlier purchase price from the final selling price). Did your original purchase include reporting the entire purchase price to the govt? or did your previous Notary log an artificially low purchase price with the catastral office?
If your Notary for the upcoming sale agrees to subtract out your purchase price, and your previous Notary recorded your full purchase price with the govt., then it should all be fine.
Note that in some markets the buyer selects the Notary, so be sure that your buyer uses a Notary who makes the purchase price deduction, because a few Notaries do (inappropriately) assess the 28.5% gains tax on the whole sale price.
steve
Thanks Steve,
We will make sure the Notary records the full purchase price on the house we are in the process of purchasing.
Hi Zan,
Good feedback. You might run into an unexpected tussle on this one. In many Mexican real estate markets, the Notarios have recorded falsely low sale prices, for decades, to give the previous owners a break on their gains taxes, (showing a low price in the recorded records, with under-the-table cash payments to the sellers to make up the differences). Unfortunately, this rolls forward onto future buyers who may wind up carrying extra gains that were not reported by the previous buyers’ Notarios. In the world of “go-along / get-along”, many Notarios do not want to upset the system by reporting the actual sale prices – because it reveals their and their brethren’s other transactions as suspiciously low???
steve
Hi Steve,
So my next question is….if we sell our house before the 5 years is up, do we pay tax on the gross sale of the house?
Hi Zan,
Again, in legal theory, you deduct the purchase price and the Acquisition Tax and depreciation (3% per year on the buildings – if you paid the 2% Acquisition Tax when you bought it), and any other allowed deductions from the sale price.
It can take a tax-specialist Atty or tax-specialist Accountant to get all these things right, since these are not part of a Notario’s typical training.
After 5 years, the Notario for the sale may qualify you for the homeowners exemption – but it can be difficult to qualify for.
steve
I have been issued the “Residencia Temporal” visa in the local consulate, and I will exchange the visa for the Temporary resident card in the INM office when I in mexico. When in Mexico, I want to buy a home to live myself but also want to rent out some of the rooms. However, when I read the messages above, I notice in order to rent out the rooms legally. I must:
“you would need to handle it one of 2 ways:
1. Set up a Mexican Corporation and have the corporation buy the apartment, and then you can legally rent it. or
2. Get an INM residency permit that allows you to earn income in Mexico, like “Residente Temporal Lucrativo” or “Residente Permanente“.” or “Residente Permanente“.
Because I also live in the house, so the first 1 set up a mexican corporation is not an option. I don’t have an employment offer, so my status is only Residente Temporal, not Residente Temporal Lucrativo. Can I apply for Residente Temporal Lucrativo even I don’t have an employment offer, If I am Residente Temporal non- Lucrativo, Can I still rent out some of the rooms in my house? I have no problem to pay rental income though.
Hi justin,
Your desire to to the right thing is admirable. Because the Mexican ISR (tax code) is so dense, even the sharpest Mexicans hire accountants for these things – or take in renters under the table. This points to hiring a good accountant to advise you, and this accountant likely knows a good lawyer who can advise you on the subtleties of the law. This pair may point to some work-around in the law that allows you to set up the corporation, even with your living plans. If you don’t like their proposals, you can change your residency estancia to allow you to ear income – or possibly go to a Residente Permanente (if you have a cumulative, consecutive 5 years of prior residency in Mexico – or if you have sufficient savings or sufficient monthly deposits).
Can you rent out rooms? Sure, as long as you can find paying tenants. Is it legal? Likely not. How should you do it? That answer’s beyond my pay-grade.
I would talk with a good accountant.
Why pay taxes?
If you like Mexico, and want her to continue to grow and prosper – effective collection of taxes is one key area that distinguishes countries with a solid future vs. those that are just getting-by.
steve
Hi Steve
Thanks for the answer. The visa from my Consulate does not indicate whether Residente Temporal Lucrativo or Residente non-Lucrative. I assume it is non-Lucrative because I don’t have a job offer. When I bring my visa to INM, is it possible or how easy to change from Residente Temporal non-Lucrativo to Lucrativo if I don’t have a job offer? Although My financial saving and income is much more than the requirement of Residente Permanente, I did not apply for that in the consulate because the consulate officer told me that the Residente Permanente visa is for retiree who receive regular pension only. I am not a retiree and do not receive pension. If I bring the Residente Tamporal visa to INM and show them the financial documents, would that be possible to change the Residente Tamporal to Residente Tamporal ? (I will be in Mexico in August)
Hi Justin,
Yes you can change to a working Residente Temporal while inside Mexico.
Yes, you can change from Residente Temporal to Permanente while inside Mexico. Some INM offices were accepting bank statements and financial/investment account statements in the recent past to qualify for Residente Permanente. In the meantime our Merida INM office personnel have been instructed by INM DF that they must only accept pension income documentation to meet the requisito for personal fiscal solvency. I can’t say what your local INM offices policies will be this August. The changes have trended toward accepting only pension/retirement account disbursements.
steve
Hi Steve
Your advise is very good. When I spoke to the local consular office, she told me that I compliance with the requirements for the permanent residence visa. she said if I like, she can cancel my temporary resident visa in the system and issue me the permanent resident visa. Now I have got the permanent resident visa, but she also told me that this is just pre-approval, at the end it is up to the INM to decide when I arrive mexico. So my questions are: what is the likelihood I could be turned down by IINM and they can decline to issue me the permanent resident card? If they don’t issue me the permanent resident card, will they still issue me the temporary resident card? What additional documents they might ask so I can prepare before I arrive mexico?
Hey Justin,
The good news? Once a Mexican Consulate has made a decision and approved a Residente Permanente, the INM has only approved them (as long as you get here within the 180 day window on the travel visa – and go to the INM office before the 30 day expiration date).
steve
sorry, my last sentence is that would that be possible to change the Residente Tamporal to Residente Permanente
OK I am more and more confused with this. I have no Residente Tamporal to Residente Permanente status – just a tourist. If I purchase condo of some $200,000 USD my capital tax gain payable to Mexican gov (after sale) could be as high as $70,000????? Is that possible?
Hi Aaron,
Only if the Notario that handles the sale is an idiot and does not know the law.
This does happen, which means you must only agree to use a Notario who knows to deduct your official purchase price (as listed with your catastral office) from your selling price.
You pay 28.5% taxes only on difference between your selling price minus the expense and deduction adjusted basis => you owe tax only on the NET PROFIT.
If you become a permanent resident or a citizen, then you might qualify for the homeowners exemption from taxes.
steve
Thank you Steve, however I understood the following:
~ * ~ If you own a property using a Fideicomiso, you may be trapped into whatever policy your Bank’s Notario chooses. e.g. In the worst case: The Bank as Fideicomiso trustee, and their Notario, can refuse to accept your proposed sale of your property, unless you pay 25% of the full sales price….”
as said: 25% of FULL SALES PRICE …not 25% of capital gains amount …..(if any)…?
I am missing something in this tax story? Thanks
Hi Aaron,
Yes, I think you are missing that it is the buyer who frequently chooses the notario. Banks generally have no say in which Notario is used, unless the Buyer gets a mortgage from a bank (unusual – since most real estate deals are cash deals).
So, when you are approaching an agreement with your potential buyer, as the seller you may want to insist that the buyer use a Notario who knows and agrees to deduct your prior purchase price, plus deducting any allowed depreciation (up to 3% per year) and allowed expenses.
If you are the Buyer, and you choose to use a Fideicomiso, then only choose a bank that has a Notario who follows the law and approves adjustments to the basis.
This really is one of those areas where knowledge is power,
steve
Indeed …will add the above to my list of risks….long, long, list…..Thanks a bunch for your help!
Steve,
I am about to purchase a home in San Benito outside Merida. You have been a great help in clarifying the capital gains tax requirements. However, I am now a bit confused about the notario piece. I have contacted a notario upon recommendation who has agreed to do the work for me. The property has an existing bank trust. Past comments and replies seem to indicate that I will be required to use the notario from the bank which currently holds the trust, is this the case? The contract as written states the full purchase price but also states the transfer tax will be based upon the current appraised valve as determined by the municipal catastra in Merida. Do I assume correctly the the later price determined by the catastra would then be considered my cost basis if and when I sell the property ?
One other unrelated question, is title insurance wise to obtain ? I have heard two sides, one being that the purchaser is safe when a bank trust is involved. Another side being that the bank will not research the title but will only give power of attorney the defend title for the beneficiary of the trust should a dispute arise. Any thoughts?
Thanks
Hi Steve
I am going to buy a property to live in Mexico. Just a question about the Notario thing. When buying property in my country, both the buyer and seller have their own solicitors. On the settlement day, both solicitors meet and finish the transaction. From the discuss above I can see, in Mexico both the seller and buyer use the same Notario. So who choose the Notario, the buyer or the seller? Any other things I need to watch for when buying property in mexico? And one most important question, how do I pay for the 10% deposit and the final balance? Pay to whom (the agent, the seller, the natario? by cash? check? account transfer?
Thanks
Hi Justin,
Excellent questions. Here in Mexico, the buyer typically chooses the Notario. If the property is owned by a fideicomiso, then the bank’s Notario (representative for the Fideicomiso) will be driving the bus. If you are buying using a fideicomiso, then I am not sure how it is handled between your fideicomiso bank’s Notario and the seller’s bank’s fideicomiso Notario… If your property is more than 50 km from the coast or the border, then there is no need for a fideicomiso.
Re the escrow deposit: Since there are basically ZERO regulations controlling real estate agents and sales (outside of tax requirements), buying and selling properties is the Wild Wild West in Mexico => no consistent policies and lot’s of opportunities for problems. Good real estate agents have processes set up for a reliable “party” to hold the escrow $$. Some Notarios provide this service. Sometimes the estate agent holds the escrow, but because the agents are NOT licensed and are NOT regulated in any way, they run-off with the deposits sometimes -…”Ummm… the seller chose another buyer, and you “lost” your deposit…” .
Because of total absence of regulation and NO licensing nor testing of estate agents, we really need to hear from OTHER posters/readers about all the specific tricks and traps that are out there – and hear creative and constructive solutions about how to avoid the problems.
If we don’t get many responses, I would go onto a good national forum, like Mexconnect.com , and ask the experienced folks there. Smaller local forums like Chapala.com can generate some good comments, but realize that there are tons of crackpots and crusty-grumpy-guys there whose advice should be ignored. Yolisto.com exists with some local folk from Yucatan, but the pool of talented people answering questions there has become very small and very biased. Yolisto’s owner-Administrator has so-heavily manipulated the content and over-controlled what’s allowed that the advice on Yolisto is just not reliable, and is likely to steer you in bad directions.
The 10% can be paid however you like. Bank to bank wire transfers are the most common route, but cash also works. Checks can work, but realize that Mexican banks can act in very difficult ways with checks sometimes…. We have seen them reject checks much more often than in the USA or Canada, due to things like incredibly minor variations between the signature versus what they think the signature should be, etc. Cash can cause problems, because any cash deposit over … $25,000 pesos per month(?) to an account triggers a 2% tax on the deposit, while bank-to-bank transfers are tax-free (as the Govt. attempts to tax the very large underground Mexican cash-only economy).
Hope that’s a good start to answering your questions,
steve
Hi Steve
You are really helpful and definitely make my way to Mexico easier and smoother. Another question about buying property is the contract. In my country, the contract is simply the template from the government publisher which every seller and buyer use. the agent simply puts the final selling price, adds or deletes some terms and conditions that are negotiated by both the seller and buyer. Then both the seller and buyer sign, then it becomes a legal contract. then the copies of the contract will be send to both the seller and buyer’s solicitor for future settlement. In mexico, who draw the contract? How does the contact done?
Thanks
Hi Justin,
In the Wild Wild West of Mexico, there is no convention or common policy or common form for real estate contracts.
In fact, you may be taking a little too “real estate agent” focused view of things.
Reality for many (most?) home sale transactions is that NO agents are involved.
“Trato directo” really is King !
This means the buyer deals directly with the owner – and you (the buyer) choose the Notario to manage the sale, investigate the “title”, MAKE SURE THAT THERE ARE NO UNPAID BILLS on the property (the new owner is responsible for any old unpaid power bills, utility bills, mechanics liens, encumbrances, all taxes paid, etc) – Since the buyer assumes all these risks and all these past fiscal liabilities, then the BUYER CHOOSES the Notario – because the Notario really is protecting the Buyer’s interests – except for the Notario’s choices on how to handle the gains taxes that are withheld from the Seller final $$ received…
Messy??? Heck yeah !
Risky? A little, if you do not educate yourself.
Hint: Find a very talented, very honest, very hard-working Notario….
Reality? The Notarios actually generally do NOT do the real work – as they have teams of low-paid young abogados (lawyers) who do the actual title searches, searches for unpaid bills, searches for encumbrances, resolutions of other family members claims on the property, determination of taxes owed etc… so….
This means that both the long-term and recent short-term reputations of “the Notario” are really important – where the people (gringos) you ask are likely personally emotionally-invested to proving to others that they made a good choice of Notario. This is kind of like choosing an architect: Many of the top-name big-reputation architects do not actually do the best job, especially because they charge the highest rates and have the least amount of personal time for your project – (busy with many projects) – meaning the buyer pays the highest rates for the least amount of attention – and likely gets the latest whim of the big-name architect – or gets yet another knock-off of what the architect has done 100 times before (and is bored with) – or gets secretly pawned-off onto some young architect in the firm, while paying top drawer prices…
Recent performance on your type of real estate deal really is the key…. Does the Notario still have good talent in their pool of assistants? Is the Notario’s team actually doing good thorough work on EVERY deal? or does the quality of the work depend heavily on which young abogado-assistant your sale actually gets….
Know also that signing a contract with a seller in Mexico really does not mean a lot.
As with ALL contracts, the contract is only as good as each party’s intent to follow the contract, and the willingness of the offended party to sue. Lawsuits typically take as much as 3 to 5 years to work their way through the system, and the outcomes are often seemingly arbitrary – and prone to one party’s lawyer having more juice than the others with the Judge – and prone to pay-offs – and rack up large lawyer’s $$ fees…
So, is that “enough-said” about Mexican real estate transactions?
Consider also that real estate agents often “list” properties on the websites, where they have no ZERO relationship with the property owner – where they just cruise a town, take fotos of properties for sale (by owners or by other agencies), and then post the fotos on their real estate websites as if they actually represent the property owner – even making up bogus prices.
Note that many many real estate agents also list properties that are already sold, because the look so good and seem like really good deals. When you inquire, they give half-ar**ed partial tours of the property – and then make a series of even more half-ar**ed excuses about why your “offer” has not been accepted. Bait and switch are common too… … making the real estate agency route a potential trip through the sewers … where the agents collect 6% to 12% fees for doing almost nothing – other than serving as tour-guides for local properties pulping-up the deals through their gift-of-gab – offering questionable worth(?), since the Notarios and their teams do the real work. and when it is all said-and-done, some real estate agents renege on the deals or the seller finds a buyer willing to pay a higher price – and your deposit “disappears”….
Still, if you find your own property…. Have the property check-ed out by an construction expert knowledgeable in local building problems and local building materials and methods – to discover the up-hill drains, termites in the concrete or inside the blocks, discover the rusted-rebar inside the concrete, identify the mouldy concrete – covered by paint, identify the concrete damaged by “rising damp” currently hidden by paint, discover the old or overfilled sumidoros (fosa septicas), leaky roof, PVC white pipe on the roof water system that is full of algae inside, etc etc…
If you find your own property to buy, determine if the seller seems honest and honorable… Have good Notario determine if the property actually can be purchased (that it is not tied up by some unresolved $$ claim from 1968 or family member that thinks their father deserved to a share of ownership, etc)… and only then make a real deposit with a reliable 3’rd party…
I personally recommend:
~ Find your own property.
~ Find your own good good good Notario.
~ Negotiate your own price directly with the seller – to avoid the estate agents’ games played-upon both buyer and seller that serve to increase their commssion…
~ Find your own good good property inspector
~ Get solid recommendations from people who actually know the players and actually know the market – e.g. don’t necessarily trust the advice of various gringos who have bought or sold just one property.
~ Make sure the price you pay is actually the price that is reported to the Mex. Gob. – to keep you from having to pay excess gains taxes in the future.
~ Pay the 2% Acquisition tax, to be able to claim future 3% per year depreciation on the property to lower future gains taxes when you sell.
… and the opinions of other happy (gringo) buyers are not necessarily valid, because no gringo wants to admit that they made mistakes, nor do the gringos want to reveal that they personally did not get the best possible deal, or that their personal choice of estate agent or Notario was less-than-perfect.
Me? I think even the most beautiful thing has its imperfections, and I trust the judgement of a bright, insightful educated-consumer who is willing to point out and accept the minor flaws and pitfalls.
Based on the questions you are already asking, I think you may do a much better job finding the property yourself, than any real estate agent could do. Remember: The estate agents pretend to represent the Buyer, but in reality, in Mexico, they represent themselves and their Notario buddies and architect buddies – maximizing what you pay to them and their friends.
Me? I have personally bought and sold 6 different properties here in Mexico and in the USA, all without realtors, and all deals went well.
Educate yourself, do your homework, do your due diligence well, do the overall job(s) well, select good experts and good advisors, and you can find yourself with a really fine property that meets your needs for years at a good price – ~ with a minimum of hassles.
steve
I have property u dear a corporation which I’d dormant. What would be the best …. Sell corporation or just transfer shares and the proceeds will come to me by way of repaying loan.
Thanks
Carole
Hi Carole,
Not enough details to know what choice to make.
I would talk to the attorney or Notario or accountant who is involved in administrating the actions and doing your taxes.
steve
Hi Steve
your answer is amazing. What is the best way to find my own property, what resource or which website should I look at.
Hi Justin,
Where are you planning to buy?
Many of the best properties are only identified by “For Sale” signs on the properties. Learn what neighborhoods fit your needs, and then drive those neighborhoods. Many old-timers to Mexico advise living in an area for 6 months as a renter, before deciding if it is the right place for you.
Also, as you look for properties, consider whether there are any Salas de Fiestas etc near your potential property that make thunderous noise on weekend nights.
Arturo Novelo (999 127 1481 or ” R2rito ” on Yolisto) has been incredibly insightful and honest about life and real estate in Yucatan, plus he is one good guy. Other than Arturo, I have no idea which realtors are good or bad, but a number of people have said OK things about Mexico International Real Estate, though my perception is that they charge premium prices and premium fees.
???
steve
I need help. I own my home in a corporation. 1) The purchase price was recorded incorrectly as I was told “this is how we do it in Mexico to avoid capital gains to the seller, and when you sell it, just do the same thing.” So I am worried, really worried about capital gains tax. I am trying to figure it out by reading your examples to other but I haven’t been able to work through it yet. (sorry) My purchase price was $116, 000 ish, recorded price roughly $30K USD. 2) If I want to sell it to someone who needs owner financing, how does this change my capital tax gains situation. 3) WHO is a reputable notario who can assist with with these issues, and same for accountant. The people I have worked with never seem to be able to answer my questions, or are just flat out nonresponsive. Thanks.
Hi Mary,
$116,000 vs $30,000 recorded => ouch.
In an owner-finance situation, I cannot see how to make a legally binding record of your finance agreement without reporting the correct sale price. If you sell at your prior $116,000 purchase price, you would owe 28% tax on the $86,000 difference.
By choosing to use a corporation, I don’t think there are any Notarios who will approve you for the homeowner’s exemption, to save you the $24,000 in taxes. Unfortunately, it seems you will be responsible for the taxes.
steve
Would it be different it I sold it outright, not by owner financing? Also I’m confused about this statement from above:
Finally, it is also worth noting that the tax is actually not a capital gains tax, but just a tax, and the taxable value is based on the purchase price shown on the bill of sale: When many Mexican sellers list a low price on the bill of sale – with cash payments on the side to make up the balance – they have shifted future capital gains taxes to the new owner.
I have the bill of sale from the owner showing the correct price. I have no idea if or where another bill of sale was recorded because it is not in my paperwork. I know it was recorded somewhere so that the previous owner shift the capital gains obligation to me..I just dont’ know where it was recorded. Does that make sense?
PS I could not get the homeowners exemption anyway, I do not reside in the property.
On another note, I am wondering why notarios cannot be held responsible for what appears to me to be breaking the law by misrepresenting the purchase price of a property? I really don’t understand that. And if that is not an appropriate question for this site, I apologize in advance!
I agree. When writing the earlier reply, I had the same thoughts about how unfortunate that the homebuyers take all the responsibility when this happens.
Do you have a recommendation for an accountant? I really need some advice and the only one I have used in the past is connected with the firm that passed on the capital gains taxes to me, so I really don’t trust any of those connections.
Also what entity has the recorded price of the purchase? I can’t find it in any of my documents, but all are in Spanish so maybe I just don’t know where to look. thanks.
Never mind, just realized I already knew this when I read an earlier post…This does happen, which means you must only agree to use a Notario who knows to deduct your official purchase price (as listed with your catastral office) from your selling price.
Here is my situation: We lived in Mexico for 13 years and purchased a house there in June of 1999 . The sales price was aprox 72000 U.S. dollars On the deed it is listed 113942 peso. In the document is stated impeusto al mu nicipio al 2.00 = 2278..85.Is this the so called aquasision tax ?After purchase we added a floor and did some renovations. We assumed if we had taken out a permit (wrongly assumed) that the municipal authorities would re assess the property. This was done in 2002 . We recently were asked if we had reported this (which we had not done) ( in Canada a building permit is a red flag to go and re asses a property so they get more taxes.) This year ,after a immigration lawyer asked ,we went to the municipal authority and they re assesed out property. adding 580,476 peso to our original 551000 original volor fiscal. I do not have any fracturas for the work done. How does this play out for capital gains if sold for say 170 thousand US dollars. A year ago we returned to Canada and because of medical problems were unable to return to Mexico to renew our fm3 and there is no way according to this website as I see it to qualify for a tax exemption even if I applied for a permanente.
Hi Ed,
Yes, your records show you paid the 2% Acquisition Tax at the time of sale, which allows you to take a 3% per year deduction on the property value (up to 10 years). You would have to have your Notario for the upcoming future sale describe how he would calculate that deduction, (with the large appreciation of property value over the past 14 years), and how he would determine the 28.5% taxes on the net gain.
Best of Luck,
steve
Thanks Steve Now it looks like the notary at the time , did what you say they did years ago , put in a small value for the property to benefit the previous owner (would have been a small amount as he was Mexican ) even if i increase by 3% per year it would make such a small difference unless there is a way to actually have an accurate way to calculate the actual sale value compared to the selling price. Would the notary have records of this ?
Hi Steve, Sorry for the confusion Our castral is on the land only. We haven’t been upgraded to include the casa that we built. My question is how do we determine the value of both the land and the new casa? Is there an appraisal process and if so done by whom? The municipality or do I get a private one done? As you can see the capital gains would be rather high if only based on the land. Hope this is clearer, Kathleen
Hi Kathleen,
Contact the office of your catastral. When they re-assess your property, you will be paying much higher property taxes.
Do you have facturas for all your construction? If you have facturas, you can deduct both the original purchase price of the land AND the construction costs from the future valuation (or sale). Hopefully, you get a fair valuation from your office in charge of property assessments.
This might be an area where a good notario could help,
steve
what is a catastral ?
Hi Ed,
I just realized that “catastral” is likely just a local Yucatecan bastardization of “catastro” and “estatal”. Catastro is a formal government record of the description of a property and its building(s). Kathleen effectively wants the government to update hers to show the building they constructed.
In Yucatan, the catastral is the State of Yucatan version of the catastro for our properties.
steve
this is like a land titles department in Canada. I recently got the value of my property in Mexico upgraded because I thought a building permit would trigger an evaluation for tax purposes but that is not so in Mexico. So I reported it , paid a fee and now the evaluation on my taxes are about double. Which is fine for me if there is a way to extrapolate this to a TRUE value of the selling price.and give me aq break on capital gains
I have no fracturas for the construction that happened in 2002
Thanks Steve. Yes, I’ll have a chat with a notario. Thank goodness I have all the facturas! Another related question. We will be selling our casa furnished and that will be part of the purchase price. Can we separate out the value of the furniture, appliances, etc. from the sale of the land and casa? Logic says yes, but who knows? Kathleen
If you do not have facturas there is a special tax appraisal that can be done to raise your basis and lower capital gains exposure.
Also with the new tax reforms they are capping the amount you can exempt to be 700,000UDIs (UDIs are an index which is currently about 5.02). This means that after January 1, 2014 you can exempt from payment of capital gains tax a gain of up to $3,500,000 pesos, any gain over that amount will be taxed. Also remember if your land is more than 3 times of your building footprint you will pay capital gains tax on a sale.
Good good points!
Are the Notarios in your area approving Residente Permanentes for the 5-yr Homeowner’s Exemption? (or can only citizens expect to have Notarios approve the exemptions?)
Thanks, steve
I read this response by Mr. McMullen and would like to know how to go about requesting this special tax appraisal from the Catastro in Progreso. Are there any fees involved and does it require you to pay any back taxes or any percentage of the new appraised value at the time the new appraisal is issued or would you just begin paying the new predial amount at the time the next tax is due? If they want to charge me a huge fee for that, seems I might be better off just letting it go. What type of capital gains would I be looking at if I sold for (let’s just say) $200,000 USD? I paid $129,000 USD on October 16, 2006 and the recorded purchase price was 497,000 MXP. The Catastro value is recorded as $492,140 MXP…and only $88,140 MXP of that appears to be for the construction…the rest seems to be for the land itself. Here are the other details taken directly from the email from my realtor. I can’t tell whether or not I paid the acquisition tax. I have no official bill or closing statement from either the realtor or the Notario…only this.
EXPENSES
A)
RIGTHS AND FEDERAL TAXES: $ 5,573.00
2% OF THE VALUE FOR THE CITY TAX: $ 9,940.00
LAW FIRM FEE: $10,500.00
SUBTOTAL 26,013.00 MXP X10.70= 2,454.06 USD
B) WIRE IN, WIRE OUT, ESCROW FEE $255.00 USD
Fiduciary fees for the cession rights $3,629.05 MXP x10.60=$342.37 USD
Fee for the national Registry of foreign
Investments$1,358.00 MXPx10.60= $128.11 USD
Subtotal $725.48 USD
———————
3179.54 USD
c) Price agreed $129,000 USD
A + B + C= $132,179.54 USD
Credits Deposit $12,900.00 USD
-—————-
Amount needed to be sent 119,279.54 USD
I have done all of the improvements without receiving proper facturas. I did get a permit for the second floor addition and I too, wrongly assumed the property would be reassessed by the authorities when I applied for the permit and had completed the remodel/addition.
I confronted the notario about it and pointed out that there was a sales contract with the correct purchase price on it and did he not have an obligation as my representative to verify that the correct price was recorded. His response was that he relied on the information given to him by the realtor…who, by the way, was the agent for the seller and the owner of the real estate company. And one of her agents was my realtor. I wonder if he felt obligated to look the other way since she was his boss. Anyway, the notario apparently just took her word for it…as she was working in her client’s favor. How convenient, yet so very unscrupulous.
Hi Kaye,
I am NOT a legal expert in this area – but if you were to sell the property today for the proposed $200,000 USD => $2,587,576 MXN pesos, then a BACK OF THE ENVELOPE very crude estimation would be that you owe 27.5% taxes on the net gain of ( $2,587,576 – 497,000 ) = $2,090,576 pesos net gain
Crudely calculated: 27.5% of $2,090,576 pesos net gain => 574,908 MXN pesos or $44,463 US dollars in taxes.
This calculation is a crude crude estimate! Do not use it or rely on it!
Still, our best understanding is that you would owe no back taxes if you file with the Catastral office to have your property value re-assessed now, and you would only pay the appropriate predial taxes going forward – appropriate taxes which you incidentally have not paid for 8 years.
Feel free to contact Spencer McMullin at Chapalalaw.com , and ask his professional opinion, because our understandings do NOT include the Jan. 2014 changes to the ISR (Mexican tax code). I have read in another web-source that real estate sales are being taxed at 35% since the latest changes… ASK an EXPERT.
All the best,
steve
I inherited a home in Mexico and want to sell it. What kind of taxes am I looking at. My late family member purchased the house at the height of the market at US 299K and I’m hoping to sell it for around that price or lower. Thanks!
Hi Val,
What purchase price was listed with the Mexican Gob? Many people report artificially low purchase prices, to give a tax break to the previous seller. That reporting scam passes on the taxes on the gains to the current owner. Without knowing the details of your situation, there is no way for me to estimate your taxes. As you can read above, if your family paid the 2% acquisition tax when they bought the property, you/they can deduct 3% per year in depreciation from the net gain.
Talk with your Notario, because they are the ones who decide what you owe,
steve
Thank you very much for getting back to me so quickly. Of course the Notario is on vacation but I believe it was reported as US 292K. My family member did pay the 2% acquisition tax. I’m happy about that because this “gift” is becoming not much of a gift at all. Happy Holidays!
Hi Val,
For a $299K sale price minus the $292K basis = a gain of $7,000 USD. You could deduct 3% per year of the $292K => $8,900 a year in depreciation – which if the Notario approves, leaves no net taxable gain. Good luck with the Notario,
steve
Thanks, Steve. Christmas is looking a lot brighter now!
Hi I am so glad we found your page! Here is my Question please, I am a US citizen and brought by husband (Mexicano) to the USA and sold our house in Mexico City (in His name only) after having lived in it for 15 years. They said we need to go back to Mexico to file personal tax showing sale? but not tax on sale since we lived in the house more than 5 years.
House sold for 950,000. MXN with no other personal tax owed on job etc. When do we pay and what amount can we expect to pay?
Hi Theresa,
As a fulltime homeowner/resident (in the home) for over 5 years, you would owe no taxes in Mexico on the sale.
I do not know about filing in Mexico, so you would need to talk with either the Notaria for the sale, or with a tax accountant. Similarly, I would contact a knowledgeable US tax attorney about whether any US taxes are owed on the gain. …
I hope that no taxes are owed either place, steve
Thanks so much, that was what we were told but just needed another confirmation. We are not sure when personal taxes are filed in Mexico. If we ind a particular date we will be sure to let you know. I was concerned because the check came to my husband, and then we divided it between siblings. If money was owed that would be on our shoulder I am sure. Thanks again!
I’m looking at my original purchase documents for a house we purchased 11 years ago, trying to determine if we paid the 2% acquisition tax I have found a line item in the notario’s bill that refers to a 2% “Transfer Tax” and on another of the notario’s estimates as “Transfer Title Tax”. Is the acquisition tax also referred to a Transfer or Transfer Title Tax?
Hi Dan,
Yes, I believe that is the tax that qualifies you for depreciating the buildings. That tax is also deductible when calculating the property’s current basis.
steve
Can I sell my property with an FMT? I purchased the house using an FMT in 2010, had an FM3 which expired in 2013 because I was not able to return to Mexico because of my son’s death. Not looking exemption from capital gains just need to be able to sell.
Hi Donna,
Yes. Do you have a fideicomiso? Will the buyer be using a fideicomiso?
I would want to hear from the Notaria (related to the sale and any fideicomisos) about how a person with only a tourist visa sells a property and deals with the taxes.
steve
No fideicomiso for either the buyer or seller. Does that make a difference?
Hi Donna,
You should be able to sell it. Some bank Notarias (in charge of sales involving the bank’s fideicomiso) have been cranky on non-routine things.
steve
Thanks for the info. Please clarify: “Capital gains reductions include a 3% per year inflationary credit that reduces the property’s basis every year (10 years of ownership = 30% reduction, but I understand that there is a 5% floor of minimum taxes or minimum 20% Basis of the original listed sale price).” Is there any annual compounding of the 3% inflation rate or is it simply 3% times the number of years? 5% of what? for the tax? for the gain? 20%- are you saying that we can’t reduce the gain beyond 20% of the basis? “Reducing basis” doesn’t look correct to me- we benefit if we can inflate or increase our basis (initial cost plus improvements plus inflation), not if we reduce it.
“Properties valued under roughly $500,000 USD are treated differently than properties over $500,000 USD (actually using a $1,500,000 peso “UDI”) – sort of a luxury tax;” Seems like that should be $2,500,000 pesos if you use the 5.02 per UDI you used before.
“There is a 3% per year inflation adjustment on the basis, but you only qualify if you paid the 2% Acquisition Tax at the time of sale (this can give a net 30% tax savings at the time of the sale);” Again, are you saying there is maximum 30% inflation adjustment?
What constitutes an adequate “factura”? Any invoice with the vendor’s name, buyer’s name, address, date, amount and items delivered? Or more?
“The construction’s costs (building’s basis values) depreciate 3% a year and can not exceed 20% of the initial cost, while the resulting cost (basis) will be adjusted up for inflation;” So is the depreciation only off the initial cost (and the initial cost of any improvements from time to time?) or off the depreciated cost from the previous year? It looks like the most relief you can get in a condo unit (no land involved) is 30% for inflation reduced by 20% for depreciation, or a net of 10%. Is that true?
We live in a condo. In many years there have been capital improvements to the common areas of the condo (e.g., a pool heating system, domestic water pumps, a wifi system). These are paid through assessments or are budgeted and paid through monthly dues. In any event, the facturas are rendered to the condo, not to the individual unit owners. Can I get a gains reduction from my share of these improvements?
Hi Bill,
You wrote: “What constitutes an adequate “factura”? Any invoice with the vendor’s name, buyer’s name, address, date, amount and items delivered? Or more?”
Invoices or receipts are NOT facturas. A factura is a specially prepared document, with an RFC printed on the factura, for tax deduction purposes, that you submit to SAT – so, many Mexican vendors and contractors charge an additional 15% for giving you a factura – because it means that SAT will track both the vendor’s reporting of the income and your claiming a deduction as a legitimate expense.
I think you have also confused the cap on the total depreciation you can claim to reduce your net calculated gains on a property. The cap is only on the claimed depreciation, (30% maximum), and not on all deductions taken from the net gain.
Since this article was written, many (most, all?) municipalities now have programs where you ask your local municipality government to re-assess the value of your property. They come out, re-evaluate the number of sq. meters of construction, evaluate your improvements and changes, and give you a new property assessment = a new basis – which means you get credit for the improvements (with or without facturas) – but you then have to pay higher property taxes in the meantime.
Talk with your notaria about what deductions he MIGHT be willing to approve. … and then realize that it is the Buyer’s Notaria who will be making all the decisions on what taxes you owe. (as described above) – and no – there are many cases where the Seller has NO say in which Notaria is used to handle the sale (particularly if a bank is involved).
steve
Thanks for straightening me out on facturas and the info about reassessments. Can you give an example that would illustrate the 5%, 20% and 30% points you made?
Bill
Great Resource Steven! Very informative and helpful!
What are the rules for Mexican nationals who sell their property? My husband is a Mexican citizen and our casita is in his name. We don’t live here full time at the moment and we do rent it out when we are not in residence. Can he sell it without incurring the tax or does he need to live there “full time” without rentals for a period of time first?
Hi Ursula,
Since you have not lived in the house continuously for the past 5 years as your primary residence (home), then yes, he will owe gains taxes on any net gain that you realize from the sale of the property.
steve
Hi Steve,
I have a small empty lot in San Jose Del Cabo with all papers in order (aquistion tax paid when purchased). I have not built on the property and am curious if/how the capital gains tax laws change if there is no dwelling on the property and the property has not been improved. Am I still eligible for the 3% per annum inflation deduction as I have owned the property for 7 years.
Can you also let me know if you can claim any of the bank fees resulting from fiedocomiso as a deduction. Other than the capital gains tax is there a sales tax (IVA 16%) that must be paid on sale of property.
Thanks for all your posts and advice.
Kind regards,
Damien
Hi damien,
I understand that Notarias apply the depreciation deduction to the buildings/structures (because land does not suffer from aging or wear & tear).
Your question about fideicomiso fees is superb. Ask the Notaria who will be handling the sale.
The last realtor I heard from said no, that there is no added IVA 16%, but Notarias ultimately control/decide these things.
Please come back and tell us what your Notaria says on these important items,
steve
Thanks Steve…will let you know after speaking with Notaria.
Cheers
Hola Steve! Perhaps you can help me figure out my capital gains tax on a house I’m selling. I am probably not eleigible for an exemption, so I’m trying to figure out how much it will be. I sold a house in 2011 and used my primary residence exemption at that time, so there is no way, 3 years later, I could qualify again. Here are my facts:
1. The escritura of the house I want to sell now was originally just land. Then we built a house and had the valor catastral and escritura updated accordingly. The new valor catastral is 1,211,000 pesos.
2. I am a Mexican citizen, born in Mexico, and the escritura is in my name. My Canadian husband is shown as co-owner on the escritura. There is no fideicomiso. His status in Mexico is “Inmigrado” which is defined on his immigration document as “El extranjero Inmigrado tiene derechos de residencia definitiva en Mexico.”
3. If we sell the house for say, 3,500,000 pesos, and this full amount is recorded as the sale price, would the capital gains tax be calculated on the difference between 3,500,000 and 1,211,000 pesos? And what would the percentage be for my half and for his half of the profit (assuming we pay 2 different rates)…or does he qualify for “Mexican” rate?
FYI: when we sold the other house in 2011, he was not yet Inmigrado, he was FM2. Although we were well beyond the 5-year minimum, and qualified for the exemption, the exemption did not apply to the entire property because there was quite a bit of unbuilt land. Whatever the calculation was, on the amount of land we did have to pay taxes on, the amount was divided in half and I paid maybe 8% and he paid maybe 28% or something like that, just on the little bit of land which was not exempt.
Thanks for any light you could shed on our situation. I will of course speak to my notario but I’d like to just have a rough idea. Thanks.
Hi,
Since there is no homeowners exemption this time, I believe the lowest rate you could get is 28.5% for each of you, calculated on the difference between 3,500,000 and 1,211,000 pesos. The Mexican rate on net gains (where you have subtracted out deductions and the previous value) is 28.5% – so you both pay the same rate.
Hope it all works out well,
steve
Thanks Steve. I am confused…above you say that foreign sellers typically pay about 25%** capital gains taxes on the gain vs. 5% for Mexican sellers. So if we are not exempt because we don’t have the 5-year time frame, and we are paying the ISR, do we not each have different rates (one as Mexican and one as foreigner?) Thanks.
Hi Juanita,
In your case: I understand the current basic ISR rate for gains taxes calculated on a net gain (28.5%) are the same for both foreigners and Mexicans.
That quote you are citing came from an older article by a good attorney, written under a prior law and previous rules and situations where the Mexican could take the homeowners exemption (like your estimated 8% payment on your prior home sale).
steve
Hi Steve,
My question on February 28 was regarding the 3% “inflationary credit” for an empty lot but by mistake I used the words “inflation deduction”. In your reply you referred to the 3% depreciation deduction. Understanding I would not receice a depreciation deduction would I be eligible for the 3% inflationary credit without any dwelling/structure on the property?
Sorry for cunfusion.
Thanks,
Damien
Hi Damien,
That’s my best understanding of the ISR. It’s all up to Notaria who handles the sale, though.
steve
Hi
I bought a house Nov 2009 and paid the 2% Aquisition tax at the time. This has been my only house purchase in Mexico. Since then I have been living in and out of the country. All bills have been in my name and remain up to date and paid. All yearly taxes are paid. I have not profited from the property by renting etc. I have not had permanent residency in Mexico. Few FM3’s in my pocket but that is about it.
What would my tax penalty be at this moment in time?
Many thanks
Sarah
Hi Sarah,
I understand you would owe 28.5% on the net gain (adjusted for deductions – the purchase price, including a 3% per year depreciation deduction on the building(s)). The final authority is still the Notaria you use for the sale – since you have to live by what they choose to allow or disallow. Check with your Notaria. If you like their answer, then tell any buyers that you insist on using your Notaria to process the sale.
steve
We are attempting to seel our Timeshare we bought in Mexico in 2005. We didn’t pay any taxes at the time, but now that we are wanting to sell, we are told that we have to pay 20% on the selling price and it has to be paid upfront since we are not Mexico citizens or have dual citizenship. Is that the norm?
We are in the process of purchasing a property to renovate in Merida, and are so happy we found this site. Our seller is asking us to accept a significantly lower price on the deed to reduce her taxes as she owns the property in a Mex corp. We are not going to do this nor will our notary. If our deal does manage to go through (which is in doubt now), we are concerned about ensuring we get credit for the renoivatio to raise our basis in the future. Do you know if all the architect s in merida provide fraturas? Also, if you don’t have features is there a process in Merida to get an appraisal after the renovations that will be accepted? Lastly, we will need a trust, is there a better bank to use that follows the rules for capital gains and when we sell do we have to use the banks notary?
Thank you
We are now starting to get nervous about purchasing and renovating in merida after reading all the posts
Hi Steve,
Another person and I have owned a condo in Cancun for 10 years. Mostly, we have rented it out. We are both US citizens. He wanted me to buy his 1/2 from him, but I found a buyer who wants to close rather quickly. I am working with our original Notario. I do not know if he paid the 2% tax at our original closing…I will ask him today, certainly. However, I am confused…part of your article says the 25% tax is on the Purchase Price, regardless of profit and yet some of your answers to questions address it as a tax on only the Gain or Profit? If our sale does not go through, what would be the tax implications, if I bought my partner’s 1/2 from him in a private agreement (not a formal closing) and received a Power of Attorney from him, so that I can sell the condo at a later date without him? Thank you…this has kept me awake ALL night!
Hi Paula,
There are 2 ways of calculating the tax:
1. Pay 25% tax on the total purchase price.
or
2. Pay 28.5% tax just the net basis
Sale Price – Original Purchase Price – Cost of Factura Improvements – Other Allowed Deductions = Net Basis
in place of Factura Improvements, you can have your local property tax authority to re-value your property to include the improvements.
Since only your Notario handling the sale of the property decides how they personally want to calculate the sale, you should talk with them. The future taxes are withheld by the Notario from the sale proceeds – then your partner’s 1/2 taxes would be withheld – and reported on his RFC. Be sure your Notario agrees that the Carta de Poder is durable and acceptable out into the future.
steve
Thank you…I think I feel better! So it IS a capital tax on the GAINS only? I have photos of when I bought the unit and of course photos now. I have put about $10,000 – $15,000 into it…mostly large things that a tax appraiser can easily see from photos, that were not there originally…new tile floors ($4500) New a/c after purchase…another after Hurricane Wilma…another this year. ($4500) A large refrigerator, new stove ($1000) but I have no receipts…I’ve had property managers who have, but most are gone now. If those expenses would count, as well as closing costs, I think I will be breaking nearly even with my selling price.
Also, can I privately sell the furnishings to the buyer, for $5,000 cash, and lower my selling price by $5,000? Instead of selling it, furnished, for the present price? But, what is a fractura…a receipt? I cannot tell you how appreciative I am of your help and information. Thank you so very much.
Hi Paula,
To have a chance at having the deductions accepted, you must have facturas.
A second hurdle is to use a Notario who approves your deductions. It can be a tax only on the gains**, only as far as the Notaria is willing to approve/authorize. Some Notarios are liberal and approve many deductions, while others ignore the law and approve NO deductions.
If you log/record the sale of your possessions (muebles y decoraciones) separately from the sale price of the property, then the property sales price is acceptably lower.
Factura’s are a special kind of receipt that are accepted by SAT/Hacienda to document tax deductible expenses. A current factura has the weird square bar-code-ish symbol down in the lower corner. The vendor/contractor reports each factura amount and factura number and parties involved – by filing that data to SAT/Hacienda. When you file deductions, SAT/Hacienda then later checks the data from the earlier vendor/contractor records versus your current claimed deductions.
Happy Trails,
steve
**Some Notarios choose the route of charging 25% on the entire sale price versus charging 28.5% on just the net gain.
I am in the process of selling my property in Playa del Carmen and I’m not a Mexican resident. My lawyer is advising that the capital gains tax is 25% of the gross sales price, with no deductions. I thought there was an election that the Seller can make to pay a higher percentage of the net capital gain (sales prices less purchase price)? Are there any other options?
I am going through a sale right now. There is an option to pay 35% of the “gain” HOWEVER, when I looked at my original closing papers, I found (which was common practice a few years ago) that the purchase price was listed as $30,000 instead of $69,000, which is what I actually paid. I am selling the property for $90,000, so according to either calculation, I owe $21,000 in taxes…25% of $90K or 35% of $60K “gain.” Look at your Trust papers to see how many PESOS you paid for the property originally. Ironically, the lower price was listed, so that the original seller did not have the capital gains consequence back then! Get yourself a creative notary…there are options.
Good information: Especially the part about having your buying price recorded CORRECTLY with the gobernment – so you don’t pay future taxes that your seller should be paying when he sells it to you.
Also, the previous gains tax rate on net gains was 28.5%. Is your Notario telling you that the law has changed? (to 35% taxes on net gains)
Thanks,
steve
Article 146 of the current ISR describes:
Artículo 146. Tratándose de los ingresos a que se refiere la fracción XIV del artículo 142 de esta Ley, el interés y la ganancia o la pérdida, acumulable o deducible, en las operaciones financieras derivadas de deuda y de capital, así como en las operaciones financieras, se determinará conforme a lo dispuesto en los artículos 20 y 21 de esta Ley, respectivamente.
Las casas de bolsa o las instituciones de crédito que intervengan en las operaciones financieras derivadas a que se refiere el artículo 16-A del Código Fiscal de la Federación, o, en su defecto, las personas que efectúen los pagos a que se refiere este artículo deberán retener como pago provisional el monto que se obtenga de aplicar la tasa del 25% sobre el interés o la ganancia acumulable que resulte de las operaciones efectuadas durante el mes, disminuidas de las pérdidas deducibles, en su caso, de las demás operaciones realizadas durante el mes por la persona física con la misma institución o persona…
So, a thorough search of the current ISR does not have any references to 35% tax on anything. Again, we are not experts here, so we rely on quoting the published laws, and quoting the published opinions of tax experts.
Good Mexican tax experts have published 25% tax rates on the total value of the sale OR 28% on the net value of the gains (where you subtract deductions from the Sale Price minus the Purchase Price net gain to get the net basis – as described above).
If you doubt these things, also check out:
I think that many Notarios don’t actually know current tax law – or they misapply old rules from the past.
steve
steve
Here’s the promised update:
According to a reliable & talented Notario who works with clients from across Mexico, the Mexico’s current ISR tax law on real estate law gives the seller (and Notario) 2 options:
~ Pay 25% on the gross sale price, or
~ Pay 35% on the net gain.
The net gain is your: Net Gain = Sale Price – Purchase Price – allowed deductions – allowed depreciation **
**This formula is used for people who do not qualify for the resident homeowner’s exemption (Mexican residents with 5 years of comprabantes with the home being your primary residence and your primary center of fiscal activities), and whose property is sold for less than one million five hundred thousand “investment units” (UDI’s) (which was approximately $550,000 USD).
Thanks for the good question,
steve
Hi Steve. My lawyer is saying that the Notario says there is only a 28.5% on full sales price now. No election to pay on the net gains. Is this true? By these calculations, we owe 3 times more.
Hi Terry,
I don’t think so.
Maybe there has been some ruling or change in the law, but so far, I have not been able to find it.
I’ll contact a good tax lawyer this week and ask.
steve
As foreigner I was required to purchase my property either through a fideicomiso or a corporation. I elected to purchase the property under a corporation. Under this corporate name I have also done business as a contractor. I personally have lived in my house for the past 10 years. Would my property be considered under the commercial or persona tax lawsl.
A question about double taxation agreement with UK. Given that the new 25% sale tax is not a capital gains tax (even if it substitutes one), does that mean the UK exemption from double taxation doesn’t apply, and that you could pay twice: sale tax in Mexico, CGT in UK?
Hi Jack,
If you are visiting Mexico, you can file to get a refund of Mexico’s IVA tax.
Do I misunderstand? I really don’t know either UK tax laws nor the UK-Mexico tax treaty,
steve
Steve –
What happens with the tax on capital gains on a house that was constructed by us? Is the Purchase Price determined by the Termination of Construction values as recorded by Catastral? The construction license was issued in 2001. However, the Termination of Construction was received in 2012. The original architect failed to do the Termination, so we had to have it done later.
Hi Susan,
Did Catastral assess a final value on the property/buildings that represents actual current values? (a reasonable selling price if you had sold it in 2012)
If your current real value is much higher than the Catastral listed value, you may want Catastral to do another more-representative valuation to avoid future large tax bills when you sell the property.
steve
Steve –
First, I want to thank you for your reply. We are probably going to sell at a substantially lower price than the Catastral value. Does that mean we would not pay capital gains?
Susan
Does anyone have any information on the new tax law that is going into effect as of Sept 1st? How are they going to effect purchases and tax gains; etc?
Hi Gary,
The only word we have so far is that property/home buyers & sellers will be required to have both CURPs and RFCs.
steve
Thank you Steve. I guess I should clarify what I would like to know. I am a usa citizen in the process of purchasing a home in Puerto Morelos.This is a new contsruction home and does not have a title issued on it yet. ( In the process). We have a signed agreement for the purchase and have established an escrow account with earnest money with Stewart Title agency.A fideicomiso ( ownership trust ) will be set up thru the notario I think. We do not have mexican residency of any type but plan to apply soon. We have deferred closing until Nov.1st because we are now leasing a condo which has been paid for thru Nov. I do not know what a “curp” or “rfc” is and need to know how to obtain one if it is necessary. What exactly are these things? (curp; rfc) Thank you in advance for your help. Gary
Hi Gary,
The CURP is the Mexican govt. equivalent of a Social Security number. INM issues CURPs to foreigners when you get your residency: Residente Temporal or Residente Permanente.
The RFC is the Mexican govt. equivalent of an IRS TIN (Taxpayer Identification Number). It registers you for paying taxes. You get an RFC by applying on-line with SAT or by applying in-person at a SAT/Hacienda office. http://www.sat.gob.mx/informacion_fiscal/tramites/inscripcion_rfc/Paginas/fichas_3_cff.aspx and https://rfc.siat.sat.gob.mx/PTSC/RFC/menu/
Happy Trails,
steve
Steve. As a follow up; this is going to be a cash deal. Thanks; Gary
We have a question. We bought our condo in 2000 for $82.000 and YES the sellers registered our Fedicomiso at only $22,000, one of 4 checks they had us write out to them. We just sold the condo for $110.00 and had to pay capital gains tax on the $88,000 difference The amount we had to pay was $7,400.00 in Capital Gains. Does this sound right? The Notary was “In Bed” with the sellers when we bought it! This is SO WRONG and happens a lot down there I hear.
Thank you for any reply to help us feel better as this sale just went thru and we are SICK!!!!!!
Caroline
Hi Caroline,
Sorry for your excessively large tax bill on the gain. We wrote the article in 2010 and reported on the ways to get your property value correctly listed in the government Catastral records ( https://yucalandia.com/2014/08/01/capital-gains-taxes-on-selling-mexican-real-estate-2014-update/ ) via having a property appropriately appraised, for this exact reason – to help people avoid this very common problem.
The Notario may or may not have been “in bed” with the previous seller – as the custom of under-reporting sales prices has been a common practice in Mexico for decades. You could talk with a good tax attorney to evaluate if there is any relief you could have from the latest Notario’s calculations.
Wish I could say more than talk with a tax professional,
steve
FYI, your tax should have been closer to $25 or $30K! I had the identical thing happen to me a few months ago and I owed $22K on what was showing as a $60K profit….also incorrect because of a mis-statement of original purchase price. I broke even with my sale and the notary still took $8K for his “accountant” to doctor up some receipts so that I paid no cap gains at all. You still got off cheaper than I did! And at least you did have a profit. It is behind us and now we both know better if there is ever a next time.
Great information here thank you! We got stuck with bad advice from our notario 3 years ago when buying in the Yucatan (Chelem). The sale price was registered as $400,000 peso when the actual purchase price was 195,000USD. We are now selling the house for $188,000USD and are stuck in this mess of a huge capital gains penalty. We have talked with 2 Notarios who have given us two calculations that vary widely and the advice we recieved was to have the property re surveyed and then he would get the appraiser to redo the calculation with all improvments. The choking point was that I was told the appraisers fee would be 20% of the tax savings…at this point that works out to $118,800 peso! Does this appraisers fee seem way out of line? Thank you for your advice.
Hi Alex,
Great question about what is a reasonable fee for an appraiser to get your catastral value changed. We have read lawyer’s and Notario’s advice to have this done, but have never seen any fees quoted or reported.
Anybody else out there with experience in what sort of fees are reasonable? The attorney Spencer McMullen of Chapalalaw.com has reported on these appraisals, so you might contact him. His law office is over in Jalisco.
steve
Steve,
Just some follow up on this saga…. we spoke wth another Notario and the appraisers fee is just that, his fee, $16,000 peso…. not the 20% of tax saved which at this point looks like nothing more than a money grab between the Notario and appraiser…. We shall keep you advised as we slog through!
Hi Alex,
$1,200 USD doesn’t seem to be too high a fee to straighten out the mess – fortunately, a lot cheaper than 35% gains taxes the big paper profit that you would have to pay if they used the artificially low current Catastral value.
Your experience reminds all of us ~ Caveat Emptor ~ Be SURE to get a Notario who agrees to do exactly what you expect – and NOT just spit-ball the recorded sale price nor spit-ball the taxes.
steve
Well we have finally wrapped up the sale of our house, quite the adventure… I can tell you that you really need a Notario that knows the system and that you can trust his opinion. It seems that alot of these guys know each other in Marida and will massage each other to work out the taxes. I will also say that having your own Notario and shopping for the best one to represent you is worth the cost (for us about US$1,500). The buyers Notario was ready to cash in on us with his “appraiser” it all started at the 35% tax rate with him, he then started taking deductions but then wanted to have his appraiser do the valuation and his fee was going to be 20% of the money saved or about US$10,000!! I found this staggering and it sent me shopping for my own representation. The Notario I settled on after a referal had his own calculation done, used his own appraiser and we ended up considerably better off in the end. My Notario knew the buyers Notario, they met, discussed the deal and agreed on the closing. It is interesting to note that to reduce the capital gains tax these guys purchase work orders from other commercial improvement projects and apply them to your transaction. How legal it is? Who knows… but it appears to be the way they are doing business and completing transactions to reduce the tax payable. At the end of the day we are done and out for now but wanted to pass on this fresh experiance. If you have any questions please do not hesitate asking.
Hi there,
My mom bought a property (a portion of a hill) in San Miguel De Allende 6 years ago with the ambition of building a large house for her and family friends to retire in. Unfortunately she is low on money and she is thinking she should sell her property because she will be unable to fund the construction of this new house. I am helping her investigate options, but I really have very little clue how to go about selling this property.
Any advice on how to go about listing and selling this land remotely (since we are in Los Angeles)?
I also believe that she was sold this property at an excessive price that is unreasonable which means that she will most likely have to take a big loss on the sales price.
Also, any advice about tax implication would also be greatly appreciated, (especially considering that she will probably take a huge loss in the sale)
Thanks!
Hi Burke,
I would go onto the San Miguel Allende forums and ask for help and advice – to find a good realtor and good notario. They may even have sections for listing the property for sale.
When I google san miguel allende forum I get: http://www.expat-blog.com/forum/viewforum.php?id=446
and
http://www.topix.com/forum/mx/san-miguel-de-allende
There are rules now saying that property sellers have to have a CURP (Mexican equivalent of a SSI number) and RFC (Mexican equivalent of an IRS tax ID number TIN). Talk with your notario about what he would require to handle the sale.
All the best,
steve
Thanks Steve!
I just registered with the blog you linked.
Just a quick follow up. Can an American (who is not planning on residing in Mexico) even obtain a CURP or RFC? I have read that is not likely… Is it possible that there is no way to sell this property? (Which seems crazy from an Americans POV obviously)
Thank You for any further goodwill
Burke
Hi Burke,
The USA has been ramping up its efforts to try to find tax-cheaters and drug-money launderers – and has pushed its neighboring countries to increase their monitoring of just who is making deposits, who is receiving money, etc. “Know Your Client” rules are just one example of the ugliness pushed through the US Senate/House – and yes, you will likely be required to meet the existing US FBAR and the new FATCA regs (aka FUBAR).
In other words: You mom has been caught in the Republican’s 40 year old “War on Drugs” …
Mexico has responded to US pressure in various ways – including having Notarios do additional ID checks of people to confirm who is making financial transactions (like buying or selling properties): which translates to requiring that each Notario record and report a CURP and RFC for property buyers and sellers.
If your mother had a CURP from her previous INM Mexican residency visa, she may qualify to apply for an RFC over the internet. Back in 2009 CURPs were required for anyone getting a cell phone – unless she “borrowed” someone else’s CURP…
Does she have a CURP? (See her old FM2 or FM3 or No Inmigrante or Migrante permits.)
steve
Thanks Steve,
The situation is that she bought the property following a quick vacation to SMA. She promptly returned to SMA after her trip to buy the property which was parceled by a British land speculator and a Mexican Lawyer partnership. Unfortunately we have since found out that my mother suffers from a Bi Polar condition which inspires her to do crazy things, like buying a hill in Mexico on a whim… In her calculations she did not figure in the costs associated with building and relocating.
Basically, she bought the land and figured that she would sort out the citizenship/expat legalities after she secured the “deal”. Unfortunately, on one of her trips to SMA (in which she intended to sort out her plan to expat) she had a horrible accident in SMA which disabled her and caused her a small degree of brain damage. She could not work, lost her job and had to go into early retirement. This also meant that she did not have the wherewithal to follow up on her Mexican aspirations.
Now her financial situation is very bad and I am trying to help her. The best option she has is to sell the ill fated hill, this outcome could really help her.
So to answer your question as best as possible, I think she bought the land as a tourist on vacation with all the baggage and rights that might afford.
Thank You
Burke
Hi Burke,
Yes, the situation is a bit messy, but with your help, let’s hope you can resolve something.
I think the key will be to get a good HONEST Notario – who may be able to find a work-around through a “Carta de Poder” (Power of Attorney) – but because the CURP and RFC requirements just started 2 days ago, none of us know exactly what work-arounds might exist for foreigners like your mom and you.
Contact a good Notario in SMA to find out how to do these things.
Best of Luck,
steve
Remarkable things here. I am very glad to see your article.
Thank you a lot and I am taking a look forward to contact you.
Will you kindly drop me a mail?
Hi un-named “real estate issues”,
We do not send emails to potential robots or spammers.
Please give us some interesting pertinent personal reply that proves you are not a robot or spammer,
steve
Hello Steve,
I am a US citizen who purchased a time-share ten years ago in Mexico. I understand that I will owe capitol gain tax to Mexico on the sell of the time-share. Is that tax amount deducted by the government from the sell amount or am I responsible for paying the taxes up front to the Mexican government before obtaining the money from the sell?
Thank you
Valeria
Hi Valeria,
The Notario who handles the sale withholds the gains taxes from the seller’s proceeds. That’s why sellers and buyers are now required to be registered with SAT/Hacienda, having an RFC, for the Notario to use when submitting the taxes withheld. It is also why it’s really important to find a Notario who knows the tax laws well – to not overcharge you.
steve
Hi Steve, thank you for all the information and taking the time to reply. I have two questions for you; One, I live in the U.S. and I want to sell my property in Mexico which I’ve owned for 10 years, do I have to pay double taxes when I report my gains in the U.S? IF so is it at the capital gains tax of 15%? Second Question, I haven’t reported my rental income all these years, will I have a problem at the time I report my gains?
Thank you.
Hi DR,
You really need to ask a good professional who knows the tax rules for both countries.
We have summaries of IRS and SAT information, and some basic information on the US-Mexico Tax Convention (treaty) at:
One basic principle of the US-Mexico tax agreement is that every deduction/exemption allowed by one, is also allowed by the other.
As second basic principle is NO DOUBLE TAXATION: Any tax payments (credits) made to one country is fully credited by the other country.
So, the gains are first taxed here in Mexico – at typical rates ranging from 25% – 35%.
Since US tax rates are almost always lower than these Mexican rates, I would expect no US taxes to be owed.
Reporting of rental income… to SAT? to the US IRS?
You definitely need to talk with a tax pro about that.
Best of luck,
steve
Thanks for the information Steve it’s very helpful.
My spouse is a Mexican national and our property is in his name. We do have CFE and other bills in his name going back 5 years as we actually do live here. However, he runs a small business that he operates out of DF (persona fisica) and his DF accountant has told him not to update his IFE to our Yucatan address. Is having an IFE with the property’s address a requirement to claiming personal residence or will the notario accept our utility bills? I’ve read all the info on this thread but I can’t seem to find an answer. Thanks!
Hi Chula,
That is an excellent question. In theory, if you can show 5 years of this as his principal residence, then it is up to the personal opinion of your Notario to approve the homeowner’s exemption from the gains taxes. I have not read anything about how the IFE address factors in, either positively or negatively.
steve
Hi Steve –
I asked our notario in our home state of Quintano Roo, and his advice was that one’s fiscal address (ie on the IFE) has nothing to do with one’s principal residence. As long as we present our CFE bills, bank accounts etc. going back five years he will accept it as our principal residence. I thought I would post this followup just in case anyone else was interested in his answer.
where can i find out about the tax on the sale of a lot in Mexico? We paid $50,000 10 years ago and are selling it for $40,000. Our Notario wants $10,000 on the sale.
Hi Carole,
Those records were held at the Catastro office: http://www.merida.gob.mx/catastro/php/inicio.phpx
steve
Hi Steve:
I wrote to you last year about a house in Mexico I inherited from my late sister. From reading your posts I do understand the tax situation has changed. I’m trying to figure out how this will affect me as I’ve heard many different things. My late sister purchased a home in Mexico in 2005 at US$292K. She did pay the 2% acquisition tax. She passed away in 2006. Her will specified I was the owner but her friend could live there as long as she wanted. A new deed was made stating although I was the owner, the friend had the rights to live there.The friend passed away in 2013. It has taken quite a long time, but the deed is now solely in my name.
I’ve got the house listed slightly over what my sister paid for it. Last year we figured with what she paid for the purchase plus the acquisition tax she paid and with the amount I am selling it for, I would have minimal if no tax. Now I hear because the tax laws have changed and I am not a resident of Mexico, I will have to pay taxes on the sale of the house. Someone did mention if a was able to obtain a Permenent Resident card I could avoid the tax consequences. Any advice would be appreciated!
Hi Val,
I am no real estate nor tax lawyer, but according to reports of others: Your analysis fits what others have found with their attorneys and Notarios.
Still, since the Notario who handles the sale is personally liable for any tax choices they make, THAT NOTARIO is the one who chooses exactly how to apply Mexican tax law.
To know for sure: You really must find out the exact details of what your Notario will assess you (and why) for Mexican gains taxes.
All the best,
steve
Hi Steve
Thanks for what you do. I have a home in Mexico and looking at selling.
1. Bought it 19 years ago for 225,000 pesos and have an offer for 800,000 pesos.
2. Are my property taxes and mtn fees deductible from my value.
3. Am I able to use the 3% per year for 19 years and does that compound. Wasn’t the rate higher 10 plus years ago per year.
4. Seems like different notaries have different rules for capital gains. I have also heard that.
5. The Usa price is 575,000 would it be a higher capital gain tax because it is more than
500,000 usa
Thanks very much
george
Hi george,
Did you see the addition at the top of the article from Lic. Spencer McMullen?
“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”).”
steve
Hi george,
From the article above – in the opinion of one tax accountant:
“***Capital gains reductions include a 3% per year inflationary credit that reduces the property’s basis every year (10 years of ownership = 30% reduction, but I understand that there is a 5% floor of minimum taxes or minimum 20% Basis of the original listed sale price).”
The “30%” indicates that the 3% is not compounded.
Many Notarios are notorious for NOT learning about the changes in current tax rules, so many of them just use stale memories of past year’s inapplicable rules. Others prefer applying a simple formula – “charge 35% on everything” => lazy? ….
So, all Notarios are supposed to follow the same rules – the ISR tax laws, but that often doesn’t happen.
Find a good Notario who knows the rules and treats you professionally,
steve
My apologies Steve I should have used the proper rates. Bought 2,000.000 2 million pesos
selling aprox 7.500,000 seven million five hundred thousand peos
Hi Steve
After living in Mexico 15 years we finnaly got our citizenship. We own 2 properties in Mexico… one is on the west coast where we run a B&B, the other is in Merida. We have been trying for seveal years to sell the B&B so that we can relocate to the city. The B&B is our primary residence and is worth a lot more than the Merida house. Our plan was to disolve the fidecomiso in Merida now that we have our papers. I just learned that over the 8 years we have owned this house Merada has doubled the value of our property from 2,300,000 pesos, to 4,500,000. We planed to do major renovations when we move but have done nothing since we bought it… in fact the garden and pool have deteriorated significantly. If we disolve the fidecomiso do we need to pay capital gains on the difference that the ciyt says the property is worth?
Hi Brooke,
You need to talk with the Notario who will be closing out the fideicomiso. I assume that would be the bank’s Notario?
We welcome you to come back and tell the other readers here how it worked for your property and your bank/fideicomiso,
steve
We also own property in Mexico in the Costa Maya in a town called Mahahual, and none of the relators cannot answer the question on Capital Gains. We have a corporation and we just got our permanent visa which they say should help with the Capital Gains. I would be interested in finding out how you make out with your problem. We found out that one house here in Mahahual had to pay $70,000. dollars not pesos in capital gains. Thank You Debbie
Hi Tom,
We don’t know the tax laws for corporations.
For private individual owners – or private owners with a fideicomiso – to qualify for the exemption, you must be able to prove that the home has been your primary residence, continuously, for the past 5 years, and you may have to supply CFE power bills for all months – in your name – as described above.
For private individual owners, the home must also be your primary place of fiscal activity for the past 5 years .
“Owning a property” as Residente Permanentes is not sufficient.
You must also find a Notario who is willing to stick their neck out and approve the homeowners exemption tax break – since the Notario is personally liable if SAT does not approve of it in the future.
Talk with a good Notario who knows the laws.
We look forward to hearing if Corporations have the same rights to a homeowner’s exemption for property gains taxes as a human.
(In my simplistic thinking, I could believe that Mexico does not give corporations the rights of being a homeowner = person.)
All the best,
steve
thanks for all your info. we have a resort membership (Hacienda Tres Rios in Maya Riviera). (a) are we liable for Mexico capital gain tax if we sell it for some big amount like $87,550 USD and purchased it for $61,000 USD from the developer? (b) Do you know if there is a requirement for a SRE permit to sell such a membership? or are we being misinformed? We are USA citizens and have not used the membership regularly.
Hi jerry,
First, SRE does not issue visa permits – SRE runs the consulates/embassies. Immigration and residency permits are controlled by INM (SEGOB). If you do not have a residency visa, then you start the process with SRE at a Mexican Consulate in your home country, but you complete it with a trip to Mexico and a visit to your local INM office.
If you sell a property, the Mexican laws require the Notarios to know their clients: to get a CURP (the US equivalent of a Social Security number) and to be registered with the tax division of the Mex. Gob., which is “Hacienda” (a part of SAT). You register to pay taxes (or have the Notario withhold taxes from the sale proceeds) by getting a Tax ID number, called an ” RFC “.
Up
If you had a CURP in the past, your Notario might be able to get you an RFC tax ID number, but you need to find out if your Notario will do that.
Sidelights: If you had sold the property before last September, you could have completed the sale without the Notario requiring the RFC or Immigration residency visa (which is needed to get a CURP), but the rules changed in September,
… as a part of Bush/Cheney’s Homeland Security department forcing their international “partners” to increase documenting Americans cash movements/property sales etc – as a part of the Republican’s 45 year “War on Drugs” and their 14 year “War on Terror”. … which makes you (and us & 10,000’s of innocent others) another uncounted casualty of America’s “Wars” ? 😦
As a general rule, the Mexican Government (Hacienda) collects taxes on any sale that nets a profit/gain – same as in the USA.
You can find details on immigration at: https://yucalandia.com/answers-to-common-questions/new-rules-and-procedures-for-immigration-visiting-and-staying-in-mexico/
That’s all we know about these issues,
steve
Hi everybody, here every person is sharing these familiarity, thus it’s pleasant to read this blog, and I used to go to see this
website daily.
Hi Steve, we purchased a condo in 2007 for $286.000. USD and are trying to sell it at this time. We have and offer for $340.000. USD. Our agent got an estimate from the notario of $35,000.USD for the ISR tax. We have no clue whether this is correct or not nor how to verify. Two Questions: I read on one site that the difference in exchange rate between the time of purchase and the time of sale can have a huge affect on the ISR tax is this true? Since there seems to be so many variables and different interpretations on the taxes should we hire our own attorney to facilitate the sale to protect our interests
Thanks for your help, Chuck
Hi Chuck,
Excellent questions.
Under Mexican rules, the USD values do not matter, just the MXN peso values of the times of purchase and sale – and more importantly: Thet MXN peso purchase and selling prices that were/are registered with your state/local government catastral office.**
Since you bought when the peso was stronger, and you are now selling when the peso is weaker, the MXN peso net GAIN is significantly larger than the calculated gain in USD – which could explain the Notario’s estimate.
It can be worthwhile to have your own tax lawyer check the figures, but if they disagree, it’s still the Notario’s choices that determine what he withholds from the sale proceeds to pay Mexican taxes. (My crude estimates below show your Notario is likely correct.**)
Good Luck,
steve
==============================
**Assuming your previous Notario on the 2007 sale recorded the correct price: Typical MXN peso values for 2007 ranged from $10.75 – $11.1, which points to a 2007 purchase price of $3.075 million pesos versus a 2015 selling price of $5.088 million pesos.
That rough calculation shows a net gain of $2.013 million pesos. … or $134,000 USD of gain.
The $35,000 USD tax calculation represents about a 27% gains tax rate, which is what the Mexican ISR law says….
Steve, I want to buy a condo in PV and I am worried about future taxes. It seems this would be a good time to purchase because of the strength of the USD vs Peso. If I want to retire to PV and live there at least 9 months of the year, but my husband wants to live in the US and just visit, should I hold the trust in my name only, both our names, or us and our children? Does that matter? If I want to sell after 5 or so years or something happens to me, if I have lived there and hold Residente Temporal or Permanente status, would the property be exempt from gain or at the very least, qualify for the tax on gain rather than on selling price?
Hi Terry,
Good Questions!
Since we can’t know all the details of your situation, it really is best to talk with a good attorney or good Notario about what is best for you and your husband’s situation.
e.g. We have friends who want to sell now, with both names on the deed, but only one of them has Residency, which means that to sell their house, one Notario said that they both must have Residency (another trip back to the USA filing for Mexican residency at a Consulate, and another trip back to Mexico to complete the residency with INM), to both have CURPs and RFCs for taxes to be withheld for both.
Another Notario has told them, “No, I will handle the sale, with just an RFC & CURP for just one of the sellers.”
Which is correct? I don’t know, because it’s all up to the Notario.
steve
Hi Steve
Just two simple questions : is the 3% inflation allowance compounded?
Are selling costs (Agents commission) deductible.
Hi Phil,
The one Notario we know, applied the 3% inflation allowance as a flat-line calculation – 6 years elapsed => 18%. A compounded calculation makes more sense to me: 6 yrs elapsed => 19.4% as a compounded deduction.
We have not read whether or not a realtor’s/agent’s commission is a deduction that Notarios commonly allow.
steve
Hi Steve
Any way I can find out if either is OK??
Hi Phil,
Your Notario decides what exemptions to allow, which ones to deny, and they calculate the deductions – so, you’re best off asking the Notario you’ll use for the sale.
steve
Steve
Its the Notario I have an issue with,I need to be able to quote or refer something to make her understand these costs need to be addressed.What is the most well known “Abogado” in Mexico city? Would you know? I can use my domestic lawyer to request the info through their agency network.
Phil
Steve
Had a brief response from my UK lawyers network via Creel,Garcia-Cuellar,Azia y Enriques,SC in Mexico City.
They say selling costs are deductible providing they have been properly receipted and IVA has been paid.(as I am selling through the condominiums agency service in Mexico you would think they would be OK to provide a receipt/Factura but I am getting nowhere with them) and the Notario is about to charge late fees!!!!! They also say depreciation costs can be cumulative/compound.
In to bat again!!!
HI Steve,
I don’t know if you can help me. My mother lived in La Paz, Mexico and had a home there. The two of us were jointly listed on the fideicomsio. She recently passed away and I am selling the home. In 2011, the fideicomsio was redone to list both myself and my mother, and the value of the home was listed at $34,000 USD. I am now selling it for $50,000 USD. Wouldn’t it be that I have pay the 35% capital gains taxes on the difference between these amounts, as that would be considered the gain? Of course, the amounts would be figured in pesos. The notario I am dealing with just gave me an estimate of $237,123 in pesos, which translates to over $15,000 in USD. This seems way too high for me. Am I incorrect?
Hi Helen,
You say that the fideicomiso was “redone to list” you and your mother. Did you pay gains taxes at that time to cover the difference between your mother’s original recorded purchase price, and the value of the home when you “redid” the fideicomiso?
If not, then you owe taxes on the total difference between your Mom’s original officially-recorded purchase price (which may be substantially lower than the amount she actually paid) versus your current selling price.
Since we don’t know the original recorded purchase price (in pesos), and we don’t know your current sale price (in pesos), there’s no way to answer your question.
You could ask an expert in real estate law (another Notario) to give a second opinion.
Is the fideicomiso bank’s Notario handling the sale?
steve
hi Steve,
I actually found the original fideicomiso from 1981 which listed me as a substitute. I don’t know if she paid the gains taxes when it was redone in 2011. However, the notario now tells me that the original purchase price is irrelevant because I did not buy the house, I merely inherited it. However, because I am selling it to a mexican, he stated that I can pay 25% of the entire sales price, instead of the 35%. Does this seem accurate to you?
Hi Helen,
Yes, those explanations do make sense.
steve
Hi
We purchased property in 1990, We are selling it at a great loss. However because of the de-evaluation of the Mexican peso we are told we still have a capital gains tax to pay. Is there any way to argue this?
Hi Kathy,
Hmmmm…. Not really – as I think you may be seeing the devaluation backwards (?) The devaluation made you show a smaller purchase price.
The MXN peso was devalued by 1000X in 1993. That means that a $100,000 peso home sale price registered in 1990, would (in that sort of approach) be valued at just $100 new (1993) pesos – so arguing that the devaluation affected your home’s calculated value actually works 1000X against you.
I believe we need to hear from a good tax attorney on this.
steve
Hello! My apologies if this topic has been covered, I scanned through many of the postings but didn’t see an answer to my exact questions.
In 2006, I bought land and built a home in San Felipe, Baja. After construction was complete, I took out a loan on the property through a US bank, so the property is in fideicomiso. The stated value on the Fideicomiso is US$175,000. I am now selling the property for $47,000. The disappointment aside, I am trying to determine if I will be liable for any taxes at the close of the sale. I do not currently have any type of visa (temporary or permanent). My broker is telling me that, even though I do not have a capital gain, I may be on the hook for 25% of the gross sales price (depending on the notario). She has recommended that I get a permanent residency visa (the old FM2), that way I won’t be responsible for any taxes.
I’ve done a LOT of research, and though there is some conflicting info, it seems to me that I would not be responsible for any taxes at closing based on the fact that I am selling at a loss. Of course, then there is something I read about the buyer potentially being on the hook for 20% of the difference between $175,000 and $47,000 because the difference is so large?
ANY light you can shed on this would be much appreciated!!
Hi Shawn,
A few points that address your situation:
1. Your broker’s advice fits what Notarios have done the past 2 years – it really is all up to the Notario.
2. The amount you put on your loan papers with the US bank likely does not matter, unless you have facturas for all the work and all the supplies for building the house.
3. The amount that matters is what is registered at your local Mexican tax office. Our office in Merida is called the Catastral office, and they are the keepers of the official values of our property – for property tax assessment/collection purposes.
What value is officially listed for your property tax assessments?
4. Residente Permanente is NOT the old FM2, Residente Permanente is very close to the old Inmigrado (permanent resident) status. You can read about how to qualify for a Residente Permanente at: https://yucalandia.com/answers-to-common-questions/new-rules-and-procedures-for-immigration-visiting-and-staying-in-mexico/
5. Many property tax offices around Mexico have been granting official property tax re-assessments – and the gains taxes are then calculated on the difference between your re-assessed value and the sale price.
6. Read our latest information on this (from a very good attorney):
Real Estate Appraisals in Mexico: Catastral, Taxes, Capital Gains & Notarios at https://yucalandia.com/living-in-yucatan-mexico/real-estate-property-appraisals-in-mexico-catastral-taxes-capital-gains-notarios/
I think you will have a lot better understanding of your options after reading that link, as you may find that an Avaluo Comercial I.S.R. Adquisicion may be just what you need.
steve
Thanks Steve! The plot thickens. I will look into all of your points above, and report back with my findings. I deal with the Mexicali Catastral office, I will contact them. SO SO helpful, I really appreciate your insight.
Shawn
Hi Shawn,
We had our Catastral office re-appraise our property to reflect the current value of our re-modeling/re-construction, rather than trying to get and keep facturas for every little thing. We pay more in property taxes since the re-assessment, but establishing a new official basis should resolve future issues with too high gains taxes due to an artificially low basis.
steve
Ok, I have some new information. The value listed in the Catastral office is 322,145 pesos, or about $21,000 (based on land value only). Apparently, I have only been paying property taxes on the land value. This is a bit strange, since I did pay the 2% acquisition tax to the Notario on the full $175,000 amount (which is the Purchase Price listed in the Fideicomiso) when I took out the loan/formed the Fideicomiso in 2007.
Given this, would you recommend asking the Catastral to reasses the taxes? If this is done, does residency matter, or will it then be deemed a loss regardless of residency status?
If I am not able to reassess the value, regarding the potential exemption, would applying for/receiving a permanent resident visa even make a difference, since the property is not my permanent residence, and certainly has not been for 5 years? Are there any other options you can think of to avoid a tax at closing?
Thanks!
We are from the US and bought property in Acapulco in 1989. We are selling the property now because of a death in the family. Since the purchase of the property Mexico had the de-evaluation of the Mexican peso. So now our lose looks like a gain. Any advise or suggestions on how to handle this?
Hello Steve, we want to buy a beach house in Quintana Roo the owner is from Merida and wants to use the land value only of the sale which he has at $30,000 usd. He wants to give me a private receipt for the house on the property. He wants a separate wire transfer of $210,000 us to a us bank account to avoid his capital gains tax. He says everyone does this to avoid taxes. He has a Notario who works on these “tax strategies” Sounds to me like if we do this we will be paying big time when we have to sell down the road. We are getting cold feet!
What do you think?
Ray
Hi Ray,
I guess it depends on how badly you want the place.
7 – 10 years ago, that was the way real estate transactions worked in Merida, but buyers have slowly been forcing changes – to keep from being stuck with the future big big gains tax bills.
Since your seller is a Mexican, try pointing out to them that they can take the 100% exemption from gains taxes, as a homeowner who lived there for 5 years – unless it was a vacation place.
If they insist on registering a false price with the Catastral property assessment/tax office – scamming the tax system – and scamming the government to make the biggest properties by dodging taxes, then the ball is in your court.
Since you would owe 27% to 35% taxes in the future, likely on the whole sales price, then tell them that you’ll “split the loss” with them, by having them reduce the price by 15% or 17% – where you’ll eat the future taxes, if they accept part of the bill today. (?)
Wish I had better news,
steve
Thanks Steve and Chula you for your help.
All we want,is to do things within the law and be prepared for later with no big surprises. We have been contemplating Steve’s advice of asking for a 17% discount on the purchase price and sucking it up when the time comes down the road when and if we have to sell. We are just not sure yet and think we should perhaps talk to a tax consultant in Merida before we proceed with applying for Fideicomiso. It has been a very roller coaster type ride with the ups and downs of this deal.
If by chance we can still strike a deal are there any things we should apply for tax wise from the start? We plan on retiring in 2 years from now and spending 6 months Mexico/ 6 months Canada? Ray
Hi Ray – As someone who lives in Quintana Roo with a Mexican spouse involved in real estate I can say no, not everyone in Mexico does this. It is pretty common to try and shave a little something off the value off but your example is extreme. Usually the state has its own assessment of the value of the property and the seller will pay, at a minimum, tax on this amount. So perhaps the state has no idea that there is a building on the lot. I’d (have your lawyer) check with the municipality about whether or not the property you are buying is regularized because this is raising some red flags for me.
Oooo…
Those are good points: What is the official description & $$ of the property and building(s) at the Catastral office?
steve
Hello Steve,
We still have made little progress because when we ask for professional help such as Lawyers, etc from Merida they do not want to travel 4 hours to Quintana Roo. The plot thickens, the seller has told us some Canadians built the house on his land by mistake. He said he ended up buying the structure from them and has not registered the building
We have been in touch today with a firm called Mexlaw who suggested that we form a corporation instead of Fideicomiso. We have not heard all the reasons but were told it is less complicated when time to sell and quicker time frame for the initial sale. Possible less taxes. They said we will look at ways to convince the seller as well.
We are still hanging in and hope it can happen some how without taking a bath!
What are your thoughts on this route?
Hi Ray,
Mexlaw is correct about forming a corporation giving you and them a lot more flexibility at purchase time.
It also helps if you want to rent-out the place in the future.
It also helps in having multiple buildings on the property vs. personal fideicomiso.
One downside is that when you go to sell the property, even if you have lived in the property as your principal residence full time for 5 years, and even if you are a Residente Permanente, corporations are not allowed to take the homeowner’s exemption on capital gains taxes.
Plan to get and keep facturas for any improvements/expenses – otherwise you generally pay full-freight (up to 35%)
for gains taxes on future sale by the corporation. or get a Catastral real estate appraisal (when you are the owner), to reset the official value of the property: paying more in annual taxes (still small), but reduce the big gains tax bite later.
Thanks for the good update!
All the best,
steve
Thanks again Steve!
We appreciate your expert advice, it is comforting getting honest support. We are proceeding with the new Lawyers.
Ray.
Good Luck
Hi!
Opened the corporation 7 years ago. It has been dormant since then. Bought property and loaned corp x$ to build house. Will I avoid taxes etc if I transferred the shares and the company pay back loan from proceeds to me.
In this long thread “3%” is mentioned by my count 41 times. The “3%”is modified variously as Appreciation, Depreciation and Inflation. Here are some examples:
3% per year inflationary credit
3% per year inflation adjustment
depreciate 3%
3% per year for an inflation adjustment apply
the 3% per year inflation,
3% per year depreciation allowance
deduct 3% per year due to depreciation
3% per year due to depreciation
depreciate whole value of the property 3% per year,
3% inflation clause in the new tax law.
allowed depreciation (up to 3% per year)
able to claim future 3% per year depreciation on the property to lower future gains
take a 3% per year deduction on the property value (up to 10 years)
deduct 3% per year in depreciation from the net gain.
3% per annum inflation deduction
–regarding the 3% “inflationary credit” for an empty lot but by mistake I used the words “inflation deduction”. In your reply you referred to the 3% depreciation deduction. Understanding I would not receive a depreciation deduction would I be eligible for the 3% inflationary credit —
Am I able to use the 3% per year?
3% is not compounded.
is the 3% inflation allowance compounded?
Last mention was in March 2015
I think it would be helpful if this deduction can be listed by its proper name in Spanish and a citation to the part of the ISR or other tax code be given. My Notario is clueless as to what this is and trying to explain it in English is getting nowhere.
Also -resident homeowner’s exemption- Could this also be listed in its proper Spanish term and a citation given.
Thanks
Hi,
You’ll need to talk with your Notario (Notaría office) on those items, because the application of the 3% is their discretion.
I believe that when they do apply it, it only applies to the buildings and fixtures, not the land.
Some do not use it… at all… in any form.
For citations, read the ISR.
For a Notario who doesn’t know the law – as amended in 2010, do we really trust someone who has not learned the law as applicable since 2010?
You could check with a good tax attorney instead, or better still, a good tax accountant.
or
Check with Spencer McMullin of Chapalalaw.com – and use his services.
Spencer stays up with ISR law provisions, is reliable, accurate, and charges fair rates.
steve
Steve, Thanks for your reply to my post. I agree “Spencer stays up with ISR law provisions, is reliable, accurate, and charges fair rates.” I contacted him in April with a small project to do some hypothetical numbers. He quoted me a fair price and I OK’d it. Then everything just seemed to get lost in the woodwork – maybe too much other business on the plate or the project just fell by the wayside. I’m not complaining. I thought maybe there was another route to take – find out what this 3% deduction is called in Mexican Spanish and where it is citied in the tax code and go from there – hence my post.
Hi Bill,
I’ve been buried in work, so I directed you to look at the ISR yourself.
If you open the internet .pdf reference to the ISR (listed above), you can use Adobe Reader to search for what you want.
I did one quick search and found:
“Article 124 …
Artículo 124. Para actualizar el costo comprobado de adquisición y, en su caso, el importe de las
inversiones deducibles, tratándose de bienes inmuebles y de certificados de participación inmobiliaria no
amortizables, se procederá como sigue:
I. Se restará del costo comprobado de adquisición, la parte correspondiente al terreno y el
resultado será el costo de construcción. Cuando no se pueda efectuar esta separación se
considerará como costo del terreno el 20% del costo total.
II. El costo de construcción deberá disminuirse a razón del 3% anual por cada año transcurrido
entre la fecha de adquisición y la de enajenación; en ningún caso dicho costo será inferior al
20% del costo inicial. El costo resultante se actualizará por el periodo comprendido desde el
mes en el que se realizó la adquisición y hasta el mes inmediato anterior a aquél en el que se
efectúe la enajenación. Las mejoras o adaptaciones que implican inversiones deducibles
deberán sujetarse al mismo tratamiento.
Tratándose de bienes muebles distintos de títulos valor y partes sociales, el costo se disminuirá a
razón del 10% anual, o del 20% tratándose de vehículos de transporte, por cada año transcurrido entre la
fecha de adquisición y la de enajenación. El costo resultante se actualizará por el periodo comprendido
desde el mes en el que se realizó la adquisición y hasta el mes inmediato anterior a aquél en el que se
efectúe la enajenación. Cuando los años transcurridos sean más de 10, o de 5 en el caso de vehículos de
transporte, se considerará que no hay costo de adquisición.”
Capitulo 5 (for real estate developers), also has 3% deduction clauses…
Again, we are not experts in taxes, this site is free, and we do not offer advice, but we do quote the advice of professionals and we do cite the regulations & laws. …
Best of Luck,
steve
GRACIAS!
I found a very detailed treatment of the subject here: http://asesoresensoluciones.com/index.php/enajenacion-de-bienes-inmuebles-2014
Excellent!
Yucalandia, where do I go to find out about selling a piece of property that is in a Mexican Corporation?
Hi Jill,
Since the Notario who handles the sale controls the taxes withheld, etc, you need to talk with the Notario.
Some buyers insist on choosing the Notario – even though it is YOUR taxes that are affected – you could consider telling the Buyer that due to the Notario potentially overcharging on taxes, you would like to have the right to choose a different Notario, if the Buyer’s Notario does not handle the tax calculations properly.
unavoidably messy sometimes…
steve
I own beachfront property under a mexican corporation. I am trying to sell, how does capital gains affect me if I sell.
Thanks
Caz
Hi Carole,
Typical tax rates on gains range from 27% to 35% depending on your situation.
Talk with the Notario who will handle your sale, to know their official personal/professional decisions about what taxes you would owe. Notario’s personal opinions vary sufficiently, that we cannot predict what withholding your Notario will stipulate – nor what deductions he may allow.
Sometimes, it is best to get a fresh catastral appraisal… before selling. SEE:
steve
Hi Steve! I just wanted to let you know that there is a designation that is given out by the National Association of Realtors in the USA called ABR – Accredited Buyer´s Representative. In order to get the designation you must be a member of the Mexican Association of Real Estate Professionals (national) called AMPI. I would suggest that ANYONE buying in Mexico deal with an AMPI real estate member and that they get someone that is going to REPRESENT THEM as buyers. Our fiduciary duty is to represent the best INTERESTS of the buyer – regardless!! Would you go to a lawyer that represents BOTH PARTIES? nope…so be sure to ask for an agent that can represent YOUR interests as a buyer. If in the town where you are purchasing there is no one with the certification- designation – I would suggest that you have a talk with the agent telling them about your concerns as to being able to represent both parties (there is nothing wrong with it – but you do need to let the buyer know that you are representing the owner also). Thanks! hope this helps to get more professional training. BTW I do this training throughout Mexico.
Buyer’s representative (also known as a buyer’s agent)
A buyer’s agent is hired by prospective buyers to represent them in a real estate transaction. The buyer’s rep works in the buyer’s best interest throughout the transaction and owes fiduciary duties to the buyer. The buyer can pay the licensee directly through a negotiated fee, or the buyer’s rep may be paid by the seller or through a commission split with the seller’s agent.
We’ve decided to leave this post, even though it clearly is an advertisement.
Note that Yucalandia does NOT know anything about the reliability or reputation of either “Mercy Sterling de Duenas” nor the organizations she is selling.
We do note that this is “Mercy Sterling de Duenas” ‘s first post that we have seen on any web-board (which says a lot),
and
We note that “Mercy Sterling de Duenas” has offered nothing of value or help or aid that we have ever seen on the web.
“Mercy Sterling de Duenas” may be a fine person,
“Mercy Sterling de Duenas” may be be a nom-de-plum,
or may be a troll.
Each reader can judge for themselves what we think of people who appear onto forums and webboards, only deliver self-serving messages or advertisements, and then disappear.
Though we normally delete the 100’s of spam messages we get: We leave this post up, in case someone wants to comment about their experiences
~ with “Mercy Sterling de Duenas”,
~ on Mexican Association of Real Estate Professionals (national) called AMPI
and
~ on what may be a good service. ??
Happy Trails,
steve
Hey Steve! I am in Guadalajara and have been in real estate here that time 🙂 spencer knows me! I just want anyone buying to know they should be represented by another person looking out for them. Saludos!! Mercy Stirling ( with an I) de Dueñas
iPhone
Aviso de CONFIDENCIALIDAD aquí http://guadalajararealestate.blogspot.mx/2013/03/aviso-de-confidencialidad-trilenium.html?m=1
>
Hi Mercy,
Excellent.
There are so many problems with spam & trolls, we have had a policy of no advertising, and are reluctant to post suspicious posts.
I’m very glad you came back to offer some context – and glad that you know Spencer – as he is a gem.
Happy Trails,
steve
Steve,
As a Mexican citizen by naturalization, I am buying a property for $275,000 but the seller (fm#2) wants to put only $200,000 on the title to lower his taxes. Assuming this will be my principle residence for the next 5 years, and the exchange rate doesn’t change, when I sell the property, at what point will I have to pay capital gains? The exemption is for 3,000,000 MN total price or 3,000,000 on the price difference between buying and selling?
Susan
Hi Susan,
If your property is worth less than the future allowed UDI threshold, and you are considered a resident of Mexico by your Notario, then the whole amount would be exempt.
… but that exemption is decided by your Notario,
steve
Hello!
My parents (who are from Mexico) will be selling their home in Mexico for $50,000. The bought the land almost 30 years ago for about $5,000 and built a house there with about $15000-20000, but they do not have any of the paperwork for what they invested in building the house. I think they will be paying taxes correct on the gain?
My aunt has gotten a notario to help us with the paperwork. The buyers will transfer their money from their bank in Mexico to my parent’s bank in the US. Now, when they head back do they have to declare the money that is being transferred at the airport?
Hi Pao,
They only declare $$ at US Customs if they are carrying $10,000 or more with them (on the plane flight … in any sort of financial instrument).
Happy Trails,
steve
May 3, 2016. Can you give a link to the newest laws regarding capital gains on land only? We have a buyer for a small lot in El Sargento, that in USD we are selling for 18,500 (we purchased it at 16,800 in 2008). The word is that our capital gains will be $3456! and that seems just wrong to me. We did pay the 2% at the original fidocomiso filing time with the bank.
Any help you can offer will be much appreciated. This blog already is helpful, but if the 2016 laws are different, I would need to use those figures.
Thank you.
Hi nn,
Read the ISR… or better still, hire a qualified tax accountant/Notario pair. because it is the Notario who decides what to charge and how to determine the charges.
A reference starting point for personal reading: http://www.sat.gob.mx/informacion_fiscal/tablas_indicadores/Paginas/tarifas_pp.aspx
Happy Trails,
steve
Pingback: Taxes On Selling A House In Mexico | Linlinanami
My mother has an FM3,she purchased her beachfront lot for 30,000.00 (30k)US in the 1980’s.She has lived on the property full time ever since,and only added 3 structures,2 of which are “Bali huts” built off the ground about 10 feet.Not really a complete home on the property,and no buildings have been manifested because she built when no one was even near her property,she lives off the grid with solar and delivered water so no utilities because they weren’t out that faras in the 80’s(SAN Jose del Cabo) She now is wanting to sell and wants in the 1.5 Million US range…..how would the capitol gains work for her situation,she has lived there since 1984 Or close to that year.
FM3’s have not existed since 2009.
What is her current visa type?
Did she get either Residente Temporal or Residente Permanente?
Did she maintain current-continuous valid visas this past 5 years?
Read the article above about the limits on the homowner’s exemption… See the 5’th paragraph of the article at the top.
If your mother gets a GOOD notario, he should give her the homeowner’s exemption on the first “700,000 UDIs” which is roughly $3,500,000 pesos**.
The answers to your questions are in the article above.
Happy Trails,
steve
Sorry Steve,Been dealing with this property and my Mom…..
She has Imigrado status.Has lived there full time,on the beachfront lot she bought for 30k …comes up to US once or twice a year for a week.She has a few structures she built,but it was so remote in the 80’s,I doubt she did any permits or paperwork to document them,she is off grid,completely.She does have water brought in and put into a tank.She pays taxes on the property every year.The property is a rare one as its commercial/residential on the beach in the el encanto area out of San Jose Del cabo.She does not use it for income,never has.I know she applied for Mexican citizenship at one time but couldn’t “pay” the right people to get it done….this was probably 10-15 years ago.So she is the Imigrado status.shes been there non stop since the mid eighties….
I’m on the Fidicomiso as a beneficiary,but hoping it sells before I would have to be involved….capitol gains is the big question now as obviously the lot has increased in value….probably close to the 1 million mark.And I’ll guess she didn’t pay that 2 percent with original purchase.
And info only to your readers…..official property documents are 20 dollars a page to get translated into English in the Cabo area…..if you want to be able to understand them completely.
Hi Diane,
Since she’s still alive, living full time in the property as her primary home, as the homeowner for over 3 years, then she should qualify for the homeowner’s exemption on capital gains on the first “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.
Since there has been no “Inmigrado” status since 2012, your mom would likely have Residente Permanente visa status (converting automatically over from the old Inmigrado status).
It would seem best to sell the property while she’s alive, but I would DEFINITELY talk with a good Notario first.
steve
Thank you Steve,we will be working towards a sale and this information is very helpful as far as a direction to head.
One more question,Is making the property a corporation a beneficial thing to do as far as making the selling process any easier,or allow for anymore capitol gains help.
Once the property has been listed under a personal fideicomiso, I am not confident that it can be easily converted to a corporation ~ without incurring significant tax liability, but that issue is WAY BEYOND our depth.
Good Luck,
steve
Steve,my apologies for my lack of knowledge,but I’m on a wing and a prayer trying to figure this out.Not easy getting information from my Mom,or understanding it when I do.Im assuming from other responses,that a Notario,and a tax lawyer are the best direction.And I’ll assume that the bank that holds the Fidicomiso ,also has the Notario that will eventually handle the sale of the property? Or is it still wise to get a second opinion from another Notario?
Hi Diane,
The Bank’s Notario’s usually insist on handling the sale proceeds. … Getting an independent opinion from a second Notario can give you 2 things:
~ Peace of mind about the deal
~ A legal leg to stand on if the Bank’s Notario tries to take different approaches than your independent Notario’s approaches.
Still, having a personal fideicomiso (versus putting the property into a corporation) may lock you in being forced to accept what the Bank’s Notario decides.
Wish I had better news,
steve
Hi Steve,
I just want to try to clarify something…OK…LOTS OF THINGS!
My husband and I (Canadians) bought our home in Cabo san Lucas with only a tourist visa, 5 years ago when the dollar was almost at par (CDN-US). We are considering selling in the next 3-5 years. In order to sell that home do we have to have a resident visa (either temporary or permanent)? Do both my husband and I require said visas because we are both listed as owners? We will likely not live there permanently before selling. So in order to pay capital gains we have to have a CURP and a tax number ? In order to get the CURP and RFC we have to have more then a tourist visa? I have been told capital gains is due also on the currency differences? Is that true? We have done extensive renovations and the property value has increased as a result (no facturas). With selling in the 3 to 5 year plan, what can we do now to protect ourselves from the tax implications. Should we consider creating a corporation to sell our home to? Would it have to be a mexican corporation or could it be a Canadian corporation? Should we request a property tax review to adjust property values? I truly appreciate your expertise and time.
Carol,
You have asked excellent questions. Notarios are personally responsible for the decisions on what they allow & disallow. Because all of these issues are ultimately decided by the Notario who handles the sale, it is best to talk now with the Notario who will handle the sale.
e.g. We have friends whose Notario is willing to process the sale of their home here in Merida, with them having only tourist visas … while other Notarios have told “No”.
Happy Trails,
steve
I have an empty lot in Valle de Bravo Mexico. I am selling it to a mexican. price 67K. us dollars
Is it true that I will pay a little less then 20% capital gain? I am us citizen and have dual citezenship . I dont know what my mexican mother paid for it. I inherited it. the title in my name.
Buyer wants to use his notary . I dont want them to declare a small value , then the mx governm,ent comes after me. please advise.
Find out what the catastral value is on the property & then talk with the notary who would handle the sale, to have them tell you what gains amount he would use to calculate the taxes he would withhold from the sale proceeds. In the past, that had been 28% of the net gains.
As always, it’s best to talk with a good legal professional on serious tax & real estate issues,
steve
Hello, quick question for you….
Back in 2014 I signed a purchase agreement for a condo in Playa, it was owner financed when exchange rate was 13 pesos for $1. Now I am ready to sign the new deed with Fidecomiso and seller and current exchange rate about 17 pesos. It would be of course beneficial for me to use 17, but seller obviously prefers to use the better exchange of 13 pesos. Does the mexican tax authority want us to use the current exchange rate since we are signing the new deed now in 2017, and it can see that as a way for the seller to pay lower taxes? Can we just use an ad hoc exchange rate as we please?
Thanks for your input.
Luke
I understand that those issues are up to the Notario who handles the transaction.
Do you (the Buyer) pick the Notario? … or does the bank_trust fideicomiso holder? … or does the condo association ?
steve
Thanks for your reply. The seller realtor picked the notaio. He’s suggesting that we use the exchange rate of 13 pesos per $1 which was the rate in 2014 when we signed the agreement. However today we are ready to sign the deed and the ongoing rate is 17.
I consulted with another notatio and he suggested to use 17 because putting 14 because he said we must use the exchange rate at time of closing. What do you think?
Thanks.
If the selling price was listed in MXN pesos … then the cash you pay today is in … MXN pesos, not USD.
In my limited understanding:
If the selling price was recorded in USD, then use the old $13 MXN : $1 USD value.
If the selling price was recorded in MXN pesos, pay the remaining balance in MXN pesos
(paying in pesos, allows you to convert your USD to MEX pesos at the current buying rate of $17 MXN : $1 USD value.
These kinds of issues are why we want to choose the Notario when possible.
What currency price was written in the sale contract?
I agree with yucalandia.
If it was me I would now request using a different Notario.
at this point nothing has been sold, you just have an agreement. change that agreement (if you can).