Real Estate Property Appraisals in Mexico: Catastral, Taxes, Capital Gains & Notarios

August 12, 2014:
Mexican Lawyer Lic. Spencer McMullen has been busy again, offering yet more good insights into how real estate law, property law, and tax laws work in Mexico. Here is his latest report on key issues that affect most of us foreigners living and visiting Mexico:

Real Estate Appraisals in Mexico.
Here in Mexico we have three types of real estate appraisals:   Tax (Catastral),  Bank (Bancaria) and  Commercial (Comercial).   When choosing an appraiser, remember that all appraisers must be licensed.    Most are engineers or architects who have postgraduate courses and state licenses and are also “peritos” or experts in real estate.

TAX (CATASTRAL) APPRAISALS
The Tax / Catastral appraisal is used to calculate transfer real estate taxes and fees, as well as notary fees. In years past Notarios used this value as the sales price listed on the deed, instead of the real sales price that the buyer paid to the seller.

This approach had certain consequences when the listed value was low, allowing the buyer to pay smaller closing costs and less in ongoing property taxes.   After the Feb. 2010 ISR tax law changes, people could only exempt capital gains once every 5 years.   Notarios also became stricter in approving people for the homeowner’s exemption, requiring foreigners to have an FM2 or inmigrado (permanent resident) immigration document and later a residente permanente (while now one can have either a temporary resident or permanent resident to qualify for the capital gains exemption as of 8/2014). Under those “new” 2010 rules, many sellers could not qualify for the exemption. This meant paying gains taxes on an artificially high reported net gain.  These sellers did not actually have a real gain but had “phantom” gains, due to upon sale, as Notarios used the lowball catastral tax appraisal value combined with the current sale price for the new real value. In many cases people actually had a real loss, i.e. paid $2,500,000 pesos for a home in 2006 and in 2014 sold that same home for $2,000,000 pesos, while the original deed shows they paid only $800,000 pesos (as the amount of the prior catastro tax appraisal). While technically selling at a loss, they would have a paper gain of $1,200,000 pesos and pay tax on that gain amount of 20-30%.

The catastral appraisal is based upon tax tables published by the municipality where each city block is assigned a value per square meter for the land.   The municipal tax tables value the square meters of construction depending on age of the property, style and condition.

THE BANK APPRAISAL  (AVALUO BANCARIO)
The bank appraisal (avalo bancario) is used when someone buys a piece of property using a bank loan. It is similar to US appraisals, being determined using comparable sales, and is used as a justification for establishing the sales price.

THE COMMERCIAL APPRAISAL (AVALUO COMERCIAL)
The commercial appraisal or avaluo comercial is not widely known, even among Notarios and lawyers, but it has many tax advantages when used properly.    One objective of this type of appraisal (Avaluo Comercial I.V.A) is to attack and modify the value of commercial construction on a property to save on the IVA sales tax.

One type of Avaluo Comercial appraisals (Avaluo Comercial I.S.R. Adquisicion) are used to justify/prove that the property has a lower market value than the corresponding catastral (tax) appraisal. This is usually necessary for properties being sold at prices less that the catastral value listed with the municipality. If someone purchases a property for more than 10% under its official listed value, then the purchaser pays the I.S.R. income tax, as they are receiving a benefit. This is the one exception to the general rule that the seller always pays the taxes in a sales transaction, since the buyer pays this income tax. Typical cases where this may arise are foreclosed properties, fire sales, vandalized properties or properties under construction that are not yet finished, where some tax offices consider a property with a roof to be “finished” while there are no walls or anything else inside.

Here the appraiser tries to justify a lower value showing that the value really is lower due to the aforementioned circumstances, thereby reducing or eliminating the I.S.R. income tax that a buyer would have to paid without the Avaluo Comercial I.S.R. Adquisicion.

The last type of commercial appraisal is the Avaluo Comercial, con Mejoras I.S.R. Enajenacion. This appraisal is underutilized and can be a great way to lower your capital gains liability. Many people have done remodels to their properties but do not have official tax facturas to document the work and justify a gains tax reduction. This type of appraisal can be used to justify improvements on the property, raising the tax basis of the property, and hence lowering or eliminating your I.S.R. tax liabilities. You only get tax benefits from remodeling and improvement costs done on your property, not from simple repairs when something broke. I.S.R. (capital gains) tax liabilities use 80% of the value of the improvements for purposes of calculating the taxes.

Items your appraisal will need
1) Copies of your property deed with registration receipt
2) Copy of most recent property tax bill / receipt
3) Copy of most recent water bill / receipt

The original text of Lic. McMullen’s report can be read at:  http://www.mexconnect.com/cgi-bin/forums/gforum.cgi?post=201154;sb=post_latest_reply;so=ASC;forum_view=forum_view_collapsed;page=last;#last

Again, we thank Lawyer Spencer McMullen for his ongoing fine work at supporting expats in Mexico.  Lic. McMullen is a Mexican licensed attorney (Cédula #7928026) and official court translator (Perito Traductor).  Contact him at http://www.chapalalaw.com/inicio-2-2/ or Mx 376-765-7553

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Interested in more on Real Estate, Property, and Gains Taxes in Mexico?  See our main article at:  Capital Gains Taxes on Mexican Properties

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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.  See a qualified professional for advice on important issues.

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Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan. © Steven M. Fry

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14 Responses to Real Estate Property Appraisals in Mexico: Catastral, Taxes, Capital Gains & Notarios

  1. Pingback: Real Estate Appraisals in Mexico: Catastral, Taxes, Capital Gains & Notarios | Surviving Yucatan

  2. Deb. S says:

    Interesting article, and law appears to have changed recently 8/2014..We live part time in Cozumel, Q Roo, bought in 2001..is it true that to buy or sell property you must not have a temporary or permanent residence? Which seems contradictory when encouraging foreign investment in real estate. For part time owners who at this time have no intention of living full time in MX, this is a huge negative..As I know laws are often passed and amended for unforeseen circumstances..do you think this will happen with this law? Does it also affect getting auto license plates renewed..this is not a wise move in my opinion.

    • yucalandia says:

      Hi Deb,
      I think the laws were written with only Mexicans in mind – in efforts to increase compliance with tax laws.

      If you want to license a car or own a home, is it unreasonable to allow only legal residents to license cars? Does any country like having temporary visiting “undocumented aliens” licensing cars?

      Since Residente Temporal and Residente Permanente visa holders are issued CURPs when they get their INM visa, legal residents of Mexico already have CURPs.

      Is it unreasonable to expect homeowners and property owners to be legal residents – not just here on tourist visas? If someone is here on just a tourist visa, the govt. doesn’t have much leverage to get them to pay the taxes they owe – if they are not registered/not-documented- meaning “undocumented foreigners” are not welcome in most countries.

      ~ Is it reasonable for “Residents” to be expected to become “documented” – registering to pay any taxes they might owe? ~ (Lots of Americans make lots of noise in the press about undocumented foreigners in America not paying taxes…) ~ Fortunately, it is very easy for a legal Resident (permanent or temporary) to register with SAT and get an RFC that prove they are not “undocumented aliens”.

      So, yes, I understand that Q. Roo now requires people who license their cars in Q. Roo to have a CURP. And yes, we understand people buying and selling real estate (both potentially taxable transactions) will be required to have both CURP and RFC.

      Fortunately, both are easy to get for legal Residents,
      steve

      • Steve,
        I have to disagree with you there. “Is it unreasonable to expect homeowners and property owners to be legal residents – not just here on tourist visas? If someone is here on just a tourist visa, the govt. doesn’t have much leverage to get them to pay the taxes they owe – if they are not registered/not-documented- meaning “undocumented foreigners” are not welcome in most countries.”

        People who come with a tourist visa are documented. As long as they stay within the limits of that visa they are legal. I am not talking about the people with the perpetual tourist visa who just run to the nearest border every 6 months, or enter on a tourist card and never leave. Real Estate isn’t going to disappear, so in effect, the government can always put a lien against the property for back taxes etc (I believe in Mexico the government can’t take your house like they can in the USA),

        If someone buys a condo or other vacation home primarily for their own use (I am not opening the owning rental property can of worms here) in another country that doesn’t mean that they want to become residents. It means that they want to spend their vacations there. Owning property makes it more likely that the person is going to spend their vacations there, bringing money into the local economy.

        I don’t feel that licensing a car is the same as owning a vacation home.The two things are unrelated.

        regards,
        Theresa

      • yucalandia says:

        Hi Theresa,
        If you read my wording closely, I intentionally did not say whether I was for or against the requirements for CURPs and for RFCs – I only posed the questions asking what any of us believe to be reasonable. I did this because I suspect many Americans & Canadians complain about anything that inconveniences them – without considering the bigger contexts or importance of why some rules are enacted.

        I do believe that if we are doing something that makes us liable for taxes, then we should be registered – where a person with NO RFC is an undocumented alien for tax purposes:
        ~ Want to work? Register for paying taxes.
        ~ Want to sell stuff (chatzkes, sausages, artwork) for a profit? Register for paying taxes.
        ~ Want to get paid to repair cars, TVs, lay block, fix plumbing ? Register for paying taxes.

        This logic means if an alien/foreigner wants to buy a house or sell a house – both of those transactions can make us liable for paying Mexican taxes – which means the home buyer and seller should be registered with SAT so the Notario knows the buyer’s & seller’s tax status (what category they are in), for the Notario to determine what taxes to assess.

        If the buyer and seller do not have RFC’s then how can a Notario assess the taxes correctly?

        ???
        steve

      • yucalandia says:

        As a follow-on: When I read the law as published in the DOF, I see that the requirements that Notarios request CURP and RFC numbers, this information is part of a larger section that clearly describes the ways that Notarios must officially identify the buyer and seller – checking key pieces of Govt. ID information. … which is where I realized that it makes sense to require an RFC for the Notario to be able determine the proper tax status for the buyer and seller. steve

  3. cozumeldeb says:

    Does this law change, 8/2014, mean that to buy or sell your residence that temporary or permanent residence is required? Is it also required to renew car license plate? Discouraging foreign investment in real estate will not be a wise move, do you think this law may be amended?

  4. Martha Sanchez-Craig says:

    I’m selling a lot in Akumal that was valued at one/third of what I paid 11 years ago. The gain (once the actualization factor is applied) is about 5 million pesos. What can I do the reduce the exorbitant ISR I have to pay? – what deductions am I entitled to under the law? Can you tell me what are the present tax rates?

    Thank you for your help.

  5. Martha Sanchez-Craig says:

    Thank you for your prompt reply. Ir esa helpful.

  6. Susan says:

    As a Mexican citizen, how will it affect me if the title reflects a much lower price than what I paid (1,000,000 MN difference)?

    If I live in the property for 5 years as my principal residence and then I sell the property for 500,000 MN more, do I pay capital gains on the difference in price or on the total selling price? Let’s use $3,000,000 MN buying and 3,500,000 selling as an example.

  7. Susan says:

    Do you know if the water bill needs to be in the homeowner’s name for the Avaluo Comercial, con Mejoras I.S.R. Enajenacion.appraisal? Also, do you know if the impuesto de predial should have the homeowner’s name on it or is it okay if it only lists the bank who has the fidecomiso? Thank you.

  8. maura says:

    All this information is helpful, but wondering is it better to contract your own “perito” and have your home construction appraised once it’s finished or when it is time to sell? Wondering if what you will pay over the long term in yearly property taxes once the taxable base increases will be more than what you’ll pay in capital gains tax on the sale if there’s a big difference between what’s registered in the public registry as your original unimproved land value vs. a finished home. Also, is it possible to use your construction receipts as deductions off the capital gains taxes? If so, can you use notas or is it necessary to keep facturas? Thanks !

    • yucalandia says:

      As always, only facturas.

      Per the article above, we are better off paying the higher taxes NOW, by having a proper appraisal, rather than risking paying big future gains taxes (35%) if you sell it in the future.

      The property taxes are miniscule compared to the 28% or 35% Gains Taxes withheld from the sellers $$ proceeds, extracted as a pound of flesh at the time of the sale.

      Plus, consider that some buyers insist on choosing their Notario to handle the sale, which means

      … If you do not have the proper appraisal now, then at sale time their Notario can stick the seller (you) with any taxes he wants.

      Also consider that if you have a Fideicomiso, then the Bank can stick you with their Bank Notario, who really can stick it to the seller who does not have the proper appraisal now.

      Then consider that some buyers are getting bank financing, which means a second Notario can stick it to seller who does not have the proper appraisal now.

      We have seen some buyer’s Notarios stick it to the sellers for 35% of the total sale price => OUCH…

      Happy Trails,
      steve

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