Generally, the profits from selling your property in Mexico are taxable, with the exception of any gains from a resident taxpayer’s principal residence. Things like Capital Gains Tax can really make a dent in your profit when you sell. So here we go over a few ways to save on paying Capital Gains. Also come tips, rules and advice to help you understand Capital Gains in Mexico.
Taxable Capital Gains in Mexico
This tax is called Impuesto sobre la rental or ISR. Its an income tax. *Consult a tax attorney to calculate your capital gains tax both ways to determine the lesser tax, this is where our in house Legal Team comes in.
You can pay 25% tax of the gross sales amount without any deductions.
35% on the net gain minus expenses for improvements, commissions, and other allowable deductibles.
Save money know your deductibles.
Below are a few of the allowed deductions.
Deductions allowed for capital improvements
You can deduct the costs of any capital improvements (e.g. building extensions, new flooring, swimming pools, new rooms) while you owned the property, as well as some closing costs commonly incurred when purchasing a home. You need official receipts —in Mexico, these are known as ‘facturas’— for all services and building work to claim these allowances when you sell, so be sure to take advice from your Notary Public on how to account for these—and follow it. Any capital improvements made using a firm or builders who didn’t issue you with facturas for the work cannot be deducted. General maintenance and home improvements, like remodeled kitchens or new bathrooms, do not count as capital improvements. Keep all fraturas of expenses of renovations and improvements. Manifesting your property refers to officially registering documents and receipts of funds spent on a home’s construction or renovation, which will be used as a deduction when the house is sold. * We have a appraiser that can do a appraisal, if you dont have all your Facturas.
Closing Costs
When you buy a property in Mexico, you’ll be presented with a range of ‘closing costs’ that usually add up to between 5% and 10% of the property’s sale price. These are allowable deductions.
Professional fees
In Mexico, the role of the Notary Public is paramount in property transactions.Mexican Notary Public is a legal professional with very important statutory roles. The fees for the Notary Public are paid for by the buyer. Some buyers also choose to hire a lawyer, which can add several thousand US dollars to their total fees, but this is not necessary with us. We include our legal team as part of our service.
2% acquisition tax
When you pay the two percent acquisition tax at closing (a sales tax needed to receive your trust), the government gives you an inflationary credit every year you own the property. This credit was created for inflationary purposes and can be used as a deduction when itemizing against capital gains. It can be up to 15% depending on how long you have owned the property. The gain should be divided by the number of years the seller owned the home, limited to 20 years. However, all this depends on if you paid the acquisition fee or not.
Selling fees
It’s possible to market and sell your property without the services of a local realty agent; however, as we explain in our Sellers Guide, a good realty agent provides a marketing service, a conduit between the negotiating parties, as well as managing through the paperwork to bring a property sale to successful completion. Realty agents in Mexico typically charge 8% of the sale price in commission—and you need to add Mexican sales tax (IVA) to this (16%), so if the agent’s commission is 8%, the tax-inclusive payment will be 9.28%. This amount can be considered a deduction.
The Main Qualifications to avoid paying Capital Gains Tax.
Provide proof that the property was your principal residence.
Proof of residency
Tax id number RFC
More then 50% from mexico
Not taken this exemption in the last 3 years
Up to 700,000 UDI per qualifying person. So if your married both you might both quailfy.
Bills with your name and tax id on it RFC * must be yours, not the generic number
*A few things our Legal Team will help with to save you as much money as possible.
Cost of Selling property in Mexico
The three main costs when you’re selling a property in Mexico are:
Selling fees ie. Commission
Professional service fees
In Mexico, the role of the Notary Public is paramount in property transactions.Mexican Notary Public is a legal professional with very important statutory roles. The fees for the Notary Public are paid for by the buyer. Some buyers also choose to hire a lawyer, which can add several thousand US dollars to their total fees, but this is not necessary with us. We include our legal team as part of our service.
Taxes
Important things to be aware of when selling your property in mexico.
1. The currency exchange rate effect
In most towns and cities across Mexico, home prices are quoted in Mexican pesos when they are offered for sale. However, a few places and most notably in Los Cabos, Puerto Vallarta, San Miguel de Allende, Ajijic/Chapala, and Cancun/Riviera Maya, home prices are often seen quoted in US dollars. Even though the transaction may be quoted in dollars, the deed will show the amount in Mexican pesos at the exchange rate prevalent on the date of the closing. Any capital gains are calculated only in Mexican pesos and therefore, shifts in the exchange rate can affect the capital gain calculation as expressed in a foreign currency.
2. Choose your fideicomiso and notary wisely
The buyer picks the Notary. Thats where our legal team comes in. Our team knows most of the Notarys in the Bay. They have worked with them on many transactions. This is one of the main reasons we include our Legal team in all our deals. There’s a small loophole in the tax law, as it doesn’t explicitly state that a foreign property owner has to have Mexican residency to qualify for the capital gain tax exemptions. However, many bank trusts (fideicomiso) and notaries do state that this is a requirement in their fine print. Choosing a notary or fideicomiso that offer policies that interpret this law in the way you need is very important. Every property transaction has its own quirks and unique characteristics; cultivating a good relationship with your Notary Public is a crucial aspect of successful property investment in Mexico. Taxes due on the sale of residential property are calculated by the Notary Public, who also withholds these amounts for direct transfer to the Mexican Treasury. The tax law makes each Notary Public fully liable for taxes due, so they will absolutely ensure that the rules have been followed and certify that sellers qualify for any exemptions and deductions they are claiming for tax relief.
3. Selling your Mexican home as a non-resident
If you are not a resident in Mexico and/or you don’t have a Mexican tax ID, you cannot claim the one-off allowance exemption explained above, although you can claim qualifying deductions, so long as you have the official receipts (facturas) to prove the expenditures which can be deducted.
4. Selling at a loss.
If the Principal Residence was sold at a loss, this amount may be divided by the number of years the home was held, ten years maximum. This loss may be used to offset other taxable income on gains from other property sales, but not used to reduce business or employment income tax.
5. Always get professional advice from a Notary Public and/or tax accountant.
These are the key principles of residential property taxation as of the date of this article, and guidelines here are intended to help you compose an estimate of the taxes you will be expected to account for when you sell a residential property in Mexico. (Different tax rules and rates apply when you sell commercial property.) You should seek professional advice from a Notary Public and/or tax accountant in Mexico to get a detailed appraisal of your situation. Note also that if you are not a Mexican national then you might also be liable to taxes in your home country and you should seek advice from a specialist tax accountant in that respect, too.
6. Mexican tax law is a specialty
Notarios are not the experts in this area, and the real estate laws change every couple of years. It is best to speak with a Tax Attorney to determine the lowest tax you will need to pay.
7. Taxes on the sale of residential property in Mexico
Taxation on residential property sales is a complex area of Mexican tax law and every case will be slightly different depending on the circ*mstances. Also, keep in mind that tax laws are subject to reform and because house purchases tend to be long-term investments. The tax laws which apply today might apply entirely, in-part, or not at all when you come to sell your property years from now.
8. Inherited property is exempt from capital gains tax.
9. You may be exempt if you the property is a donation, consult a tax attorney for stipulations.
9. Corporations have a different tax system than private real estate.
10. The 2% Acquisition Tax you paid during purchase may be used as a deduction.
11. Maintenance costs are an accepted deduction.
12. Raw land is taxed differently than developed properties.
13. If you have done significant renovations on the home, and your expenses, exceed 20% of the purchase price you will need a new assessment from the property tax authority. The increase in value will reduce your capital gains in the future.
14. Capital gains taxes paid in Mexico can be credited to your US or Canadian tax filing. The treaty between these two and other countries eliminates double taxation back in your home countries.
Download our free sellers guide here.
*****It is important to note, laws here change. You should always contact a Tax Attourney. The Notary as they final say on all Capital Gains due. We include our legal time in all our buying and selling at no charge to you. Contact us today for a free consultation.
