Home Expat Blogs Real Estate Appraisals in Mexico

Real Estate Appraisals in Mexico

3460
1
House made of money resting on a construction plan
Credit: Gajus | Thinkstock
Spencer McMullen blogs on Expats In Mexico
Spencer McMullen

There are three types of real estate appraisals in Mexico that you should know about before purchasing property in the country: Tax (Catastral), Bank (Bancario) and Commercial (Comercial).

Tax or Catastral Appraisal

The Tax or Catastral appraisal is used to calculate transfer taxes and fees as well as notary fees. In years past this was used to establish the value as the sales price on the deed instead of the real sales price that the buyer paid to the seller.

This had certain consequences. If the value was low the buyer paid less in closing costs and less in property taxes. But with changes in the tax laws in 2010, you could only exempt capital gains once every five years, which has been reduced to once every three years in 2016.

Furthermore, notarios became stricter and required foreigners to have an FM2 immigration document, and later a residente permanente visa. Now you can have either a temporary resident or permanent resident visa to qualify for the capital gains exemption.

Some expats could not qualify for the new documents. This meant paying capital gains on the gain. Many did not have a real gain but had a “phantom” gain due upon sale. This would be used to lowball the catastral tax appraisal value and use the new real value for sale. Devaluation has also been the cause for recent phantom gains on home sales.

In many cases, for example, some expats actually had a loss. That is, they 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 $800,000 pesos or the amount of the 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-to-30 percent.

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. Then there are tables to value the square meters of construction depending on age of the property, style and condition.

Bank or Avaluo Bancario Appraisal

The bank appraisal or avaluo bancario is used when you buy a piece of property with a bank loan. It is similar to the U.S., Canada and many other countries with comparable sales as a justification for the sales price.

Commercial or Avaluo Comercial Appraisal

The commercial appraisal or avaluo comercial is not widely known but 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.

Another objective of this type of appraisal (Avaluo Comercial I.S.R. Adquisicion) is to justify that the property has a lower market value than that obtained in the catastral or tax appraisal. This is usually necessary for properties being sold under value. If you purchase a property for more than 10 percent under its value then you as the purchaser pay the I.S.R. income tax since you are receiving a benefit.

This is the one exception to the rule where the seller always pays income tax in a sales transaction. Typical cases where this may arise are foreclosed properties, fire sales, vandalized properties or properties being constructed and not finished, where some tax offices consider a property with a roof finished while there are no walls or anything else inside.

Here the appraiser tries to justify the 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 may have to pay.

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 expats have done remodels to their properties but do not have official tax facturas to justify the work. This type of appraisal can be used to justify the work done on the property to raise your tax basis and lower or eliminate your I.S.R. tax liabilities. You will only get benefits from remodeling and improvements done to your property, not simple repairs because something broke. The government will take 80 percent of the value of the improvements for purposes of calculating the I.S.R. (capital gains) tax liability.

Finally, here are the Items you will need for your appraisal:

  • Copies of your property deed with registration receipt
  • Copy of your most recent property tax bill/receipt
  • Copy of most recent water bill/receipt

All appraisers must be licensed and most are engineers or architects who have postgraduate courses and state licenses, and are also “peritos” or experts.

1 COMMENT

  1. Greetings,

    Being a certified general appraiser, I’m interested in working in Mexico. Does anyone have any recommendations of how to get started? Advice is greatly appreciated. My level of speaking Spanish is intermediate. I’d like to move permanently to PV by 2025.

LEAVE A REPLY

Please enter your comment!
Please enter your name here