A question that comes up often from expats is: “Should pesos or dollars be used for Mexico real estate?” The purchase price of real estate in Puerto Vallarta and the Bay of Banderas, which includes the states of Jalisco and Nayarit, is usually given in U.S. dollars.
While the purchase price may be in U.S. dollars, the RECORDATION of the purchase price is recorded in Mexican pesos. Why? The official currency of the country is the Mexican new peso. Your closing is a Mexican real estate transaction.
The buyer’s notary closing costs also are in pesos. What are these costs? They include: no lien certificate, tax appraisal, transfer tax, notary fees, trust fees if applicable, foreign investment permit, trustee signatures on the deed, etc…
For the seller, he/she may pay ISR, or capital gains tax. This tax will be computed using Mexican pesos for the value of the home being sold (when last purchased) and the new sales price. The difference is the gain and can be taxable. Say you bought when the conversion of your purchase price into pesos was recorded at 10 pesos to the U.S. dollar, and now you are selling when the peso is 18 to the U.S. dollar. This means you have a gain.
The seller receives his/her net proceeds in U.S. dollars. Real estate commissions plus IVA are paid in U.S. dollars. The seller may use the commission fees (not IVA) as a deduction against capital gains.
If a buyer is purchasing a property more than 10 percent BELOW the original purchase price or tax value, he/she may owe an acquisition tax. What is this tax? It is 25 percent of the difference in what the buyer is actually paying for the real estate, and its higher fiscal tax value.
Why the tax? When buyers and sellers abused the law and declared a false lower purchase price (thinking they were both saving money), they were committing fraud. The government had to come up with a way to deter this abuse. This “great deal lower than the tax value” has a penalty tax. This is a rare occurrence, but you should know it still exists.
This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his/her own due diligence and review.