A frequent question I get is what taxes sellers must pay on Mexican real estate. Here is a listing of your tax obligations if you are selling your property in Mexico.
The commission you negotiate will be deductible from your capital gains by your paying the16 percent IVA tax on the amount of the broker fee. AMPI brokers agree to share the commission with buyer agents, so your property will have maximum exposure. Agents in Mexico are not licensed as they are in the U.S. and Canada, so be careful when interviewing listing agents.
The Mexican notary public (the notario) is the principal for permitting and overseeing property transactions according to statutory law. Costs of the notary public are paid for by the buyer. Buyers can and should also hire a lawyer, which may add several thousand U.S. dollars to their total fees, but it is very important. The buyer will need the ability to have review of legal documents associated with the property, and this needs to be done before the notary starts his/her work.
If the property you are selling is held in a bank trust (fideicomiso), you will also be charged a trust cancellation fee by the bank. The amount varies, but you should budget for around US$900.
Taxes on the Sale of Residential Property in Mexico
Taxation on residential property sales is different from what you may understand in the U.S. or Canada. Laws are subject to reform and current tax laws may be differ when you sell.
Capital Gains Tax
Your gain will be the difference in what you paid in Mexican pesos when you bought and when you sell, not U.S. or Canadian dollars.
One-time Tax Allowance Exemption
A one-time tax allowance exemption is available under Mexican income tax law if you and the property meet certain criteria to qualify for the partial exemption.
The exemption is the peso equivalent of 700,000 UDIs. The UDI (unidad de inversión) represents one UDI to one peso, and is linked to inflation. The Bank of Mexico publishes the value on its website. Daily values for the following two weeks are published on the 10th and 25th day of each month. Currently 700,000 UDIs are about 4 million Mexican pesos. You can deduct this amount from the sale price, if you qualify.
Two or more owners can each be eligible for this partial exemption, if they meet all criteria.
This tax-deductible allowance is not automatic. You must qualify, and you must prove the qualification. If you are not fluent in Spanish, your agent should be able to communicate with the notary to help you apply for this tax strategy. You may need an accountant or attorney to help you apply for a tax number, RFC.
Tax Strategy from the Notary
You can also ask the notary for a strategy to give you credit for the improvements you have made to the property, and the value it may have when you are selling.
If the notary uses a trusted professional appraiser, you will pay for this in addition to the capital gains tax determined after your strategy discussion. The notary will also charge for his/her analysis to use the appraisal to increase your basis. And remember, your commission paid to the agent is deductible, less the IVA fee.
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.