The weaker peso is driving more visitors and potential home buyers to Mexico, so now is a good time to talk about money, specifically the dollar, the peso and Mexico real estate.
Currency
Both wealthy Mexican nationals and expats like the idea of buying and selling real estate in U.S. dollars. They see U.S. dollars as a way to park their money in an asset instead of a bank or investment fund. The U.S. dollar is more stable at the moment. When buying in U.S. dollars you need to keep in mind the tax structure in Mexico for capital gains and to not over pay for real estate.
As in the majority of foreign countries, property purchases and sale prices are recorded in the currency of the country where the property resides.
For example, in tourist areas of Mexico, if a purchase price of US$100,000 is recorded at the exchange rate of 20 pesos and the peso continues to be weaker, when the owner sells, he/she can face a gain because the value of his/her property is more pesos, not less. If he/she sells when the peso is 25 to the U.S. dollar, this is a gain. The ISR or capital gains tax will be computed with these numbers even though the purchase price can be sold and paid for in U.S. dollars.
If the peso becomes stronger against the U.S. dollar and the exchange is 15 pesos to the U.S. dollar, the property purchased for 20 pesos a U.S. dollar will have a loss when the property is sold. This will lessen the ISR or Mexican capital gains tax. The sales price again may be paid in U.S. dollars, but it will be recorded in pesos.
Taxes Owed
It should be obvious to all of us by now that rental income and equity in sales transactions are affected by the tax income structure of the country where the property exists. Any other taxes owed to a foreigner’s principal fiscal residence are secondary. Currently In the U.S. tax code, an American citizen can take advantage of receiving a credit of some type for the taxes paid to Mexico. Be sure to check with your accountant.
The Mexican Peso Is Mirroring U.S. Actions
The Mexican currency has become a gauge of U.S. policies on immigration, trade and illicit drugs. Nationalism or protectionism policies affect all economies that deal in trade with the U.S., Mexico and Canada, as the other two countries in North America, are certainly impacted.
A weaker peso might not be good for U.S. companies that export their goods to Mexico. Their dollar prices into pesos will require more pesos for the consumer to pay for their product. In short, a stronger dollar is not necessarily great news for American firms with international exposure. The net result can be lower profits for these firms.
Making the Exchange
Making your exchange from dollars to pesos is the key to maximizing your gain. You should know that making a currency exchange in Mexican banks has become more difficult. Some banks require you to have an account to change money.
For Point of Purchase Exchange, be aware of the exchange when you want to pay for goods and services with U.S. dollars. The exchange rate may be much lower than a bank or commercial exchange.
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.
