U.S. dollars are favored in Mexico real estate transactions because wealthy Mexicans and foreigners like the idea of buying and selling real estate here in U.S. dollars. They see a U.S. dollar price for real estate as a way to park their money in an asset instead of a bank or investment fund.
The U.S. dollar is more stable than the peso at the moment. Two basic facts you need to think about when buying in U.S. dollars are: understand the tax structure in Mexico for capital gains and to not overpay.
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 an exchange rate of US$1 equals 20 pesos, and the peso continues to be weaker when the owner sells, say 25 pesos to the dollar, he/she has a gain because the value of his/her property is in more pesos, not less. If he/she sells when the peso is 25 to the U.S. dollar, this is a gain. The Mexican 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 Mexican capital gains tax. The sales price, again, may be paid in U.S. dollars, but it will be recorded in pesos.
It should be obvious to all Americans by now that rental income and equity in sales transactions are affected by the tax income structure for the country where the property exists. In the U.S. tax code currently, an American citizen can take advantage of receiving a credit of some type for the taxes paid to Mexico. Check with your American accountant. You need to pay taxes in the country where the money is earned. If you are renting your condo or house here in Puerto Vallarta, you owe money to the Mexican tax authority.
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.
Also, be aware of the exchange rate when you want to pay for goods and services with U.S. dollars. The exchange rate may be against you compared to a bank or commercial exchange rate. Buying pesos when you receive more, is a good way to have a reserve to pay in pesos for more goods and services until your pesos run out.
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.