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What Buyers and Sellers Need to Know About Currency Transactions in Mexico

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I want to explain what buyers and sellers need to know about currency transactions in Mexico. I hope it will make the experience of buying and selling Mexican properties more understandable.

You, as a seller, can agree to receive the proceeds of a sale in Mexican pesos, U.S. or Canadian dollars, or any other currency.

However, taxes and expenses to sell are going to be computed and collected by the country assessor or notary of the country where the real estate is physically located.

Some markets are so popular with foreigners that the real estate is priced in the currency of the largest foreign purchasing group. An example is the Bay of Banderas where U.S. dollars are used for many properties.

This means you may need to convert your own money, say Canadian, into U.S. dollars to buy a condo you want in Zona Romantica.

Your belated surprise is learning later that the entire transaction price, which is recorded in your escritura, is in Mexican pesos. And this is what it should be.

When you record prices of real estate sales, you use the currency of the country where the property is located. This country, for many reasons, should and does use the value of the asset to collect taxes and track the economy of buying and selling to arrive at costs and profit. Labor prices, cost of goods, supply and demand of materials, depreciation and appreciation are all in Mexican pesos to evaluate the health of the economy. Direct foreign investment still is converted to the value in Mexican pesos.

The U.S. dollar is very strong today and you may receive an average of 19 pesos for every U.S. dollar paid. Your U.S. dollar goes further in purchasing power, and you receive more pesos when you sell in U.S. dollars.

If a condo purchase price is US$100,000 between buyer and seller, the price will be recorded in the amount $1,900,000 Mexican pesos for the buyer. He/she will receive an encrypted file from the Mexican IRS, which provides the official value in pesos (CDFI).

Sellers can receive their profit in U.S. dollars or whatever currency they wish. The reported price of what you sold for will be also in the amount of $1,900,000 Mexico pesos.

Let´s imagine that three years from now you want to sell, and you want to receive back U.S. dollars. You can do this, but if you owe capital gains tax, you will have to find out, after adjustments for currency differences, if you owe tax or not.

Do you have a gain or loss? This will be determined in the peso rates recorded from your prior purchase and your current sales price.

As an example, in 2022 you sell in a seller´s market and receive US$120,000 for your condo. The U.S. dollar is weaker, and Mexico is making more money, so the pesos is stronger than today. The stronger peso is 12 pesos to the U.S. dollar. Your sale will be recorded at the Mexican pesos price of $1,440,000. This is less than the recorded price you paid in 2019 of $1,900,000 Mexican pesos. You do not have a gain.

But let´s say in 2022 you need cash and you are in a buyer´s market and have to take US$85,000 to sell. The peso is still at 12 because Mexico´s economy is strong and not tied to the tourist real estate market. Your sale will be recorded at $1,020,000 pesos. You still do not have a gain.

Or the U.S. dollar is 19 pesos and your saIe is still US$85,000, or now $1,615,000 pesos You do not have a gain based on the strength or weakness of the peso compared to the U.S. dollar. You originally paid US$100,000 and you ¨lost¨ money. You lived in the property three months each year for three years and did not have a gain to owe ISR or capital gains tax.

But if you sell when the U.S. dollar is still stronger than the day you bought your property, you will receive more pesos and have a taxable gain. If you sell when the U.S. dollar is weaker to the peso then when you purchased your property – say the peso is now 15 instead of 18 – you will have a loss.

So, for recording and tax purposes, you should imagine you went to the cash exchange house and bought pesos with your U.S. or Canadian dollars. When you sell your condo, you will go back to the exchange and receive the rate exchange of the day in U.S. dollars.

All real estate sales transactions will have the benefits of deductions, and in some cases, partial exemptions for the sellers.

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.

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