The U.S. tax filing deadline is about six months away, so let’s talk about what you need to know about real estate taxes in Mexico.
First, you or your agent should request a tax analysis from the notary. If you are selling your home, you need to have already worked out your sales price, and you will need to supply a copy of your escritura showing when you purchased the property and your predial or property tax statement.
You will receive an amount to pay in pesos for your gain. Ask the notary for a strategy to reduce this number. If the notary will do a re-appraisal of the property to raise your basis, this will be worth paying to do this. Your strategy price should be good enough for you to go ahead and put your property on the market to sell.
You can apply for a partial exemption as a fiscal resident of Mexico. This means you need not only a permanent visa, but an RFC or registration in the tax system. And with a Constanza, you may be able to be exempt for millions of pesos. This process takes time, and a major requirement is that your utility bill – CFE or Telmex – has your tax number or RFC on the bill with your correct address.
If you want to rent your property and are not in Mexico, you need to know that you need to report and pay taxes in Mexico on income from your property. If you are using Airbnb, take the time to find out if they will deduct your taxes before payment to your account. If you are using VRBO, check their policy. If you do the renting yourself, you will need to hire a Mexican accountant to do your returns and file every month. The money you receive can be in Mexican pesos or in U.S. dollars. You must declare your gross income.
A good Mexican accountant should be able to help you obtain a tax number – FRC – and declare you as a small business. You will need to have applied for a permanent visa, or already have one. Find out from your accountant if you can pay a flat tax on your gross earnings, and not have to chase facturas for deductible expenses.
In Mexico, your return must be perfect, and not an estimate of proceeds. It is like you are already being audited and you are not giving an estimate, like the U.S.
Also, many people ask me if they need to declare the full purchase price they are receiving.
Do not be talked into declaring a low purchase price. There are times you can use fiscal advice from an expert real estate attorney or accountant, but you should not do anything that can cause you legal and financial problems. Real estate commissions are deductible, less Mexico’s IVA. You can explore tax strategies but not fraud or lack of transparency.
This article is based upon legal opinions, current practices, and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his/her own due diligence and review.