Tax

The Truth about Capital Gains Tax in Mexico

It is the payable tax on a gain or a loss (depending on the applicable case) due to a real estate transaction/sale of a property.

The capital gain tax is regulated by the Ley del Impuesto sobre la renta on Chapter I De los Ingresos, Subchapter IV Ingreso por Enajenación de Bienes, Section I.

Clause 119: Income from the sale of property or goods is considered to be those derived from the cases provided for in the Federal Tax Code.

Federal Tax Code on its clause 14 item I states:

Article 14.- Seles or disposal of assets/property is understood to be:

I. Any transfer of property, even in which the transferor reserves ownership or domain of the property.

Exceptions: Income from the alienation or sale of the property will not be considered to be those derived from the transfer of ownership of property by death (inheritance) or donation (with its limitations).

When selling real estate property, the Seller or Purchaser, depending on sales prices, can be susceptible to the payment of capital gain tax.

When the you obtain a gain over the sales of a property is called: Capital gain tax for sale, payable by the Seller of the property.

When the you have a loss over the sales of a property is called: Reverse capital gain tax or capital gain tax by loss, payable by the Purchaser of the property.

How much is paid for capital gain tax on the sale of real estate?

It all depends on the transaction and its characteristics, but you can pay up to 35% of the sale value, although it is typically between 20% and 25%.

The tax is determined by calculating the gross profit, and then applying the deductions, which results in the tax to be paid.

What are the applicable deductions?

  • Accreditable acquisition cost (Notary CFDI).
  • Verifiable and accreditable expenses for remodeling or improvements made to the property.
  • Notary fees and expenses (when purchased).
  • Appraisals
  • Real estate commissions.

Can I exempt the payment of capital gain tax?

There are specific cases in which capital gain tax can be exempted for the sale of a property. However, only the equivalent of 700 thousand Investment Units (udis) which is around 4.4 million pesos can be deducted.

Rules to exempt the payment of capital gain tax?

  1. Not having used the exception benefit in the last 3 years.
  2. Be a Mexican citizen or foreigner with Mexican permanent residence.
  3. Proof that the property is your home and main residence. To prove it, the seller must provide invoices (CFDI) under the seller’s name, and said CFDI must include the seller’s RFC (CFE & Telmex) and for Mexicans, an INE with the same address of the selling property will be sufficient.

If the sale price is less than the value of the appraisal by 10%, a 20% capital gain tax payment is payable by the purchaser over the gain obtained.

Property Taxes and Fees

Understanding the financial aspects of property ownership is crucial to making an informed investment decision.

Property Taxes: Puerto Vallarta typically has lower property taxes than many North American cities. Calculate your expected property tax expenses to factor them into your investment calculations.

Homeowners’ Association (HOA) Fees: If you purchase a property in a condominium or gated community, be aware of monthly homeowners’ association (HOA) fees. These fees cover communal maintenance and amenities, so factor them into your budget and investment plans.

HOA fees

Hoa Fees in Mexico and HOAs in general are not the same as what folks might know in the states or Canada. HOA fees tend to be a bit higher per square meter. But the smaller costs for property taxes really makes the difference, Make sure you understand your HOA rules and fees for selling. Your Coldwell Banker Realtor can advise you before putting your property on the market.

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