Capital gains
Understanding Mexican tax law is an integral part of the purchasing process. What you do today dictates your tax liabilities tomorrow.
The following is an overview of the capital gains tax regulations currently in place for individuals. Note that the information is intended for individuals, not corporations. Over time these regulations may change, therefore it is important to make sure that the process outlined here is still in effect by contacting a certified accountant or Mexican Notario.
CAPITAL GAINS TAX
Capital gains tax law in Mexico states that tax is owed on the profit you receive when you sell your home or property. By law, you have two options when it comes to capital gains and you can use whichever is the better of the two options for you:
1. You pay 28 percent* of the net profit. (There are a variety of deductions included in this option.)
2. You pay 25 percent* of the gross sales amount with no deductions.
Although a 28 percent capital gains tax may seem high, Mexico does have several laws and procedures that will assist you in maximizing your cost basis, thereby reducing your net profit and lowering your capital gains. The key is understanding these laws before you buy, not when you decide to sell.
*Percentages reflect the 2007 Tax Code.
WHY SHOULD YOU TAKE ON THE SELLER’S
CAPITAL GAINS LIABILITY?
The first step in calculating your capital gains is to subtract the value you have recorded in your trust, or Fideicomiso (fee-day-coe-me-so), from the sale price of your property. In the past, some real estate companies have recorded values lower than the actual purchase price in an effort to "save" taxes for their client; they thought they could save money on the two percent acquisition tax. This is a major error. Never record a lower value than what you actually paid for the property. Doing so simply establishes a lower cost basis for the property, which increases your capital gains tax liability.
Never allow anyone to convince you to record a lower value than what you have actually paid for your property, or you will assume the Seller’s capital gains tax liability. Recording a lower value today can cost you, should you decide to sell in the coming years. If a Seller can convince a Purchaser to record a lower value, the tax liability is simply passed along, and eventually someone will have to pay. Don’t let anyone tell you, "That’s how we do it here." Mexico is like everywhere else — the capital gains tax is the responsibility of the Seller.
Simply, a property is not yours until you have the title in your name. Also, if you don’t record the accurate value of your purchase, you’re most likely taking on someone else’s capital gains liability.
Fact: Recording a property’s true value benefits you and establishes your cost basis in the eyes of Mexico.
Fact: The amount you pay for a property has no impact on your yearly property taxes.
Fact: Capital gains taxes you pay in Mexico can be applied to your U.S. taxes.
OF YOUR PURCHASE.
By: Victor Gonzalez