“If you want to make an easy job seem mighty hard, just keep putting off doing it.” – O. M.
A seller needs to know when he offers his property for sale, if he has an exemption or whether he will pay capital gains tax. When an offer comes in, it will usually say that both buyer and seller agree to their usual closing costs. For the seller, capital gains tax is an expense.
The question of exemption from tax is frequently misunderstood. “I shouldn’t have any tax because I am selling the villa for less than I paid for it.” “My friend said a certain notary will work with me, and I will have no tax.” You are not taking care of your business if you don’t do your homework before offering your property for sale. Your assumptions are not valid until they are checked out. Comments by another person who is not qualified to answer the question is not acceptable. You become obligated to paying taxes and fulfilling your part of the contract, so don’t procrastinate.
Do you have a partial exemption?
Learn if there are any deductions you are not taking advantage of or how you can legally lessen paying tax. What are your deductions?
Real estate commissions are deductible if iva is paid (excise tax). The cost of permanent improvements can be deducted if you pay the correct excise (iva) tax and receive a properly written factura. You must first ask the notary if he accepts the receipt and type of expense. You don’t want to assume it is an allowable deduction and find out at closing it is not. A client recently paid for insulated windows and doors for his condo. His facturas have been reviewed by the notary and are acceptable. This client paid excise tax on the windows and doors, but he has saved himself some money at closing.
Are there any other options to lessen tax other than a proper visa or deductible expenses?
There are cases where over time the property has been improved but there is not a paper trail. What do you do? Find out if an appraisal by the tax authority will allow the property basis to be raised. Yes, the appraisal will cost money.
Do you think you shouldn’t pay capital gains tax if you are selling for less than you purchased?
Your purchase price was converted from US dollars into pesos in your escritura (deed). If the US dollar was 10 pesos and it is now 12, you have a gain.
If you are not partially exempted and pay a tax in Mexico, can you use the deduction in another country?
Tax treaties between counties are different. You need a good accountant in the other country to tell you if you can deduct the expense. If you are selling Mexican real estate, you owe taxes here first. If you pay taxes in the US or Canada, you still owe them in Mexico.
To keep in perspective why taxes are collected by the notary upon the sale of real estate, one has to understand the culture and the history of the collecting country.
A well-informed attorney told me several years ago that Mexico appreciates the fact that foreigners buy and sell here, and often times make a profit. The government takes the position that the country where the sale occurs is entitled to a portion of the proceeds of the sale.
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This article is based upon Flex MLS reporting, 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 own due diligence and review. If you have any other questions, contact me through my website.Harriet Murray