I wrote an article a few years ago about the Mexico Capital Gains Taxes which topic has come up several times recently I thought it would be good to post it up as I am doing some exercises with a client who is buying from another Mexican foreigner covering these issues…
As in any Real Estate investment or property acquisition, understanding future expenses and estimated revenues determines your future cash flows and returns. Mexico Taxes, are one of the expenses that will be incurred and therefore you should identify and learn these future obligations when purchasing your second home in Mexico There are Mexico acquisition taxes due by the buyer, and also Mexico Capital Gains Taxes due by the seller The largest tax, as is in most countries, is the Capital Gains Tax which we will be discussing in the article below, ( Impuesto Sobre la Renta).
Mexico Capital Gains Tax (I.S.R.)
The Mexico capital gains tax is collected at the time when you sell your property, and is due by the seller. The Mexican Notary Public is by law, responsible in collecting this tax and forwarding these funds to the Mexican Tax officials within 15 days of collection from the tax payer The day of collection occurs at the actual closing or the signing of the title transfer before the Notary Public.
I will write down a simple example of a calculation of the Mexico Capital Gains Tax listed below from which to base the explanation and article. Two comments before proceeding with the example:
Confirm the data below with your professional Mexican Tax accountants and/or Mexican Notary Publics on the calculations and estimates.
Always prepare for the worst and expect the best, prepare that you will pay the maximum capital gains tax at the time of selling your Mexican Property at the Mexico federal Capital Gains Tax rate of 28% plus 2% designated for state coffers.
To see the table with numbers please click here MEXICO CAPITAL GAINS TAX EXAMPLE
Mexico Sell Price. (A)
This amount will equal the amount captured on the title as the commercial value.
Mexico Acquisition Cost. (B)
On the Acquisition cost, the notary public will apply a formula to bring the acquisition cost to present value. This formula will take into account the inflation over the years using a Mexican economics factor (INPC) based on the month and year of the purchase and the month and date of the sale of the property.
Mexico Closing Costs (C)
that Joe incurred when he purchased the property. These Costs were incurred in 1997 and the notary public will apply the formula to bring to Present value figures.
Mexico Asset Improvements (D)
These costs will need to be delivered with official Mexican Tax receipts called facturas. Again, depending on the year these expenses were incurred, the notary public will bring to present value figures.
Mexico Sales Commissions (E)
When Joe sold his property, if he hired professional services to sell his property, these expenses can be deduced.
Mexico Cedula Impuesto (F)
This is a new tax that is collected for the state. This tax is approximately 2% and applied against the profit of the property. This expense is deductible from the calculation on the federal capital gains tax thus applied in this formula.
Questions that I receive very often regarding capital gains tax arehow can I reduce or be exempt from paying this Mexico Capital Gains tax My response isyou should prepare your pro forma with the calculation that you WILL PAY this 28% tax There are some cases where the Mexican Foreigner is actually exempt, in which case your tax expense SAVINGS would be filed and viewed as UNEXPECTED PROFIT Further below is an explanation on which property owners are eligible for partial or complete exemption of the capital gains tax……
If you have a continued interest in this topic, the original article was written by me in 1997 and you can read the remaining paragraphs at this following link Mexico Real Estate Article Library
Thomas Lloyd www.TOPmexicorealestate.com