During the closing process of real estate in Puerto Vallarta, you must pass your title free and clear of any liens or encumbrances.  Prior to the closing, the Notario will order a no liens certificate from the Mexico Public Registry.  Therefore, you will need to pay all utility bills up to the closing date.  You must also liquidate and pay severance to any domestic employees.  This should be done in front of the Puerto Vallarta labor board, and it is important to get a signed receipt, as the lien stays with the property and would come back against the new owner.

Your condominium homeowners administration fees , as in most Mexico real estate markets, must also be paid up to the closing date and you will be asked to provide the new owner a copy of a letter from your administrator proving payment.  You must also have your Mexico property taxes (“predial”) paid up to date.  The bank trust fee must also be paid current, and typically there will be a bank fee to cancel or transfer the trust.  I sure hope you have made a profit on your investment, and in that case there will be a Capital Gains tax to pay.  If you are a Mexican citizen or a foreigner with tax residency of Mexico, you may be totally or partially exempted from this tax by virtue of your residence.  Foreign visitors will need to pay the tax, which it currently set at  30% of the net gain on the property.  The Notario will help calculate and is responsible to collect this tax, so it is critically important that you keep all your official receipts (“facturas”) on any improvements or expenses you have had and provide these to the Notario in order to raise your tax basis.  It is also important to understand that the legal currency here is Mexican pesos, so with the current weakness in the peso vs. the Dollar, even though you may not have a gain in Dollars, you may have a gain in pesos, which will be taxable here in Mexico.  The good news is that you can claim this payment as a tax exemption back in the US.  Your local TOP Mexico Realtor can guide you through this process, and help preserve and protect your rights.  Ask around and select a knowledgeable expert.  You will have to pay Real Estate fees, but the expert advice is well worth the cost.  Selling Puerto Vallarta real estate property here is a complicated business and mistakes can be costly and must be avoided.  Ask for a “factura” and you can write the fees off against those nasty Capital Gains taxes mentioned above.   Good luck and good selling!

Do you have a question about the Puerto Vallarta Real Estate market? Just ask!
Michael Green moved to Puerto Vallarta to take advantage of the unsurpassed lifestyle PV offers. Today, with over 12 years of experience, Mr. Green is one of the most recognized brokers in Vallarta. TOP Mexico Real Estate “Mexico’s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!”

I have edited and updated a few article to include new tax laws and closing costs for the Yucatan Real Estate region.  These updates will compliment my article I posted last 14th of June.

To see this post please click here (Yucatan Real Estate Capital Gains Tax).

The updates for 2010 include a capital gains tax of 29% as well a regulation that home owners who qualify to avoid a percentage, or all of the ISR,  are allowed to exercise that privilege once every 5-years.

CORPORATION CAPITAL GAINS taxes are a little more complicated.   If you are holding title by utilizing a FOMC (Foreign Owned Mexican Corporation) it will be most beneficial to employ a sharp accountant.  They will counsel you in order to reduce your ISR obligations to the minimum possible when you sell your Mexico real estate.

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. 512-879-6546

THE www.TOPmexicorealestate.com NETWORK

“Mexico’s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!”

Linda Neil is one of our Top Brokers who has just written another informative piece regarding Mexico Real Estate issues such as taxes as seen below in her article called “Tax Obligations for foreigners in Mexico Death and Taxes…both are inevitable”.  Linda has been working in the La Paz real estate industry for over 30 years and has tremendous experience in the issues that most effect new non-Mexican property buyers. 

Whether a property owner or just the occasional visitor to the La Paz real estate region on the beautiful beaches of Mexico, everyone pays taxes, natives and foreigners.   Some of the taxes are hidden and others are not.   The purpose of this article is to touch on some of the important taxes levied and paid in Mexico.

            WHO COLLECTS TAXES:   The SAT (Servicio de Administracion Tributaria), also known as Hacienda, is the federal tax collector.   It collects all federal taxes such as the ISR (Income or Capital Gains) tax, the IVA (Added Value) tax, the IDE (Tax on Cash Deposits) and the IEPS (Special Tax on Production and Services).  Each state government has its own taxes such as the 2 to 3 percent tax on lodgings and tourism.   The municipal governments assess and levy taxes on real and personal properties.

            IVA TAX:   This is the Value Added Tax which is charged on goods and services.   The only exemptions are medicines and food.   Often this tax is INCLUDED in the price of food served in a restaurant, legal services, and the items purchased in a department or clothing store.   The business owner and tax resident is obligated to file a monthly declaration with Hacienda and pay the tax on earnings.   Credited against this tax are IVA taxes paid on goods and services acquired.  

            There is no IVA tax on the sale of vacant Mexico land or on the sale of residential dwellings.   The tax is levied on all commercial construction when it is sold or transferred, at the rate of 16% of the value of construction, regardless of where the property is located.  

            IVA tax is charged on lodgings, hotel rooms and furnished homes which are rented.

            As of January 1, 2010, this tax has been increased from 15% to 16% in the interior of the country and from 10% to 11% in the border zones.

            IEPS TAX:  This is the Special Tax on Products and Services which is a new tax for 2010.  It will cover certain internet and cable TV services, alcohol, cigarettes, and gaming.

            PROPERTY TAX;   This is a municipal tax with assessments on properties generally being made annually.   The tax can be paid in six installments (every two months) but probably should be paid in full within the first two months of the calendar year to obtain a discount.   Rates vary from area to area but are often far lower than U.S. or Canadian property taxes.

            ISR TAX;   Literally the Tax on Rents has been described as both an income tax and a capital gains tax.   It is complex and a subject of confusion.

            ON INCOME.   Any income generated from sources within Mexico, is taxable.   From business or salary, the rates are variable depending upon the amount of income received.

This is the end of Part I, and you will be able to see the finishing paragraphs in a separate article by the end of the week.

Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96. Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES for more information (512)-879-6546 THE www.TOPmexicorealestate.com NETWORK

“Mexico’s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!”

U.S. taxpayers are required to file certain reports with the U.S. government if they own property in Mexico, have a business in the country, or are shareholders in Mexican corporations Uncle Sam, U.S. tax watchdog, has instituted a voluntary disclosure program for those people who may have omitted reporting in the past. This program is designed to limit penalties that may be imposed on those U.S. taxpayers who have failed to make the required declarations previously.

A tax specialist, familiar with the law and reporting requirements in both the U.S. and Mexico can provide details. However, the most common issues that need to be addressed are the following:

Property owned in a Mexico Bank trust (fideicomiso): Under Mexican law, any residential property located in therestricted zone when foreigners are involved, must be placed in a Mexican bank trust, fideicomiso. Therestricted zone is an area 50 kilometers (approximately 30 miles) wide along all the Mexico real estate coastlines and 100 kilometers (approximately 60 miles) from the Mexico U.S. and Mexico-Belize borders

Under the U.S. regulation section 6048 (b) Taxpayers must report ownership interest on Form 3520-A yearly and on form 3520 initially and if there are any changes The penalty for failing to file these information returns is five percent of the gross value of trust assets determined to be owned by the U.S. taxpayer.

Bank and Financial Accounts: U.S. taxpayers must annually report direct or indirect financial interest in a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000.00 USD at any time during the year. This report of Foreign Bank and Financial Accounts is commonly known as an FBAR, and the penalty can be as high as the greater of $100,000. USD or 50% of the total balance of the foreign account if the failure is deliberate omission (Sec.31 U.S.C. 5321(a)(5) Nonwillful violations are subject to a civil penalty of not more than $10,000.00 USD.

Shares of Stock or Interests in Mexican Corporations and/or partnerships: Generally shareholders or partners with a 10% or greater interest in the partnership or corporation must inform the IRS of same through Forms 5471 or 8865 Failure to file can be quite costly.

As in most countries the U.S. tax regulations are complicated, especially when dealing with properties or assets located outside the United States. Accountants, tax advisors and tax preparers do not always know the rules regarding filings for international assets nor the ramifications of failure to file. For this reason it is highly important that the US taxpayer consult with experts in these bi-national transactions.

TAX OBLIGATIONS IN MEXICO:

Any foreigner with real property or business income in Mexico must also plan to pay taxes in Mexico. The good news! When paid with the proper receipts, certain of these taxes can become a CREDIT or a DEDUCTION in the country of tax residence!

For example:

Mexico Property Taxes: Whether in the La Paz real estate market, in Cancun, or in Huatulco, taxes are due and payable every two months, or can be paid in one annual payment, usually with a substantial discount, during the first two months of each calendar year Property taxes are based upon the value declared by the property tax office where the property is located and are generally relatively low in comparison with rates in the U.S. and Canada.

On-going taxes on business income: If you have a Mexican corporation or partnership, no matter what the activity, a monthly declaration must be filed for IVA taxes (Added Value Taxes) and for Impuesto Sobre La Renta which, in this case, is more like an income tax. A local Mexican accountant should be hired to review the accounting procedures and to prepare and file the monthly declarations. The monthly tax payments are generally considered as provisional and an annual declaration will show either a refund or a payment due These taxes can also be a credit or a deductible expense in a home country, depending upon how the companies are established. An attorney-accountant with international expertise in this will be an important advisor to help avoid double taxation on profits.

Impuesto Sobre La Renta when a property is sold: is a capital gains type of tax. For foreigners who are tax residents of another country, the tax is calculated in two ways:

1. It is a flat amount of the total selling price; without deductions, or

2. It is a percentage of the difference between selling price and the tax basis shown in the seller s deed, less allowable deductions.

The Notary Public should also provide the seller with a copy of the tax payment for use with the tax authorities in seller s tax residence country.

Impuesto Sobre La Renta when income is received from a rental of Mexican property:

All income received from Mexican property is taxable in Mexico, regardless of the nationality of the owner Thus, the US or Canadian citizen who rents a condominium or home regularly, or occasionally, through a property manager or via internet, is obligated to file declarations MONTHLY. Failure to declare income can cause very high penalties. The good news taxes paid are credits or deductions in taxpayer s home country.

LINDA NEIL is the founder of The Settlement Company, which specializes in real estate transfers, escrows,and consultations Just added as a new service, Settlement will now prepare monthly tax declarations, file them and perform additional essential landlord accounting services

Author Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96. Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES for more information (512)-879-6546 THE www.TOPmexicorealestate.com NETWORK

“Mexico s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!

I have written several articles on the Yucatan real estate purchasing process here in Mexico Articles about the role of the Mexico Notary Public, about rectifying property measurements, and even about Mexico real estate taxes Below are the last points I wish to share with you before covering other topics dealing with owning property in Mexico

CORPORATION CAPITAL GAINS taxes are a little more complicated. If you are holding title by utilizing a FOMC (Foreign Owned Mexican Corporation) you are definitely going to want to employ a good accountant He or she will be able to help you reduce your ISR debt when you sell.

TITLE INSURANCE

Title insurance is available in Yucatan and Quintana Roo Advise your agent and notario that you would like title insurance.

MEXICO MORTGAGE LENDERS

There are mortgage lenders that will loan to foreign buyers Ask you agent for a reliable lender Keep in mind that lenders in Mexico usually require a minimum 30% down stroke, interest rates are typically higher than in the USA, there are many hoops to jump through and junk fees are pricey Deals that involve a mortgage usually take more time to close and often cause a lot ofbrain damage for all parties.

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. 512-879-6546

THE www.TOPmexicorealestate.com NETWORK

Mexico s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!

Mexican law says that Mexico real estate taxes must be paid on the higher of the following: purchase price OR appraised value Since many appraisals in the La Paz real estate market are lower than the actual selling price your taxes will be condisderably lower if the appraisal value is declared Payment on this basis has taken place for many years in many parts of the country It is, however, illegal

Should you choose to pay your Mexico real estate taxes based upon this basis, please be aware that: 1. it is violation of the law and 2. your tax base will be low for declaration of value in the property when you sell it Furthermore, if you are financing your property through an institutional lender, full value must be declared

Mexico Official Appraisal:Most appraisals in the La Paz real estate region are made by an appraiser who is usually an architect and who is recognized as a Perito Valuador, Official Appraiser, by the property tax authorities in the municipality where the property is located This is required prior to completing any transfer of title If an institutional lender is involved, a commercial appraisal may also be required You can follow more of these tips at TOP Mexico real estate blog

Author Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96. Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES for more information (512)-879-6546 www.TOPmexicorealestate.com

“Where 11 TOP real estate experts from ALL regions of Mexico come together to share their Tips & Knowledge to help you buy safely !”

MEXICO REAL ESTATE CAPITAL GAINS TAXES

(called ISR or Impuesto Sobre la Renta)

An update to this article on 2 items have been included on a post of 1 of March.  Click Here to see (Yucatan Real Estate Taxes Update)

In the Yucatan real estate market, including other regions of Mexico, ISR are assessed when you sell a property The current rate is 28% of the gain (some states might have an additional one or two points) The calculation used to arrive to this Mexico real estate tax owed will depend upon several factors:

1 Years of ownership

2 Citizenship or immigrant status

3 Title held in a Mexico Bank Trust or corporation or

4 Square meters of property

5 Square meters of construction

6 Electrical or Telephone receipts in Owner’s name that reflects the address of the property

7. Proper ID of the Seller that reflects the property address.

If the Mexico property qualifies as your primary residence you can usually avoid a substantial amount of the ISR To qualify for this exemption, as a foreigner, you will need to have the following:

1 A current FM-2 visa that reflects your name and address as it appears on your escrituras/Fideicomiso.

2 Electrical and/or telephone receipts that also reflect the name and address recorded in the escrituras.

3 The property must be held in a Fideicomiso (corporations do not qualify to avoid the ISR tax).

Prior to closing, the seller needs to provide the Mexico notary public with the documentation mentioned above The notario is going to follow a formula (calculation) to determine the amount of ISR owed by the Seller.

The calculation is based upon the square meters of construction in relation to the square meters of the entire lot The notario will multiply the square meters of construction by 2 If the result is larger than the square meters of total land, the entire ISR may be avoided by the seller.

If the amount of land is greater than 2 times the size of the construction, the remainder of the property will be subject to ISR

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. www.TOPmexicorealestate.com 512-879-6546

ANNUAL PROPERTY TAXES in the Yucat n real estate market and even in Quintana Roo are very reasonable.

Example: A Mexico real estate property in Yucatan, with an appraised value of, let's say, $1,000,000 pesos will be assessed annual property taxes of, more or less, $2000 pesos Probably less.

It is important to remember that Mexico property taxesare based upon the Catastral appraised value of the property If at closing, the buyer decides to record the purchase at the actual sales price, (instead of the Catastral appraised value) the actual sales price will be recorded on the new deed and that will be the new value in which annual property taxes will be assessed Food for thought…

The homeowner should receive a predial (tax bill) every year that shows the property tax that has been assessed Usually, if you pay the tax early you receive a discount.

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. www.TOPmexicorealestate.com 512-879-6546

A couple of weeks ago, we had an interesting question be sent to our panel of experts The seller of a property wrote to ask,

Q. “What happens when I make some profit on the sale of Mexico real estate, we paid the Mexico capital gains tax, do we still need to pay taxes on the capital Gains in my home country too

A. Linda Neil from Linda Neil Properties in the La Paz real estate region advises the following “If you have property in a Mexican bank trust it is necessary to file a form annually with the US IRS and, yes, the profits or losses from the sale of your Mexican property must be declared on your US return. It is important, however, to obtain the tax declaration made in Mexico to be presented with your US return to obtain a credit or deduction for the Mexican tax paid.”

A. Ivan Castillo regional director and practicing Mexico real estate lawyer from Stewart Title answers” I m not an expert on taxes out of Mexico, nevertheless I don t think there is double taxation. If you pay Capital Gains in M xico and it is properly documented, the receipts can be used in the US in order to avoid paying taxes again.”

A. Cozumel Capital broker/owner Rita Sheese who works in the Cozumel real estate market outlines the following about these taxes “If a property in Mexico is sold, the capital gain realized by the seller (whatever nationality) is subject to Mexican capital gains tax. Then, the American seller when declaring that income in the states, would also declare the taxes that were already paid on this capital gain in Mexico Formal tax treaties exist between the US and Mexico to avoid the taxpayer paying double tribute, and so what you have already paid in Mexico will essentially be deductable from what is due in terms of US capital gains tax.

For more reading material click here Mexico Real Estate Questions and Answers

Or to read another Question to the Experts click hereMexico Bank Trust

THE MEXICO REAL ESTATE BUYING PROCESS PART II (Fideicomiso or FOMC)

This is a continuation of my previous post- Buying in The Yucatan Real Estate Market

While touring Yucatan properties with your agent, you will want to engage in a conversation about Fideicomisos and FOMC (Foreign Owned Mexican Corporations) to determine which is the best vehicle for you to utilize to hold title. Both have advantages and disadvantages.

The Fideicomiso (bank trust) is a trust agreement that you establish with a bank to hold title of the property with you (you and the bank are both named in the title documents). The bank has a fiduciary responsibility to represent your interest in the property.

Advantages of the Fideicomiso:

* The Fideicomiso gives you the rights and the vehicle to hold the property in perpetuity. It is a 50-year trust agreement that is renewable every 50 years by you or your heirs.

* You may also transfer your rights in the Fideicomiso to another foreign buyer

* You may rent, sell, remodel or dismantle the improvements on the property.

* Your heirs may inherit the rights to the Fideicomiso, effectively by-passing probate, should you depart without a proper will

* There are tax advantages pertaining to Mexico capital gains taxes when you sell

* The Fideicomiso is easy to maintain by paying the annual fee to the bank

If the title papers, property dimensions and corresponding documentation are not in perfect agreement, the bank will not issue the Fideicomiso. A rectification of the property measurements will be required We will discuss this in a moment.

The main disadvantage of the Fideicomiso is that it is restricted to a property of NO MORE THAN 2000 square meters.

Note: There are exceptions and you can request a permiso for acquiring a Fideicomiso that allows for a property larger than 2000 square meters. This is a complicated process requiring an investment plan, time line, inspections, architectural renderings, business plan and plenty of governmental red tape. The exception is designed for an investor that plans to make a significant investment in the property.

Another disadvantage of the Fideicomiso is that it is limited to one specific property. Sometimes you can put two adjoining properties into the same Fideicomiso. But, generally speaking, the Fideicomiso is only designed for an individual property.

The FOMC (Foreign Owned Mexican Corporation) is a vehicle that allows foreigners to open a business and work in Mexico. The corporation is a Mexican entity, and as such, has the right to hold title to real estate. An attorney or Mexico notario can help to set up your corporation It is important to know what your goals are in respect to the property, business and type of Mexico real estate investment prior to setting up the corporation.

Creating the corporation requires a minimum of two individuals (stockholders), of any nationality, that are at least 18 years of age. One of the stockholders will be required to be the managing partner. The managing partner will be required to acquire and maintain a Mexico FM-3 visa. The visa must be renewed every year. Additionally, the corporation is required to make monthly reports to HACIENDA (the Mexican Department of the Treasury) reporting income and expenditures. The reporting needs to be done by a certified accountant.

Advantages of the FOMC:

* Allows for the purchase of properties larger than 2000 square meters

* No limit to the number of properties it may own

* Allows for one or more of the stockholders to legally live and work in Mexico year round.

Disadvantages of the FOMC:

* The corporation requires more hands on attention than the Fideicomiso.

* Does not have the ability to avoid capital gains taxes when it sells property

* Requires a managing partner with an FM-3 visa

* Monthly reporting of financial activity is required through a certified accountant.

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. www.TOPmexicorealestate.com 512-879-6546

Mexico condos are popular investment options for Americans, Canadians and British and even more so those which are in the pre construction stages But identifying the risks and knowing how to manage such risks are important factors to ensure good returns and avoid costly surprises

One question was brought to our attention from a reader which is listed below:

Q.) I have a question I'm wondering if you can answer about tax implications for pre construction condo purchases. I entered into a contract in July 2007 for a unit a Mexico real estate project X It was still in with a good reduced price when I purchased They required a 30% down payment and a final payment of 70% at close My contract is all in US dollars. My question is “What will be the peso amount captured on my Mexico title deed given that in 2007 the Mexico exchange rate was $10 pesos and in 2009 the exchange rate is $15″

A.) Linda Neil of Linda Neil Properties from the La Paz real estate market advises the following:

“the 30% paid in 2007 should be shown at the exchange rate the date paid and the remaining 70% at the rate on the date of that payment. Acquisition taxes will be paid on the total amount but that is only 2% of the total.”

A.) Ivan Castillo, regional director and practicing Mexico real estate lawyer from Stewart Title responded:

“Even though the purchase price was set in US Dollars, the deed by which the property is transferred will mention Pesos It s important that the purchase price calculated is well determined, since it could affect the parties when calculating closing costs.”

A:) Thomas Lloyd from Lloyd's Real Estate in the Playa del Carmen real estate market included the option “there are money exchange homes that can lock in exchange rates for future payments If you see your currency is slipping in strength, this may be a viable option Write us and we can give you more details”

A.) Linda also included that “This figure, plus allowable deductions, creates basis for the eventual sale of the property so it is not a negative to show the higher peso amount.”

For more reading click here for Mexico Real Estate Questions and Answers

Mexico Real Estate Investments have been extremely profitable in this country for the past number of years But the overall consensus with our panel has been “surround yourself with Mexico real estate experts” to avoid unsuspected pitfalls Stewart Title has a team of lawyers that assist non-Mexican buyers, investors, and developers who are coming down in record numbers to purchase properties and develop in this growing Real Estate market

A question was asked a few days ago regarding a property purchase.

Mexico Real Estate Investment QUESTION

“Can you give us an estimate on the amount that would be due on Mexico Acquisition Taxes for a pre construction condo purchase

I entered into a contract in the summer of 2007 for a unit at Mexico Pre construction Condo “X”. They required a 30% down payment with a final payment of 70% at close.

My contract is all in US dollars How do I calculate the amount that should be captured on the deed and how will this affect the amount payable for the Acquisition Taxes In 2007 the Mexico exchange rate was approximately 10 pesos per dollar and in 2009 we are approximately 15 pesos per dollar

Mexico Real Estate InvestmentANSWER

Even though the purchase price was set in US Dollars, the deed by which the property is transferred will mention Pesos. Since 30% of the purchase price was paid previously at an exchange rate of 10.00 Pesos p/dollar and 70% will be paid at 15.00 p/dollar, the most practical way is to determine the amount paid in Pesos at the time of each payment:

Example:

Purchase Price in Dollars in July 2007 = USD$ 10,000.00

30% Down payment at 10.00 Pesos per dollar paid on July 2007= $30,000.00 Pesos.

70% at closing at 15:00 Pesos per dollar paid on July 2009 = $105,000.00 Pesos

Purchase Price in Pesos to be declared in the deed: $135,000.00 Pesos

It s important that the purchase price calculated is well determined, since it could affect the parties when calculating closing costs. The seller could pay more Mexico Capital Gains Taxes or the purchaser can pay more transfer of property tax and deed registration at the Mexico Public Registry if the figures are not registered correctly.

Ivan Castillo is the regional manager of the Stewart Title offices for the Yucatan Peninsula and Los Cabos region.Both a practicing lawyer and administrator, he has been working in Mexico Law specializing in real estate for more than 13 years Licensed in Mexico, his offices administer a variety of services ranging from Escrow Services, Legal/Closing Coordination, Title Insurance and brokerage services for American, Canadian, Spanish & British buyers and owners Please note that the above article is his professional opinion and an in depth study will be necessary for individual case by case accounts www.TOPmexicorealestate.com 512-879-6546

All too often citizens of the United States, Canada and other countries ASSUME that property purchases are carried out automatically in Mexico in a manner similar to that of their native countries The first law of property purchase in Mexico is DON`T ASSUME anything! Purchasing property is NOT the same as in other parts of the world

Would You Purchase a Property in Your Hometown Which Is Not Registered in the Local Public Registry or Land Titles Office

Would you hand a complete stranger, without an office or an established business entity, a check for perhaps hundreds of thousands of dollars to pay for a property Why do so many foreigners do this when they purchase in Mexico Many do not realize that Mexico has a complex and complete legal system and a court system that is as well organized as any that exists in the United States, Canada or Europe It is essential that you have an idea of how the system works and what to expect when considering a purchase of property in Mexico

Don't Leave Your Brain at the Border!

Article 27 of the Mexican Constitution prohibits ownership by a foreign individual or business entity of real property (real estate) within the “restricted” zone which is an strip of approximately 30 miles from any coastline and 60 miles from any border Recognizing the demand by foreigners for ownership of property and recognizing the importance of making desirable properties available to foreigners for potential positive impact on the economy, the Mexican government implemented a series of Foreign Investment Laws beginning in 1973 The law was modified in 1989 and again in December 1993, to incorporate the provisions of the NAFTA treaty passed in late 1993

For those who are acquiring property for residential usage, the law requires that title to the property in the restricted zone be transferred to a Mexican bank, as trustee, in the establishment of a trust (fideicomiso) in which the foreigner is the beneficiary The bank is the titleholder of the real property and the foreigner is the owner of the rights of usage of the property The bank owns the real property rights and the beneficiary owns the personal rights of usage Ownership of these personal rights is evidenced through a deed prepared by a Mexican Notary Public and signed by a representative of the trustee bank

Currently the term for a trust is fifty years The Foreign Investment Law of 1989 provides for renewal by filing an application Multiple renewals are permitted under the law By requesting extensions every fifty years, a property may be controlled by a family or business entity for generations For those foreign individuals or companies buying property in the interior of the country, not in the restricted zone, no bank trust is required but authorization from the Secretary of Foreign Relations must be obtained and ownership must be registered in the National Foreign Investment Registry located in Mexico City, as well as in the municipality where the property is located

Avoid Mexico Taxes and Extra Costs. Leave the Mexico Deed in the Seller's Name: This is Wrong!

Until the buyer is formally named as the owner in fee simple or in the bank trust in a public document before a Mexican Notary Public, title to the rights in the property remain with the persons named in the previous property deed Their signatures are required to transfer title If the buyer fails to obtain his or her own deed he/she will be required to obtain the titleholder's signature before a sale and transfer to another buyer This can be costly, frustrating, dangerous and time consuming

The Importance of Mexico Registration of the Deed for Beneficial Rights.

The Mexico purchase/sale document signed by buyer and seller is generally legally valid between the parties to a transaction It most likely contains the description of the property, the price to be paid to the seller, and any other special terms and conditions It WILL NOT, however, provide valid notice to third parties unless it is recorded in the Public Registry Office of the municipality in which the property is located Mexico's land registry system functions in much the same manner as the Public Registry offices in Podunk, North Dakota, Los Angeles, California, Ottawa, Canada or places in between

many foreigners purchasing property in Mexico do not understand the importance of registration of their interest in property They believe that it should be left in the name of the property developer, in the Master Trust, or in the name of the previous holder of title What if the developer goes bankrupt What if the corporation and its principals, disappear Who can sign as the representative of the property Who then owns the property What happens if an unscrupulous seller sells the property to someone else While title is in the name of the seller, it is HIS/HER asset; she may mortgage it, he may sell it again, it may be attached in satisfaction of a judgment, she may die without a will

Unless the Deed for the rights of the Beneficiary has been Recorded, there may not be a remedy for the purchaser who neglected to obtain a registered deed…his or her interest and investment, may be lost

To obtain the deed an appraisal, a property tax certificate, and a no-liens certificate must be obtained Notarized bank instructions must also be obtained if property is in the “restricted” zone Seller's capital gains tax and Buyer's acquisition tax must be paid The deed transferring rights to the buyer must be registered and stamped by both the tax office and the public registry If this process is not complete, the buyer is not fully protected The buyer's ultimate protection is registration in the Public Registry office record, NOT the Notary Public or the trustee bank!

Financed Properties in Mexico

When property is sold with a down payment and the balance to be paid over a term of years, many sellers prefer to hold title to the rights in their name and transfer title to their rights only upon receipt of payment in full Meanwhile, however, the seller may die, may disappear, may bo bankrupt…again risky situations for the buyer the prudent buyer will insist upon a transfer of title and registration of a mortgage or pledge in which he gives his rights in the property as security for payment of the remaining purchase price

In the event of default by the buyer, the seller must conduct a proceeding similar to a judicial foreclosure in the United States and Canada It is as troublesome as a foreclosure in any country in the world but notably more problematical The registered title and recorded pledge or mortgage provides the buyer a greater comfort level in his investment The lender also enjoys protection in having his loan recorded and will have an established legal proceeding to follow in the event of default by the buyer

Author Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96. Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES for more information (512)-879-6546 www.TOPmexicorealestate.com

“Where TOP real estate experts from ALL regions of Mexico come together to share their Tips & Knowledge to help you buy safely !”

WHAT IS A MEXICO FIDUCIARY

This term is most commonly used in Mexico to describe the bank which holds the title if you are purchasing a property in a Mexican bank trust, a fideicomiso

However the word has another very important meaning for those who are buying property in Mexico

The Fiduciary also refers to the person who takes on the responsability to represent YOU, and your interests in a business transaction. If you are visiting in Mexico and have fallen in love with the lifestyle and possibly a lot or a home, it is super important to find a Mexico BUYER'S agent to represent your interests in the transaction

This means that the agent you select should disclose all facts to you and should be open and truthful in all matters regarding the properties you are considering He or she should put YOUR interests and needs ahead of the Seller's and ahead of his own The Buyer's agent has a FIDUCIARY duty to represent you in the transaction

MEXICO REAL ESTATE CONFLICT OF INTEREST

Many times, we have heard……Oh! but Betty, the seller's agent, is so NICE! I am sure he/she will represent my interests!

How will that be possible

The seller, for sure, will expect to receive the highest amount possible and the most advantageious terms for the sale of the property

The buyer wants to buy at the lowest possible price, and with as many benefits and amenities as possible

How is one agent, negotiating betweeen buyer and seller, going to be able to obtain all of this for buyer and seller Smells like conflict of interest to me!

It is also important to remember that real estate agents in Mexico do not have the same responsibility under Mexican law, to fully disclose problems and defects to potential buyers and sellers There is also less government control in this area.

The Mexico Buyer's agent who has the ficuciary duty to represent your interests should, of course, treat all parties honestly and fairly But, the Mexico Buyer's agent will more than likely not have any listings This is important to avoid a potential dual agency (problem!) situation Everything he/she shows you will be listings handled by other agents and/or companies An additional advantage for using the Mexico Buyer's agent is that they look at the ENTIRE market, including any of Mexico`s for sale by owner properties.

Better yet, if you drive by an attractive property with a sign on it, or locate something on the internet, your Mexico buyer's agent should be prepared to research it, obtain information about it for you and draft and negotiate an offer on your behalf.

SELECTING YOUR MEXICO BUYER's AGENT:

1Make a conscious decision to acquire any property ONLY through a Mexico Agent who is committed to representing only your interests and not those of the seller Your Mexico Buyers's Agent should also be a member of AMPI, the Mexican Real Estate Association.

2In preliminary viewings of property, thank the agent showing the property, for his time, and explain that if you have further interest you will have your Mexico Buyer's Agent contact her.

3.Find the agent!! Interview several that appeal to you, ask for a resume of past business experience and references Ideally, the Mexico agent you select will be a member of AMPI and the National Association of Realtors (NAR) and will have obtained the Accredited Buyer Representative designation awarded by NAR.

4.Once you feel comfortable with the person selected to represent YOU, expect to sign some sort of simple agreement in which terms of the representation are outlined.

ADVANTAGES OF WORKING WITH A MEXICO BUYER'S REPRESENTATIVE:

Working with a Mexico Buyer`s Agent can save the buyer time by:

1Helping determine the amount that can be spent and exploring financing options.

2Previewing properties, and verifying property condition

3Suggesting important inspecitons by experts.

4Verifying property taxes, utilities, verifying value.

5Structuring an Offer

6Presenting the offer to the Seller and/or Seller's representative

7Negotiating favorable contract terms for the Buyer

8Overseeing preparation of documents for transfer.

A good Mexico Buyer's representative will persevere, has solid negotaiting skills, is on the BUYER'S side and, best of all, generally costs the buyer nothing in commissions since the sales commission is shared with the seller's agent!

Author Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96. Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES for more information (512)-879-6546 www.TOPmexicorealestate.com

“Where TOP real estate experts from ALL regions of Mexico come together to share their Tips & Knowledge to help you buy safely !”

There is a lot of misinformation on this subject, such as:

“If you become a Mexican citizen you have no tax to pay when you sell real estate”……

or “With a FM-3 and some receipts, you will be exempt from paying capital gains on the sale of your vacation house in Mexico“

Neither scenario is completely correct!

Mexican citizens must pay exactly the same tax on the sale of a lot or or a rental property as any foreigner No exemption is permitted for the sale of a vacation home, no matter what immigration status the seller has As of January 1, 2007 an exemption is granted on the sale of a primary residence This exemption applies to Mexican citizens and any foreigner whose TAX RESIDENCE is Mexico.

The Law of Tax on Rents (Impuesto Sobre La Renta), Article 109, Fraction XV provides for exemption for the sale of a personal residence An exemption of 1,500,000 UDIS is permitted, provided other requirements are met

UDIS….. And what is a UDI

A UDI (Unidad de Inversion) is, in English, an investment unit This is based upon a price-level adjustment established by the Bank of Mexico in 1995 to assure that loans denominated in UDIs maintain their purchasing power and provide a real rate of return in the local currency of pesos Because the peso has been quite stable over the past years, the UDI value does not change significantly now The rate is published daily by the Bank of Mexico In 2007 the rate went from 3.789867 in January to 3.926066 in December, a change of less than 1%

In other words the deduction of 1,500,000 UDIS in December, 2007 is 5,889,099 pesos, or about $555,000. US dollars.

Full Exemption: per Article 109, Fracc. XV (Art. 129 RL ISR)

When the sales price of the property does not exceed 555,000. USD dollars, the property can be exempt from the capital gain, or income tax, provided all conditions are met.

Partial Exemption: (example when the sale price exceeds the deduction) A house sells for 700,000. USD

less 1,500,000 UDIS 555,000 USD

Taxable 145,000 USD , less any permitted deductions such as capital improvements The tax rate is based upon a sliding scale ranging from 3% to 28%

In order to qualify for the deduction, the seller must prove this is his/her principal residence with utility bills, bank account and credit card accounts with the same address, electoral card or immigration document showing permanent residence in the country Title must be in seller's name or in spouse's name Seller must also sign an affidavit that this is his/her principal residence and the transfer must be made before a notary public.

A small house on a large piece of land will take into consideration only the construction (supported by building permits) and the adjoining outbuildings, not the excess of the land.

Only one property per annum will be exempt and seller must manifest that this is the first transfer of a personal residence in the calendar year.

Please remember, and don't be misled: an exemption allowing exclusion of capital gains is provided to residents who have lived in a home in Mexico as a primary residence This exclusion is intended to benefit residents, whether nationals or foreigners, of Mexico, not those who own second homes in the country.

In Mexico, the owner`s basis in a property is the value declared in the deed In the past it was common to declare the appriasal value which could be much lower than the amount actually paid This is the very important reason to have the price you paid for the property declared in the deed Be sure, however, that this is a condition of your offer to purchase and is accepted by the seller when you make the offer..

By law the amount declared in the deed must be written in Mexican pesos It should also be declared in US dollars, if that is the currency used in the transaction, at the rate of exchange on the date payment is made.

If this important point is overlooked when the property is sold, the capital gain tax can be enormous!

Author Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96 Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES www.TOPmexicorealestate.com (512) 879-6546

WOULD YOU LIKE TO RECEIVE MORE QUALITY ARTICLES ON MEXICO REAL ESTATE SUBSCRIBE HERE

WOULD YOU LIKE TO VIEW SOME LISTNGS CLICK HERE

WOULD YOU LIKE TO TO LEARN MORE ABOUT BUYING REAL ESTATE IN MEXICO CLICK HERE

I have been involved in hundreds of Mexico Real Estate transactions Hardly any of the Mexico Real Estate Purchases have had the same procedures, or the same situations to occur As in any real estate transfer, there are many factors and parties involved, and when dealing in Mexico, with Mexican foreign buyers or sellers, the variables only increase

Thus, there is a high probablity that when you go to buy Mexico Real Estate transaction, it will be unique in itself, have its unique obstacles but following a common and legally protected Mexico Real Estate processI have written an introductory guide from my many years of Mexico business experience outlining the steps involved in How to Buy Real Estate in Mexico which I have shared with many first time Mexico buyers and sellers.

MEXICO REAL ESTATE DEFINITION

Lets start with the definition of Mexico Real Estate Click here to see a generalDESCRIPTION OF MEXICO REAL ESTATE As outlined in this web page definition, Mexico's Purchasing Process has several EXTRA steps if the buyer or seller is a Mexican Foreigner There exists a Mexico Restricted Zone where the buyer will need to establish a bank trust Or, if you purchase outside of the restricted zone you can hold the property out right but just need to receive a simple permit from the Mexico Foreign Affairs department

MEXICO REAL ESTATE PURCHASING PROCESS

a) MEXICO REAL ESTATE AGENT

First tip,surrond yourself with a very well qualified Mexico Real Estate agent and broker When you are hundreds of miles away back in your home country, simple obstacles can easily become headaches if you have not taken the first intelligent step of surronding yourself with professional agents Ask for certificates, diplomas and credentials Are they members of any associations, if Mexican foreigners how long have they lived in Mexico and working in the real estate industry Do they speak spanish AMPI link

b) MEXICO REAL ESTATE FINANCING

Second, define the amount of money you plan to invest in your Mexico property investment If you plan to Mexico financing the purchase, begin to study and see if you qualify for such resources Do you plan to finance using the Mexican property or raise money from your home country Define these issues before investing time and money on your Mexico property search.

c) DEFINE THE MEXICO REAL ESTATE CLOSING COSTS

Third, understand all the costs that will be involved in the real estate acquisition Mexico closing costs include several extra items that most people are not accustomed or aware Although the entry costs may be a little higher, the carrying costs (property taxes, maintenance fees etc) are on average much less here in Mexico than in other parts of the world

With the above three items defined and understood, put your agent to work on collecting qualified properties that match your criteria search Review the options, have your agent prepare visits to the properties, do your comparison evaluations and ….have fun

There are various more steps involving preparing the offer to purchase, the contracts, notary publics and other issues for the Mexico property purchasing process which are outlined in several of my articles To see these articles and to learn more, please click here Mexico Real Estate Purchasing Process

Thomas Lloyd www.TOPmexicorealestate.com

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 excercises 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