Carol Sinclair
Carol Sinclair is Sales Manager at Walfre Real Estate. The company has 30 + years experience providing real estate services in Mazatlan and the surrounding areas.
www.walfre.com.mx
News on Capital Gains Tax on Home Sales in Mexico
By Carol Sinclair
With the recent world financial crisis, Mexico, just as other countries, is looking for ways to improve tax collection. Thus, there have been many changes to the rules regarding capital gains tax on home sales in Mexico, and I will attempt to provide the best information possible.
The Changes
Notary Public in Mexico has the legal obligation and responsibility to pay the taxes on a real estate transaction on behalf of both the buyer and seller. That is: the acquisition tax for the buyer and the capital gains tax for the seller. Until recently, on the sale of a home which was your residence, the seller had been exempt from paying the capital gain if he or she could provide utility bills in their name dating back 6 months from the date of the sale.
With non-Mexican sellers the law was not very clear as to the definition of a resident so most notaries in Mazatlan accepted the FM3 document which was available from the local immigration office. On May 4, 2010 a letter was sent to the President of the Mexican Notaries Association from the SAT (which is the Mexican IRS) to clarify many issues to do with the capital gain. One of these issues was the definition of residency of a non-Mexican citizen. On April 30, 2010 the Mexican Immigration Institution launched a series of changes in an effort to modernize systems. So now the Fm3 will be referred to as a non –immigrant or “no-inmigrante”. Fm2 will be referred to as an immigrant permit or “inmigrante” and the landed immigrant status will be referred to as “inmigrado”.
Therefore, non –Mexican citizens will be exempt from the tax only if they have the “ inmigrante” o “inmigrado” status. From what I have been told at the local immigration office you need to have had the non-immigrant status (FM3) for a year before you can apply for the immigrant status (FM2). This year period would be waived if you have family ties to a Mexican citizen. One issue that is not clear at this time is how long you must have the FM2 to qualify for the exemption. This may depend on your notary.
Tax Implications
So if you don’t have an “ inmigrante” or “ inmigrado” status in Mexico you will need to know the tax implications. The Capital Gain is 30% of the gain. The notary will send the necessary information to a tax accountant to calculate the amount. This information will include the date of your purchase and the value which was declared on your deed when you purchased the property. It will mention deductions such as the acquisitions tax you paid when you bought and the public registry fee and the notary’s fee if you have the proper fiscal receipt for this expense. The realtor’s commission is also deductible, but you will need to provide an official receipt. If you are selling a furnished property I would suggest you allocate a separate value to the furnishings and accessories so they will not be considered part of the Real Property.
If you are buying a home which you are planning to remodel, it is very important to find out exactly what will be deductible when you sell and how to get the proper receipts to prove these expenses.
If you sell a home that is in the price range of $500,000. US Dollars or more, there is an added requirement to getting the full exemption. If you have lived in the property for 5 years and can prove it with utility bills etc, and have the residency requirement, you get the full exemption. If you have lived in the property less than 5 years, you get an exemption on the amount of 1,500,000. UDIs* which is roughly $6,500,000 pesos. Over that amount you will be taxed on difference.
So for now, the best advice is to plan ahead so you won’t have any surprises when you sell.
*The UDI “Unidad de Inversion” is a unit of value which linked to inflation and can be converted to pesos. The value of the UDI is posted daily on the Mexican Bank Web Pages.
For further information or a detailed consultation, please contact me at: carol@walfre.com.mx