Our last post from our Tropicasa Tips
series shared some insight into the escrow process in Mexico and how it may
apply to your purchase of a property in Puerto Vallarta. This week, we have an
introduction to understanding capital gains on real estate in Mexico.
Understanding the capital gains tax on the
sale of residential property in Mexico is a complex area of Mexican tax
law and differs depending on circumstances. The information provided below is
simply an introduction, and your tax specialist, Closing Coordinator or Notary
Public will be able to further advise you on the capital gains implications
specific to the sale of your property in Puerto Vallarta.
- Tax Calculation Process: Taxes on
residential property sales in Mexico are calculated by the Notary Public,
who ensures all rules are followed and withholds the amounts for direct
transfer to the Mexican tax authority.
- Capital Gains Tax Rate for Non-Nationals: Non-nationals are subject to a capital gains tax of about 25%
to 35% depending on the circumstances of the sale, which will have to be
verified by the notary.
- Full or Partial Tax Allowance Exemption: A tax allowance exemption under Mexican income tax law can
reduce tax liability if the seller is a legal resident with a Mexican tax
ID, if the property is their primary residence, and if the exemption
hasn’t been claimed in the last three years. The amount of the potential full or
partial exemption will depend not only on these factors, but the value of
the property being sold as there are limitations on the use of this benefit. Specific documentation such as utility
receipts and the ability of the seller to demonstrate fiscal activity
according to SAT are examples of some of the additional requirements that
may be required in able to claim this allowance exemption. These
exemptions are not automatic and require application and proof of
qualification, and a final determination will be made by a Notary.
There may be additional ways to reduce your
tax liability, for example, if your home in Mexico is legally and correctly co-titled
with a spouse or family member who is also using the home as their primary
residence, is a resident of Mexico, and has a Mexican tax ID. Or if you have made capital improvements to
the property and have the facturas for those improvements, that can also be
used to reduce your capital gains tax exposure.
However, exemptions or reductions are based on individual circumstances
and often are not automatic and require proof of qualification.
Check back with us next week when we’ll
provide some helpful information for families regarding private bilingual
schools in Puerto Vallarta.
