Mexico’s Capital Gains Tax
The information provided here is to help in the understanding of the Mexican tax system. This article is in no way meant to infer legal advice and you should always meet with a notary and tax professional regarding your capital gains.
Capital gains tax law in Mexico states that tax is owed on the profit you receive when you sell your property. (We all have to pay taxes regardless of the country we are in!) The law states that the net profit is to be taxed at a rate of 28%. Although this may seem high, Mexico offers many legal procedures that can assist you in reducing the taxes owed. As these procedures and laws may differ upon your immigration status and or length of ownership, and the write-off’s allowed on the cost basis, be sure to consult your legal representative in Mexico.
The first step in calculating your capital gains is to subtract the value you have recorded in your bank trust or (fideicomiso) from the sales price of your property. In the past, some real estate companies, attorney’s, and even some accountants in Mexico, have recommend recording lesser values lower than the actual purchase price in an effort to “save” taxes for their clients. This is a big mistake! By doing so simply established a lower costs basis for the property, which increases your capital gains tax liability! As a buyer you would eventually be assuming the seller’s capital gains tax. If a seller can get a buyer to record a lower value, the tax liability is simply passed along, and eventually someone will have to pay.
Capital gains are a realistic part of a real estate transaction in Mexico and should automatically be understood by the seller that they will have to pay. In every real estate transaction there are many people involved including the real estate agents and brokers, legal and general consultants, accountants and translators, and the “Notario Publico”. The Notario is the one who will ask the others for an valuation of the property and a document issued by the municipality which establishes the municipal value of the property or the “valor de la operation”, which means the actual selling price.