Capital gains tax is assessed on the profit gained by selling a property. It is possible to reduce or eliminate capital gains tax when it comes time to sell your property.
- Provide proof that the property is your principal residence. This exemption applies to foreigners who have resident status in Mexico and of course Mexican nationals.
- You may only claim the exemption for residence on a property once every three years.
- Some notaries require you prove the property was your primary residence for three years or even five but it some cases they only require you prove this is your full-time residence. Choose your bank trust fideicomiso and Notary carefully before you buy, and check out their policies regarding capital gains tax. For instance, the income tax law does not explicitly state that a foreign property owner must have temporary or permanent residency status to qualify for the capital gain tax exemptions, but it does state that the seller must be selling their primary residence in order to be eligible for tax exemptions on capital gains. So, the Notario may make his own determination of the law and requirements. It is best to consult a Mexican tax accountant before you sell.
- Non-residents selling Mexican property are obligated to pay 25% of the total gross income or 35% of the net gain less allowable deductibles.
- Never agree to register a lower purchasing price when you buy property. This will only increase your capital gains tax when it comes time to sell. Historically, sellers prefer to record a lower selling price to save on their capital gains and give you a lower transfer tax. But, in the end, you are only increasing the gap between your purchase price and selling price. More importantly, agreeing to register a lower value is a violation of Mexico’s anti-money laundering law.
- Capital gains tax can be assessed two ways;
Assessment of 35% of the net profit less allowable deductions
Or
Straight 25% of the gross amount of the sale.
- Capital gains taxes paid in Mexico by Canadians and U.S. citizens are not subject to double taxation back home.
- The acquisition tax of 2% at the time of purchasing is an approved deduction. Also, the government provides an inflationary credit for each year you own your property.
- If you made significant improvements to the condition of your property and increased its value, you have decreased the gap between cost and profit. If your expenses exceed 20% of the purchase price, you should request a new assessment by the property tax authority. By registering the increased property value, it will reduce your capital gains in the future.
- Keep all facturas (official electronic invoices) of expenses for renovations made to the property. Officially registering all facturas of funds spent on improving the property is called manifesting your property and will be used as a deduction when the property is sold. You should make your Mexican accountant aware of all improvements before they take place so they can properly register the expenses with SAT.
- Corporations fall under a different tax system; business owners should consult an accountant to access their deductions and obligations.
- The property seller must hold an RFC Registro Federal de Contribuyentes (tax registration number).
Notarios are not tax experts, and tax laws change frequently. We recommend you consult with a Mexican tax accountant before you sell. Only they can provide expert advice and determine the best way to avoid or reduce your capital gains tax legally.
Mextax is a professionally trained accounting team. They will manage your personal and business taxes and accounting obligations in Mexico. Mextax is the only accounting firm in Mexico that specializes in accounting services for foreigners and legal entities controlled by foreigners.
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