CAPITAL GAINS IN MEXICO/ and USA ON REAL ESTATE SALES

With the meteoric rise of real estate prices here in Cabo, there are many people realizing gains on their homes when they sell them. When you purchase and sell real estate in Mexico for a profit, you are responsible for certain capital gains tax. This information was prepared to keep you informed about the tax system in Mexico. We also recommend you to consult a notary and/or an experienced tax advisor. Capital gains tax is based on the profit you make when you sell your property in Mexico, when property changes hands, the notary withholds a certain percentage, based on the difference between the recorded value on the title (fideicomiso) and the sales price with a variety of deductions. New Rules for Capital Gains in Mexico Starting 2007 Mexico, as well as the United States, provides its residents a capital gains tax incentive for their primary home. The new tax incentive in Mexico states that if you sell your “primary residence” after five years, you pay no capital gains. This law is in place for residents (Mexicans or foreigners), and in order to provide proof that your house is primary residence you need can provide one of the following documents: 1) Phone Bill 2) Electricity Bill 3) Local Mexican Bank Statements The documentation above needs to be addressed to the property owner, his/her spouse, or his/her ascendants or descendants using the address of the property being sold. Another distinction made on your primary residence is that the land it resides on shall include no more than 3 times the total covered area of construction for the house. This is to prevent the qualification of the capital gains exemption when a land owner sells several acres of land with just a small house on it. Article 109 XV of the income tax law called “Ley del Impuesto sobre la Renta” was recently modified and now exempts from the tax any primary residence sold for an amount no exceeding one million five hundred thousand units of investment (UDIS) which is approximately $500,000 usd as of today. UDIS is a unit of investment calculated in respect to the rate of inflation. The value of a unit is established by the Banco de Mexico, which is published on the internet at www.sat.gob.mx/nuevo.html. If a homeowner sells his house before he has resided in it for 5 years, he will be responsible to paying the capital gains tax for an amount that exceeds the one million five hundred thousand UDIS. Please keep in mind too that the capital gains exemption for your primary residence is applicable only once per year. Hopefully, this information has proven helpful to you and gives you a better idea of what you will have to pay in terms of capital gains taxes once you do sell your home here in Cabo.

Happy House Hunting,

Nick

Los Cabos Agent Nick Fong 312-725-3664(Office) 624-157-3170(Other) 773-346-6444(Fax) Email Nick US TAX NOTE; Remember you can also claim on your US tax return a primary residence gain exemption if you qualify of $250,000 if single or $500,000 if married, if you live in the house full time for 2 full years out of the five years prior to sale.  If it is a vacation property it is not eligible for this US tax exemption, but you can take a foreign tax credit for the taxes you pay in Mexico on the gain which should in most situations offset the IRS tax on any capital gains on sale.  Most states however do not allow a foreign tax credit on state returns and therefore you may owe capital gains in your state of residency. Write us for more information: ddnelson@gmail.com

Highest and Lowest Tax Countries in the World

Expats C should all move to Bulgaria. Though if you are US expat it may make no difference. Definitely do not retire to Spain, France or Portugal. As a US Citizen you will end up paying a lot more taxes.

From the Wall Street Journal.   http://blogs.wsj.com/expat/2015/02/09/the-worlds-best-and-worst-tax-rules-for-expats/