Hey! What’s all this fuss about capital gains? Isn’t that when I sell for more money than I bought for?
Yes, that’s exactly what it is, and it applies in Mexico, just like in other countries. Profits on the sale of your home are considered income earned, and the government wants its share…35% of it! There are some factors that have come together in recent years that have made this an issue for folks that bought at the top of the market…pre-2008 and through 2013.
Many homes purchased more than 4 or 5 years ago were declared on the title document at a lower value than was actually paid. This was mostly to save the original owner from paying capital gains, but also to save the buyer some of the transfer taxes and keep yearly property taxes low. The theory was that, when the new owners wanted to sell at some point in the future, they would also declare a lower value for the sale. But times have changed. Now it is a requirement to state the actual selling price, and present-day sellers are stuck with capital gains taxes charged on the original value declared vs the current selling price.
(If you want to know the declared amount of the purchase of your property, find the clause called “Contraprestacion” in your fideicomiso or escritura. You’ll see the value, usually in USD, followed by the exchange rate and the amount in pesos. It’s important to note that the capital gains are calculated on the peso amount…even though you may have paid in US dollars.)
Another factor which has really affected sellers is the huge change in the peso to US dollar exchange. If you bought your house for $100,000 US when the peso was 10 to the dollar, and sold it for $100,000 US at 18 to the dollar, you will show a profit of 800,000 pesos, minus allowable deductions.
But don’t despair! There are ways and means to legally minimize the effects of the changes that occurred with the law and the market in the last few years.
If you bought a lot and subsequently built a house, make sure that you always get facturas (official registered proof of payment) or declare the building costs at city hall of the actual value of the construction. This will provide proof of the value of the improvements you made to the property. If you have already built, and didn’t do this, you can have the value increased.
There are many ways to mitigate capital gains taxes through different deductions and exemptions. We recommend using a knowledgeable real estate agent (ahem!) and an experienced closing attorney. The team at Vista Properties can help make the sale of your home go smoothly.
- Always put the full purchase price on your title document.
- Ensure that any improvements you make to your property are properly documented.
- Sell with an experienced and knowledgeable closing team who know how to minimize taxes.
The Vista Team can help!