Puerto Vallarta, Mexico – 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.
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.
Tropicasa Realty has been a trusted name in Puerto Vallarta real estate since 1997. Affiliated with top industry associations, including “Who’s Who in Luxury Real Estate”, our agents have over 275 years of combined real estate experience and all Tropicasa agents are AMPI members. Find the expert Tropicasa team at their Romantic Zone Office at Pulpito 145-A, call (322) 222-6505 in Mexico or 866-978-5539 toll-free from the U.S., or visit Tropicasa.com.
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