Property
Gains Tax Info
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.