Mexico levies a capital gains tax on residential real estate of 25% on the gross value of the sales of the transaction without deduction OR between 1.92% and 35% on the value of the profit (purchase costs minus exemptions and allowable deductions): The percentage is calculated on a sliding scale in terms of profit and we recommend that you assume 35% as sales of residential properties with a profit of more than $250,000 (approximately $13,000). is subject to this tariff. Mexico and the United States offer their residents a tax incentive for capital gains. Several points are necessary to justify the status of resident. In the event of a significant capital gain, we recommend that you consult a Mexican tax advisor. For real estate, you also have to pay 2-5% of the total transaction in local taxes. If you are a resident, capital gains apply to global income. Otherwise, you will only be taxed on real estate income in Mexico. The calculation of the partial exemption is explained in more detail in a follow-up article on capital gains tax topics.
On average, however, the partial tax due is about 10% to 17% compared to the maximum rate due of 28%, depending on the total profit. $700,000 x $6.301316 = 4,410,921 pesos (exchange rate of about $240,000 in October 2019) The seller pays capital gains tax on the difference of $415,000 – $240,000 = $175,000 Note * Starting a Mexican company is not a way to avoid capital gains tax. Business travelers can avoid being classified as taxable residents unless they started a home in Mexico and generate most of their income in Mexico. These assumptions are crucial. In many countries, a holding period of less than 5 years means that capital gains are taxable. But a longer holding period often means that no capital gains tax is payable. For more information, see the Data FAQ USEFUL NOTE: Your purchase price is recorded in USD and the exchange rate of the day is recorded in Pesos. If you have closed and the exchange has not been registered, a historical table can provide the exchange on the day your trust was registered. Each package with a closed sales document contains an ISABI, A Declaracion Para El Impuesto Sobre Adquisicion de Bienes Muebles.
This document contains your recorded value in pesos and is used to calculate capital gains tax. Now, most of the questions I receive regarding capital gains tax are: how can I reduce or avoid this tax? My answer is that you should prepare your pro forma with the calculation that you WILL PAY this 28% tax. In some cases where the Mexican foreigner is actually exempt, your tax savings must be deposited and considered an UNEXPECTED GAIN. Below is an explanation of which property owners are eligible for a partial or total exemption from capital gains tax. Capital gains tax is levied on the profit from the sale of property. It is possible to reduce or abolish the capital gains tax when it is time to sell your property. In addition to your obligation to file and pay U.S. taxes, Mexico has its own income taxes. For 2021, Mexico`s national tax rates for non-resident expats are as follows: When determining effective capital gains tax rates, the Global Property Guide is based on the following assumptions: These are the key principles of residential property taxation at the time of this article, and the following guidelines are designed to help you make an estimate of the taxes you need to consider when selling.
of a residential property in Mexico. (When selling commercial real estate, different tax rules and rates apply.) You should seek the professional advice of a notary and/or tax advisor in Mexico to obtain a detailed assessment of your situation. Also note that if you are not a Mexican citizen, you may also be taxable in your home country and you should also seek advice from a tax advisor specializing in this regard. 6. Deductions for capital improvements: You can deduct the cost of capital improvements, i.e. building extensions, new floors, swimming pools, new rooms) while owning the property, but you need billers for all services and construction work to claim these allowances, if you sell, talk to your notary about how to explain them and follow them, otherwise you may not be able to do them in a future sale. Any capital improvements made to a company or builder that you have not received invoices cannot be deducted. General maintenance and DIY work such as converted kitchens and bathrooms are not considered capital improvements, nor are furniture, curtains, televisions, barbecues, lamps, etc. There are many other aspects of capital gains tax in Mexico. This article is simply intended to inform you, not to interpret laws. Always check with your notary before selling.
Don`t wait until you sit down at the closing table to learn about your capital gains tax obligations. Notaries are not tax experts and tax laws change frequently. We recommend that you consult a Mexican tax advisor before the sale. Only they can provide expert advice and find the best way to legally avoid or reduce your capital gains tax. Expats are required to report U.S. expat taxes, regardless of where they live. But what will be the impact of taxes once you decide to live in Mexico? With its proximity to the United States, warm climate and beautiful geography, Mexico is one of the most popular destinations for American expats. It`s essential to understand how tax filing in Mexico for expats affects your U.S. tax return and the U.S. taxes you have to pay.
Read on for the details you need! All capital gains are also subject to capital gains tax, including the sale of shares, real estate, securities or other assets. Currently, the rate is 35% for a non-Mexican resident, 25% on the gross amount of the transaction or 30% of the total capital gain. For expats, capital gains tax depends on the tax base, the type of asset to be liquidated, the sale price and other factors. * In most cases, the 28% tax rate is applied. If you sell the property, you must pay capital gains tax. Capital gains tax can be calculated in Mexico in two ways: Mexico`s Capital Gains Tax Law states that taxes are due on the profit you receive when you sell your home or property. While a 35% capital gains tax may seem high, Mexico has several laws and procedures to help you maximize your cost base, thereby reducing your net profit and reducing your capital gains. The key is to understand these laws before you sell.
If the sale is considered taxable, you can pay 25% tax or 35% on the net profit after deduction. The profit must be divided by the number of years the seller owned the house, limited to 20 years. Consult a tax lawyer to calculate your capital gains tax in both directions to determine the lowest tax. .