Taxes and Values in a Real Estate Transaction | Baja Good Life Club

Mexico has a system unique in the world regarding the values and taxes applied at the time a real estate property is transferred. ?This affects many sellers, especially when the property value is lower than before.

To make the reading easier, here is the meaning of some terms that will be used:

FTD contract: Fideicomiso Traslativo de Dominio contract.

?ISR tax: Capital Gain Tax for the purpose of this article.

Notario Publico: Contract lawyer.

Taxes on bare or built land, commercial or private dwelling:

A)??? ?If a natural person sells bare land, the ISR tax will be 28% of the established gain. The tax will be retained at the time of the transaction by the Notario Publico.

B)??? In the case of a dwelling, three elements must be considered: duration of occupancy, size of the land vs. size of the constructions, and the immigration status. The tax will be retained by the Notario Publico.

C)??? Commercial properties will produce an ISR tax level proportional with the gain, but the tax will not be retained by the Notario Publico; it will be included in the general accounting of the firm.

Values:

A)??? The value at purchase

Most foreigners pay in their own currency at the time of purchase. By doing so, they do not realize that the payment is in fact made in pesos at the exchange rate established by the Notario Public?s ?office.

B)??? The real purchased value at selling

The value of a currency changes in time, so the value paid is adjusted to reflect the actual value at the time of the transaction. In some situations, the amount paid on purchase is different from the one paid when the property is sold, so this may result in an obligation to pay the ISR tax (Capital Gain Tax). This may occur even when the property is sold for a lower price than what was paid for.

The Notario Publico uses a special program in order to establish the value and the tax that needs to be paid. The following factors are taken into consideration: the nationality of the seller, whether it is a private or a business purchase, type of property, date of purchase, and date of sale.

At times, one sells dwelling and furniture, toys and other movable items. In such cases, the seller must set two prices: one for the movables, which do not carry any tax if they are considered furniture, and one for the real estate property. By doing so, the seller will benefit from a reduction of the ISR tax, and the buyer will pay a smaller acquisition price and property tax.

For any further information regarding this article or any other legal matter, please contact the writer.

Lic. Jaques-Edouard Beaulne, LL.B. at can-am-mex-law-firm@hotmail.com

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