Capital Gains

Capital gains is calculated in Mexico much as it is in Canada.

Capital Gains = Value at which the sale of your property is to be registered minus the Value at which the purchase of your property was registered

You might simplify that to Sale price minus Purchase price and that is correct unless games are being played as discussed in evaluation of property.  You probably know what you paid for your property but you probably do not know at what price the transaction was registered.  It can be an unpleasant surprise as it has been for a number of my friends.

What about cost of improvements on the property?  Good question.  I still have not figured that one out but I am keeping my eyes open for credible sources.

Tax to be paid on capital gains is about  30%.   There is an example in evaluation of property. The games that get played to avoid this tax are also detailed there.

Who is exempt?

The principle residence of a Mexican is exempt from the tax.  In recent years that has been extended by notarios to include foreigners with resident status (Fm3 or Fm2).  But that is coming to an end.  I believe it has already happened for FM3 status foreigners almost everywhere.  For FM2 status foreigners they must prove that it has been their primary residence for a certain period.

NOTE:  Notraios are special status lawyers as distinct from abogados who are also lawyers.  A notario is required to make a real estate sale legal.  If you deal with an abogado he will be paying fees to a notario.

It is also true that in recent times some notarios would treat the sale of a Fideicomiso as exempt but that too is now rare if not impossible.  Their point was that transferring a bank trust was not a sale of property.

Sale of a Mexican company which owns the property may be exempt but I have no personal experience of that.

Why so many uncertainties?

The reason that there are few clear answers here is that the law states that the notarios are responsible for giving force to the law.  They are actually charged with ensuring that the law is followed.  So if you can find a notario who interprets the law in a more different way then the answer to your question will be different.  Hacienda, the federal tax branch, is starting to crack down on all forms of tax evasion so the options for notarios are becoming fewer.  Clearly there is a conflict of interest since the notario who will assess lower taxes will have a competitive edge.

Mustn’t forget the disclaimer

I am not a lawyer or a realtor.  I am not qualified to give legal advice.  The above is offered as a set of experiences and personal opinions which the reader may use as he sees fit.  Consult a lawyer for legal advice.   The writer accepts no liability.

Other resources

Forum discussions:  Mexconnect:  Selling a house in Mexico August 2010; New Law 30% Capital Gains Tax May 2010

Article in the Baja Times : August 16-31, 2010

Spanish law covering capital gains: Ley del Impuesto Sobre la Renta updated April 2010