• Glenn Wilson
    Capital gains tax is assessed on the profit gained by selling a property. It is possible to reduce or eliminate capital gains tax when it comes time to sell your property.

    Provide proof that the property is your principal residence. This exemption applies to foreigners who have resident status in Mexico and of course Mexican nationals.

    You may only claim the exemption for residence on a property once every three years.

    Some notaries require you prove the property was your primary residence for three years or even five but it some cases they only require you prove this is your full-time residence. Choose your bank trust fideicomiso and Notary carefully before you buy, and check out their policies regarding capital gains tax. For instance, the income tax law does not explicitly state that a foreign property owner must have temporary or permanent residency status to qualify for the capital gain tax exemptions, but it does state that the seller must be selling their primary residence in order to be eligible for tax exemptions on capital gains. So, the Notario may make his own determination of the law and requirements. It is best to consult a Mexican tax accountant before you sell.

    More at Quick Facts About Capital Gains Tax in Mexico.

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  • Rocky Daniels
    I could be entirely wrong on this but the article conflicts with my limited understanding of capital gains taxation on the sale of real property.
    First, the Notario is the place to find out what you’ll owe in capital gains taxes. The Notario, in fact, becomes financially responsible to the tax authorities if they under assess what the seller owes (no idea what happens if they over assess though I can make a guess). The point is that capital gains taxes can vary depending on the Notario. But the buyer gets to chose the Notario so shopping around for a favorable capital gains rate requires cooperation from the buyer.
    Second, the capital “gains” tax is more of a capital “got.” That is, all the capital you got from a sale is taxable, not just the difference between buying and selling price as many are likely used to. The “primary residence” exemptions become very important at reducing the tax amount paid from what starts out very painful.
    I can use all the help I can get getting the details on this stuff right so please correct my misunderstandings. TIA, Rocky
  • Glenn Wilson
    Thanks. I have no first hand knowledge (I have not sold real estate in Mexico) and I am not an expert. Looking around the internet some more...

    I believe you are right about the buyer's Notario being the relevant authority. Maybe there is some special factor when using a bank trust fideicomiso (for property near the coasts) that makes the buying Notario more relevant when selling? The only other reference I noticed, in a quick look around the internet, to the relevance of the Notary used when buying is:

    Don’t rely on hear-say and instead get the Notary Public to assess your individual situation and the taxes that will likely apply to it. When you’re buying property, talk with the Notary about what you need to do to plan your estate efficiently, how to structure your arrangements, and how to keep the proper records you need to ensure that when you come to sell your property you (or your heirs) are prepared. Every property transaction has its own quirks and unique characteristics; cultivating a good relationship with your Notary Public is a crucial aspect of successful property investment in Mexico.Mexperience: The Costs and Taxes of Selling Property in Mexico
    "how to structure your arrangements" could include recording the proper purchase price.

    "Second, the capital “gains” tax is more of a capital “got.” That is, all the capital you got from a sale is taxable, not just the difference between buying and selling price"...
    This seems to contradicted by several sources:

    Capital Gains Tax: Mexico applies a capital gains tax on residential property of 25% on the gross sales value of the transaction without any deductions OR between 1.92% and 35% on the value of the gain (purchase costs less allowable exemptions and deductions): the percentage is calculated on a sliding scale in relation to the gain and we recommend you assume 35% as residential property sales with a gain above $250,000 pesos (c.$13,000 US dollars) will be subject to this rate.Mexperience: The Costs and Taxes of Selling Property in Mexico

    There are two tax options when you sell your home:
    - After itemizing any allowable deductions, you will forfeit 35% of the net profit in taxes to Mexico’s government.
    - You can elect to pay a straight 25% of the gross amount of the sale without utilizing any deductions.
    Capital Gains Tax Options When Selling Your Home in Mexico

    Capital gains tax law in Mexico states that tax is owed on the profit you receive when you sell your home or property. By law, you have two options when it comes to capital gains and you can use whichever is the better of the two options for you:
1. You pay 28% to 30%* of the net profit. (There are a variety of deductions included in this option.)
 2. You pay 25%* of the gross sales amount with no deductions.

    *Percentages reflect the 2013 Tax Code. Check with an Accountant or Notary for any changes in these percentages.
    Preparing to Sell

    There are also exemptions available; most of the links above also discuss those. Depending on the selling price and other factors, it appears that tax may be paid on the gain, or, on the full sale amount, or, on the sale amount that exceeds the exemption.

    Some excellent advice above is: Don’t rely on hear-say and instead get the Notary Public to assess your individual situation and the taxes that will likely apply to it.

    The purpose of this post is to provide some general background and not specific legal or tax advice.
  • Rocky Daniels
    Yep, that is excellent advice on fully utilizing the services and capabilities of the Notario. NotB, everything is a formulaic fait accompli. SotB is clearly not Kansas.

    Good info on the capital gains taxes. Something of a relief.
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