When you purchase and sell Real Estate in Mexico, you acquire certain tax responsibilities. This brief reference was prepared to keep you informed. To fully understand the tax system in this country, we recommend you to consult a Notario or an experienced tax advisor.

Capital Gains
Capital gains tax is based on the profit you make when you sell your property in Mexico, when property changes hands, the Notario 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 (Mexican-nationals or foreigners), and there are several items required to establish residency status. In order to claim your home as your primary residence in Mexico, you must be able to evidence that it is your primary residence.

Note: The primary residence includes besides the surface of the constructed area no more that tree times the area covered by the constructions.

You will have to evidence ownership with the following documents:

I.- Electors credential (By the Federal Electoral Institute)
II.- The vouchers of the payments carried out by the presentation of the services of electric power or fixed telephony.
III.- Bank statements

The documentation will have to be addressed to the property owner, his or her spouse or his/her ascendants or descendants in straight line.

The new article (109 XV) of the income tax law called Ley del Impuesto Sobre la Renta was recently modified and now exempt from the tax any individuals who have real rights on a primary residence, providing that the selling amount does not exceed of million five hundred thousand units of investment, UDIS (approximately $514, 324.00 USD as of today).

Note: UDIS is a unit of Investment calculated in respect with the rate of inflation, the value of the unit is established by the Banco de Mexico, which is published on the internet at http://www.sat.gob.mx/nuevo.html

The exemption in this clause will not be applicable to other alienations of a primary residence carried out during the same year of calendar. The notary public will have to consult the fiscal authorities to find out the contributor has not sold another house during the previous 12 months.

If the owner demonstrates that has resided in his/her house during five immediate years previous to the date of the sale, the limit will not be applicable.

If a contributor sells his house before he has resided on it for a period of five years immediately before the sale, will have to pay capital Gain Tax on the portion of the selling price which exceeds the million five hundred thousand units of investment (UDIS) at the moment of the sale.

For more information on this or any related topic, please contact your Pedregal agent of your choice, or send us an email at info@pedregal.com