Are you interested in selling a home in Mexico but unsure of where to start? Let Esales Property be your ally. Prior to doing anything else, we ask that you consult with us. We can help make selling your home in Mexico a smooth and rewarding experience with some expert advice.
It’s not much different from selling a home in your own nation to sell property in Mexico. However, you should be aware of a few key distinctions. Please take into account the following before you even consider selling:
Taxes on Capital Accumulations
I.S.R. tax (Impuesto Sobre de la Renta) is the Mexican version of the Capital Gains tax, and a foreigner who sells property in Mexico is subject to it under particular circumstances, much as they are in the United States and Canada. The amount of your responsibility is equal to 35% of the net proceeds after deducting the costs of any upgrades, commissions, and other legitimate business expenditures. The Notary Public drafting the final deed and tax statements should calculate and certify the tax due, as the calculation is complex. It’s true that a capital gains rate of 35% may appear excessive, but there are strategies you may employ to increase your cost basis and decrease your net profit and, therefore, your capital gains.
Increasing your cost basis is the key to lowering your capital gains tax, and manifesting is simply documenting the amount of money spent on a home’s construction or refurbishment to add to the owner’s cost basis. When constructing or selling a property, proper paperwork and physical manifestation are musts. The basis for capital gains tax is calculated by adding the manifested cost to the initial cost of the property as specified in the trust (title). Actual facturas (an invoice to the property owners which is registered with the Mexican government) for building and upgrades are essential, not only receipts, cancelled cheques, and bank statements. No new development on the land may be legally manifested until after the sale has closed.
If you qualify for a tax exemption, you may be able to reduce or eliminate your capital gains tax liability. You must must have been a permanent resident of your house for at least three years. You’ll need an RFC number, which is a type of tax ID. Additionally, you would need to produce a Mexican tax return to demonstrate income for a minimum of one year.
Make sure that all of your bills, including those for taxes, fideicomiso, utilities, and property management, are paid in a timely manner. If this isn’t resolved, sales will inevitably suffer.
Typical Closing costs for the seller:
- Variable between 0% and 35% for capital gains
- Payment terms: commissions between 6% and 10%, plus 16% IVA
- Cost of Construction Showcase (4000 – 6000 USD)
- Conflict arising from the breakdown of confidence (if needed) Possible up to US$2500, determined by the financial institution holding the trust agreement.
If necessary, up to $250 US for power of attorney
It’s not easy to sell a home in Mexico. But with the right research and marketing you can do this.
The Mexican Closing Expenses
Here is a ballpark estimate of the money you may expect to spend (in USD) to complete the purchase of a home in the Baja Peninsula. Fideicomiso costs are not standard across other banks and are those charged by Banco Interacciones. Other costs may differ depending on the chosen Notary and legal counsel.
Government Trust Establishment Permission Form (fideicomiso) Fee: $1,900
Result of Fideicomiso Execution, $444
Prices are $468 per year.
Total cost for a title search, appraisal, and Certificate of No Encumbrances: $440
Notary Costs to the general public amount to 1% of the total price.
Capital Expenditure Tax: 2% of Purchase Price
A charge equal to 0.5 percent of the total purchase price is required for registration.
Costs associated with legal paperwork processing: $900
The trust agreement (fideicomiso) required for foreigners to acquire property on the Baja Peninsula adds a little amount to the closing fees compared to the United States and Canada. According to the Mexican Constitution, foreigners are not permitted to own land outright in the coastal regions of the country. Instead, a bank trust holds title to the property. The beneficiaries of this trust have the same rights as a U.S. or Canadian owner. It is possible to name a “second beneficiary” within the trust who will get their share of the trust assets automatically upon the death of the original beneficiary.
With this trust agreement in place, you have full legal ownership rights. You have the right to use, occupy, possess, improve, and rent the land. You can sell the property by asking the Bank to assign its interests to another qualifying owner, or you can dissolve the trust and let the buyer establish a new trust. A fideicomiso can be renewed forever once its initial 50-year tenure expires.
Contact us for advice and assistance with every step of buying or selling a property in Mexico. For assistance with any aspect of the real estate market, don’t hesitate to call or email us.