When you decide to sell your residential property in Mexico, it’s essential to be aware of the various expenses, taxes, and potential allowances that will factor into the transaction. While buyers typically shoulder the majority of the ‘closing costs’ associated with purchasing property in Mexico (which can range from 5% to 10% of the sale price), sellers also have specific financial obligations to consider. These primarily fall into three categories: marketing and selling fees, professional service fees, and taxes.
For sellers, marketing and selling fees often involve the services of a real estate agent. While some individuals choose to market and sell their Mexican property independently, leveraging the expertise of a local agent can be highly beneficial. A good agent provides marketing reach, acts as a crucial intermediary during negotiations, and assists with the necessary paperwork to ensure a successful sale. In Mexico, real estate agents typically charge a commission ranging from 5% to 8% of the final sale price, and Mexican sales tax (IVA) at 16% is added to this commission. Therefore, the total tax-inclusive payment for an agent’s services can range from 5.80% to 9.28% of the selling price.
Sellers will also typically incur various professional fees during the selling process. A key professional involved in Mexican property transactions is the Notary Public (Notario Público). This legal professional holds significant statutory roles, particularly in property-related matters. If a seller uses a real estate agent, the agent often drafts the initial sales contract as part of their service. However, if a seller is not working with an agent, they will usually engage a Notary Public to prepare the sales contract presented to the buyer. While the seller pays for their chosen professional advisors in preparing the sale paperwork, the buyer typically covers the costs of their own advisors, such as a different Notary Public or an independent property lawyer, who may review the contract and negotiate its terms. Additionally, if the property being sold is held within a Bank Trust (fideicomiso), the seller will need to budget for a ‘trust cancellation fee’ levied by the bank, which generally ranges from US$1,000 to US$1,500.
Taxation on the sale of residential property in Mexico is a complex area governed by Mexican tax law, with each case potentially varying slightly based on individual circumstances. It’s important to remember that tax laws can change over time. For sales of residential property, Capital Gains Tax is a primary consideration. This tax is calculated by the Notary Public, who is legally responsible for ensuring its correct application and withholding the appropriate amounts for direct transfer to the Mexican Treasury. The Capital Gains Tax is either 25% of the gross sales value without deductions, OR between 1.92% and 35% of the capital gain (the difference between the purchase cost and the selling price, minus allowable exemptions and deductions), with the higher rate typically applying to gains exceeding a certain threshold. However, a significant one-time tax allowance exemption may be available under Mexican income tax law for sellers who are residents in Mexico with a Mexican tax ID (RFC), selling their primary residence, provided the land size meets specific criteria and the exemption hasn’t been claimed within the preceding three years. This exemption is a significant peso equivalent tied to UDIs (Units of Investment). Furthermore, if the property is properly co-titled with a resident spouse or other family member who also considers it their primary residence and has a Mexican tax ID, an additional exemption may be claimed. It’s crucial to understand that this allowance is not automatic and requires application and proof of qualification through the Notary Public. Additionally, sellers can deduct the costs of documented capital improvements made during their ownership, such as building extensions or new structures, provided official receipts (facturas) are available. General maintenance and cosmetic improvements are not deductible. Finally, it’s important to note that even if a property is marketed and quoted in US dollars, capital gains are calculated in Mexican pesos, and fluctuations in the exchange rate can impact the final tax liability as expressed in a foreign currency. Non-resident sellers without a Mexican tax ID are generally not eligible for the primary residence tax allowance exemption, although they can still claim deductions for documented capital improvements. Given the complexities of Mexican tax law regarding property sales, consulting directly with a Notary Public, a tax accountant, or a legal professional in Mexico is strongly recommended to obtain a detailed assessment of your specific situation and ensure compliance with all applicable regulations.
