When selling a property in Mexico, Capital Gains tax are retained by the Public Notary in charge of the closing. Sellers rarely know their rights in regards to paying taxes, so they tend to accept the calculations done by the Notary and forget about it.
But there are great savings available for sellers, specially if there is time to prepare for a future sale. The more time available, the better the strategy will be.
How big could this tax savings be?
The main exemption available for property owners is the personal exemption for homes. The amount exempted is around $150’000 USD, which at a Capital Gains Tax rate of 35% could imply savings of about $45’000 USD.
Just as an example, in the past we had one client who was able to prepare for a future sale of his beautiful Mexican home and with enough preparation he was able to exempt that amount 4 times, saving in taxes almost $200’000 USD.
Construction done in property is also one more way of deducting taxes and more often than not, expenses in construction are not properly credited, making it impossible to use them in front of the Notary.
We also had one case where after years of having his home on the market, the owner finally was able to find a buyer. Sadly, he didn’t prepare his strategy beforehand and with a few days to the closing and a pressing buyer, he had to pay taxes without being able to deduct several thousand dollars he had spent in construction —he is now fighting the Mexican Tax Service in court, trying to get some of that money back—.
Are strategies different for people than for companies?
Yes, they almost always are. Companies in Mexico have more tax rights than people, so strategies can be more creative.
But they are also more complicated. Incorporating a company with the wrong object can become a problem, instead of a solution, when selling property.
Also, the transfer of the property into the company has to be done in a way that doesn’t create tax issues, using the lowest of the 3 values Mexican properties can have according to our constitution.
What tax strategy should you follow?
As you can see, there is no standard path for all people and companies. Each situation is different. Strategies need to be designed by lawyers who are up to date with the criteria established by the Mexican Tax Service and with Public Notaries who understand those strategies.
We offer a service for creating your tax strategy for when you sell your home. Don’t miss the chance to save thousands of dollars in Mexican taxes.