Thursday, September 8, 2011

Capital gains explained


Capital gains tax law in Mexico states that tax is owed on the profit you make when you sell your property or home and is the only tax you will have to pay when selling your home since the buyer is responsible for the other applicable taxes.
The capital gains tax is determined upon the increased property equity at the time of the sale meaning any amount received over the original purchase amount (shown on your fideicomiso) will be taxed. For example if you purchased your home for $1,000,000 MXN Pesos and down the road you sell your home for the same price or less than the original paid $1,000,000 MXN Pesos you will not be required to pay the capital gains tax. However if you sell your home for $1,500,000 MXN Pesos you would then pay approximately 30% on the $500,000 MXN peso profit. All of the capital gains taxes are done in peso amounts and not USD.
By law there are 3 options when it comes to capital gains and you are able to use whichever option is the better of the 3 options for you.
1. You pay 28% (approximate amount) of the net profit. When deciding on this option, there are a variety of deductions available. 28% capital gains taxes might seem high but Mexico has several laws and procedures that will help you in maximizing your cost basis thereby reducing your net profit and lowering your capital gains.
2. You pay 25% (approximate amount) of the gross sales amount with no available deductions.
3. Primary residence capital gains exclusion! Mexico as well as the United States, provides its residents with a capital gains tax incentive for their primary home. The tax incentive in Mexico states that if you were to sell your primary residence you pay no capital gains taxes. This law is strictly for ¨residents¨(foreigners or Mexican Nationals) of Mexico only and there are several documents needed to prove you are a resident of Mexico/the named property for sale is/was your primary residence. The most important document needed to be excluded from capital gains taxes is an FM2 (immigrant status) which proves that you are a resident of Mexico and spend a minimum of 9 months in Mexico. Other documents include paid property tax receipts, paid water and electric bills and in some circumstances a tax ID number may be required.
*The above information is an overview of the capital gains regulations that are currently in place for individuals. Please note this information is not intended for corporations. These regulations do tend to change over time so for up-to-date information about capital gains taxes in Mazatlan, Mexico please contact a Mexican Notario or a certified accountant.*

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