Mexico Capital Gains Tax Article – John Youden’s Puerto Vallarta Real Estate Blog

John Youden’s Puerto Vallarta Real Estate Blog
Vallarta Lifestyles Publishing Group

At the International Property Journal, there’s a good article on the potential capital gains that can come into play when selling real estate in Mexico, which excerpts taken from another article recently posted in the Baja Times.

Changes in Mexico’s tax laws have made it more difficult for foreigners selling real estate to avoid the country’s steep capital gains tax, which can run as high as 30 percent.

Under the new rules, homeowners must prove the house has been their primary residence for at least 5 years to qualify for an exemption to the tax on the sale of property. In the past the residency requirement was typically one or two years, and, to put it tactfully, foreign sellers often could find a way to qualify for the exemption.

There is “absolutely” a new focus on enforcement in Mexico, says Linda Neil of the Settlement Company, a Baja California-based firm.
“Foreign buyers who buy for rental or for vacations should not expect to receive the residence exemption,” Neil said.
This is important for people to realize. Unless the home really is your principal residence, you will not be exempted from this. Some have suggested that if you have an FM-2 of FM-3 that will help you get this. That’s just not so, or it certainly is no longer applicable. In order for it to be your principle residence you have to spend the majority of your time there, and that time is traced every time you enter the country, through immigration control, which is now computerized.
The residency exemption to the tax has been changed frequently in recent years, but the law has never been this strict, according to Raoul Rodriguez-Walters, managing director of Mexico Advisor, which has offices in Portland, Oregon, and San Miguel de Allende. (For the record, it’s not technically a capital gains tax, but simply a tax on the income from the sale.)
One could go farther and say its a “luxury tax” as there is a break for homes that are under the value of $500,000 USD (approximately – there’s a formula that changes this value regularly).

Changes in Mexico’s tax laws have made it more difficult for foreigners selling real estate to avoid the country’s steep capital gains tax, which can run as high as 30 percent.

Under the new rules, homeowners must prove the house has been their primary residence for at least 5 years to qualify for an exemption to the tax on the sale of property. In the past the residency requirement was typically one or two years, and, to put it tactfully, foreign sellers often could find a way to qualify for the exemption.

There is “absolutely” a new focus on enforcement in Mexico, says Linda Neil of the Settlement Company, a Baja California-based firm.“Foreign buyers who buy for rental or for vacations should not expect to receive the residence exemption,” Neil said.

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http://vallartarealestate.wordpress.com/2010/02/26/mexico-capital-gains-tax-article/