The new Mexican Tax Reform is a step toward adjusting to a modernized and computerized world. The regulations have recently changed, and are evolving. If you are selling your home and want to know what the new requirements are, you may go to the Mexican Government website and read the entire tax reform for those areas that are of personal interest. One area that has recently changed relates to capital gains exemptions. Here is a summary of the key changes…
Real estate commissions and property i
mprovements (with facturas) are still claimed as exemptions on your capital gains; however, there is no longer a full exemption based soley on residency requirements. Instead, the exemption based on permanent residency or citizenship requirements has a specific amount applied.
First, the qualification requirements are related to permanent residency/citizenship (as they are noted within the law – these may change over time).
For tax exemptions you need:
- Residente Permanente (formerly known as an “FM2”) with working status. It would also be recommended to solicit a constancia de residencia fiscal.
- An active RFC (Personal Tax ID number and registration)
- Original receipts from CFE & TELMEX in with the address of the property with ACTUAL “paid” stamps on the receipts or payment tickets attached to the receipts. The fact that a month may show a previous month as paid is said not to be sufficient. It’s also noted that the address on these bills must match the address on the escritura. You will need at least 2 years worth of receipts, according to the reform.
- To be able to claim that this was your primary residence
- To have not claimed an exemption within the past 5 years
- To have owned the property for at least 5 years
Next, the exemption amount:
The exemption is for 700,000 UDIs – “unidades de inversion” – units of measure, the conversion for which can be found at sat.gob.mx (see the unidades de inversion conversion rate on the left). This exemption is PER PERSON on the escritura.- If you multiply the conversion by the 700,000, the result will be the exemption (in pesos). The current UDI conversion rate is approx. 5, yielding an exemption of approximately $3.5M pesos per person. At a $13/1 conversion rate, this is approx. $270,000 USD per person.
Again, real estate commissions and capital improvements (with facturas) are still exemptions to be claimed against the capital gains calculation.
There you have it – the requirements and exemption, as the law currently states. Of course, this is a new a law, and the roll-out and requirements may adjust over a period of time. It would make sense to consult with a local lawyer on any questions or concerns you may have.
By the way, another question that I am often asked is, “So do I have to pay income tax again in the States or to Revenue Canada?” Generally speaking, this depends upon your tax bracket within your home country.
On your US and Canadian income taxes, international gains are recognized at taxable income – but the foreign income tax paid is also recognized as a deduction. As such, depending on your tax bracket, you may or may not have an associated extra amount due. You may want to consult with your tax accountant in your home country to understand any effects to your taxes there.
If you are thinking about buying or selling an investment property in Puerto Vallarta or the Banderas Bay area, contact Tropicasa Realty Agent Grace Ramirez at 322-294-1816 or grace(at)tropicasa.com.