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Buying in Mexico

Capital Gains Tax

1. Tax law in Mexico requires a Capital Gains Tax to be paid on the profit received from the sale of your property, this is calculated from your 'cost basis'-the amount recorded by the Notary at the point of transfer/sale. It is important that you understand how this works, to avoid future loss that could have been a profit!

   The only people exempt from capital gains tax in Mexico, are those who have had their primary residence here for two or more years. You are allowed only one primary residence to secure the tax advantage; this includes property you may hold in the States.

   This law is for Mexican Nationals or Foreigners holding their FM3 or FM2 visas and work permits.

   There are two options when paying capital gains tax, they are:

   1. 34% of the net profit; the tax deductions included in this option are substantial.
   2. 25% of the gross sale amount, with no deductions.

   You may choose either option, whichever is the lesser.

   To keep it simple, you need to understand that attempting to cut costs by recording a lower purchase price, to lower the 2% acquisition tax, will end up costing you far more when you decide to sell. Do not let anyone tell you otherwise, and always discuss your options with a tax professional.

   It works like this:

   You purchase your property for 500,000 but record the value as $300,000 to lower the 2% acquisition tax. Your cost base will now be calculated from $300,000. So, if you sell for $600,000, you may think you have made a profit of $100,000, but the Mexican government sees a profit of $300,000 and will tax you 34% of this amount ($102,000) in effect, loosing you $2,000. So it is best to take on the seller's capital gain (profit margin) and record amounts justly or you will end up paying their liability. Considering the forecast rise in property prices, you will be better off in the long run.

   An added bonus in paying the 2% acquisition tax is that you become eligible to receive an 'inflationary credit'. Calculated quarterly, the credit is added to your cost basis when you choose to sell; this in turn can greatly reduce your capital gains tax. You can not receive this credit unless you pay the 2% tax.