My Mexican attorney said that Mexicans pay no capital gains tax on the sale of their principle residence and that foreigners who hold a residence permit FM2/3 don't either, provided they have an RFC (they are registered with the tax authorities of Mexico): she is normally a reliable source of info on Mexican Law, but I would prefer to confirm it, if possible. (We would owe no U.S. capital gains taxes owing to the large exemption that is applied to the sale of one's principle residence under U.S. tax law, when the property was used as a residence two of the five years prior to its sale.) Just to avoid confusion, I'm NOT talking about the excise taxes that are charged when real estate changes hands, of a few percent of the sales price, but the tax that might be imposed apart from this transaction tax, on any capital gain. Anybody know anything more on this subject? _________________________
Interesting post indeed. I think V used to be right, however I think the law changed a couple of years ago and now unless you're Mexican selling one property a year there is capital gains. Some one please tell me I heard wrong. I keep hoping the rumors of no longer needing to have a trust come true too. And no more Tenencia. And no more...........
Don't know how authoritative this may be, but it seems to track what my lawyer said- Or, in plain English, this restates what my lawyer said, capital gains on the sale of one's principle residence are exempt from taxation, and adds the additional detail that you must have occupied it for the two years prior to the sale. Further reading has also suggested the following, additional detail: if the property was not occupied as the owner's residence, a sale will be subject to the following calculation of capital gains taxes, This is just taken from readings on the internet, so you can't go to the bank on it, but I've found this exact information in a number of different websites. __________________________ My lawyer also said you can't claim the exemption if you don't have an RFC, a Mexican tax number. This is an important detail, and I did find this mentioned on a website I checked. __________________________
They are also talking about lowering Income tax from 30% to 25% and IVA from 16% to 13% in DF (and proportionally in Cancun) and getting rid of the IETU (banking tax). All this would do is make Mexico less economically feasible. If you figure out how much you pay in taxes in Mexico, it certainly is not enough to provide the services needed and they can only continue squezzing Pemex and paying corruption at all levels for so long. And people want lower taxes and more services. Sorry, but it just doesn't work that way.
Indeed you pay the 40% on the gain. However if you are a US Citizen, then you get to write that off on your taxes in the US. So it may be a net effect of a gain by loss of income since the US capital gain is not as high as the Mexican gain. So for argument sake you are liable in the US for say 30% gain tax and paid 40% of the gain in Mexico, so you benefit by paying a foreign tax of the 10% which goes reduces your taxable income. But unlike in the US where you have to pay the tax when you file your return, in Mexico you pay this immediatelly as part of the closing paperwork. So again if you sell in January 2011, you pay the tax in January 2011, while in the US you would not have to pay till April 15, 2012. I am not sure about how it works for Canada.
My info agrees with V's. It is implied that this applies to a sale AFTER you have owned the property for two years at a minimum. It is my understanding that the big tax applies if you sell it before owning it two or more years and / or you don't live in it for at least 2 of the last 5 years. I did NOT know that you could get an RFC if you have a Rentista FM3. How does one get this RFC number? Just go to Hacienda and get an application?
T.J., I think anyone can get an RFC who has a CURP. If you go to hacienda, take your passport, your migratory document, your CURP document, your comprobante (proof of address), and they just may be able to help you! If they ask why you want it, you can tell them about the apt you own, and the possibility that, at some point in the future, you may have a taxable event, eventhough you don't work or have any other income producing activities in Mexico. _______________________ It's my impression that the Notario Publico is responsible for seeing that all applicable taxes are paid, so satisfying them that the property, the subject of the sale, was owner occupied for the two years prior to the sale, and that the seller has an RFC, should be enough. Utility accounts in the name of the seller, plus migratory documents showing you're a resident, here, are helpful in making this case, I'm sure.
I had another meeting with my lawyer, today, and she reiterated what she'd said before about capital gains on a property used as one's residence in Mexico; but, she added that the law had changed, recently, and the requirement that you live in the property for two years prior to the sale had been dropped: it is now enough that it simply be your residence for any capital gain on the property to be exempt from tax in Mexico (keeping in mind the two additional requirements, that you be a resident of Mexico, and have an RFC).
V....You need at least an FM-2, in order to be a resident of Mexico (at least that's what mine says) An FM-3 is not a resident visa, but rather more of an FMM that is good for 1 year. My house is for sale and now I am doubly glad I have gone to the FM-2....although I believe I will not have to worry about any capital gains. LOL.
