When you purchase a property in Mexico, be prepared for an assortment of ‘closing costs’ that accompany the price tag. These additional expenses typically hover between 5% and 10% of the property’s sale price. When the time comes to sell your Mexican real estate, the bulk of these closing costs will be shouldered by the buyer. However, you’ll still encounter certain selling costs and taxes.
The primary expenses involved in selling a property in Mexico include:
- Selling fees.
- Professional service fees.
- Taxes.
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When selling your property in Mexico, you have the option to navigate the process independently, though enlisting a local real estate agent, as detailed in our Guide to Realty Agents in Mexico, offers significant advantages. A skilled agent not only markets your property effectively but also serves as a crucial intermediary during negotiations and handles the intricate paperwork, ensuring a smooth transaction to its successful conclusion.
Typically, realty agents in Mexico charge commissions ranging from 5% to 8% of the sale price, to which Mexican sales tax (IVA) of 16% is added. This means that a 5% commission translates to a total payment of 5.80%, while an 8% commission results in a 9.28% payment inclusive of tax.
Legalities and Fees in Mexico
In Mexican property transactions, the role of the Notary Public is pivotal, as highlighted in our Mexico Real Estate Guide. The buyer covers the fees associated with the Notary Public, a legal professional entrusted with critical statutory responsibilities.
While hiring a lawyer is optional for most transactions, some buyers opt to engage legal counsel, which can increase overall expenses by several thousand US dollars. If your property is held in a Bank Trust (fideicomiso), anticipate an additional ‘trust cancellation fee’ charged by the bank, typically around US$1,000, to be factored into your budgeting.
The current tax situation of selling in Mexico
Taxation concerning the sale of residential properties in Mexico is a nuanced domain within Mexican tax legislation. Each transaction presents unique circumstances, making it imperative to understand the current tax framework. Moreover, the evolving nature of tax laws means that regulations applicable today may differ significantly by the time you decide to sell your property in the future.
Here, we outline the fundamental principles of residential property taxation as of the latest update. These insights aim to assist you in approximating the potential tax liabilities associated with selling a residential property in Mexico. (Note that distinct tax rules and rates apply to commercial property sales.) To obtain a comprehensive evaluation tailored to your situation, consulting with a Notary Public and/or tax advisor in Mexico is highly recommended.
Additionally, non-Mexican citizens should be aware of potential tax obligations in their home countries. Seeking guidance from a specialized tax accountant in this regard is advisable.
What you should know before calculating taxes
Tax implications upon selling residential property in Mexico are overseen by Notary Publics, who play a pivotal role in ensuring compliance and facilitating tax transfers to the Mexican Treasury. They bear full responsibility for tax liabilities, meticulously verifying eligibility for exemptions and deductions that alleviate sellers’ tax burdens.
Regarding Capital Gains Tax, Mexico levies a progressive rate based on property gains, typically starting at 25% on the total transaction value. However, this can vary between 1.92% to 35% depending on the gain itself, with higher rates likely applying to sales exceeding $250,000 pesos (approximately $13,000 US dollars).
Under Article 92, Fraction XIX a) of the Mexican Income Tax Law, sellers may qualify for a one-time exemption aimed at reducing tax obligations for family residences meeting specific criteria. This includes residency in Mexico with a valid tax ID, the property serving as the primary residence, and adherence to size constraints relative to construction. The exemption, equivalent to 700,000 UDIs (approximately $4.37 million Mexican pesos), can significantly offset taxable proceeds, provided all qualifying conditions are met and documented accordingly.
Moreover, joint ownership with a spouse or family member, also resident in Mexico, can augment this exemption by an additional 700,000 UDIs if the property qualifies as their primary residence as well. However, these benefits necessitate rigorous qualification and substantiation, tasks for which sellers must prepare in collaboration with their appointed Notary Public.
Notably, while Mexican tax law doesn’t explicitly mandate permanent residency for foreign sellers to avail themselves of capital gains exemptions, criteria regarding primary residence status must be strictly adhered to, with interpretations varying among Notary Publics depending on residency status specifics.
Navigating these complexities requires proactive engagement with legal counsel and thorough preparation of documentation to optimize tax benefits while ensuring compliance with Mexican regulations.
Non-Residents
For those who aren’t residents of Mexico or lack a Mexican tax ID, the one-time exemption detailed earlier isn’t available. However, qualifying deductions can still be claimed, provided you possess valid receipts (facturas) to substantiate the expenses eligible for deduction.
It is always important to have a notary public
Your Notary Public holds the key to your property journey in Mexico. Known as the Notario Público in Spanish, this pivotal professional plays a central role whether you’re buying or selling real estate. Instead of relying on hearsay, engage with your Notary Public to navigate your unique circumstances and anticipate the taxes involved. When purchasing a property, consult with them on estate planning strategies, optimal structural arrangements, and the essential documentation needed to ensure a smooth future sale, whether for yourself or your successors. Every property transaction comes with its nuances; hence, fostering a strong rapport with your Notary Public is essential for a prosperous investment experience in Mexico.
Disclaimer: The content of this article is provided in good faith for general informational purposes and should not be construed as personalized legal, financial, or investment advice.