Taxes on capital gains are based on the profit from selling your home or condo, and here are two possible scenarios when determining what you may owe the Mexican government.
1. Gross Sales Amount: You pay 25% of the “gross sales amount” with no deductions.
2. Net Value: You pay 35% of the “net value” including deductions. The net value is calculated by taking the difference between the original recorded property value (when you bought it) and the sale amount, then subtracting deductions such as significant property renovations or improvements (note: you must be able to show original facturas), commissions paid to real estate agents, and other allowable expenses.
Gains are then divided by the number of years that a seller owned the home (limited to 20 years).
Also, while property values are officially recorded in Pesos, the transaction will take place in US Dollars. This further complicates capital gains computations as you must take exchange rate into consideration.
Primary residence exemption
Foreign residents of Mexico may be excluded from capital gains taxes if the property sold was a primary residence. To legally establish permanent residency, you will at a minimum: permanent residency card, Proof of utilities in your name, Mexican bank accounts, Mexican driver’s license, and Mexican registered vehicles. It is best to speak with a tax attorney to understand the requirements and rules as the real estate laws are constantly evolving.
Other miscellaneous notes:
- Inherited property might be exempt from capital gains taxes
- The 2% acquisition tax (paid during purchase) may be used as a deduction
- Maintenance costs are typically an acceptable deduction
- Undeveloped land is treated different from a tax perspective
This Cabo real estate sellers guide provides perspectives around capital gains taxes when selling a home or condo in Cabo. Questions? Contact us – we’d love to chat.