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Tax Implications of Owning and Selling
Income derived from the rental of your property is taxable, and Mexico's Value Added Tax (IVA) must be paid on rental income. You
may wish to consult with various tax professionals about this subject, or research, if you are an American citizen, at
such web sites as http://www.taxmeless.com . Canadian
citizens will find helpful tax information at
Canadian Citizens Abroad
Stay tuned to this site for more professional advice and opinion, and tax laws for North Americans. I can appreciate it
is not a pleasant subject, since this site is devoted mostly to finding a dream vacation home or investment, or
retirement home in paradise…but we want to keep you out of trouble.
Gains made from the sale of property in Mexico are typically taxable as normal income; deductions, however, used to
calculate net tax are generous. Those owners who reside in Mexico with an FM2 (or perhaps a FM3) and derive the
majority of their income here may be exempt from paying a tax on gains if the property is deemed to be the primary
residence.
It's necessary to further qualify the criteria for an exemption by advising that it seems that property
owners in the "restricted zone", utilizing a bank trust, or fideicomiso, are now being denied an exemption. It is
difficult to say if the SAT, formerly the Hacienda, or IRS, is applying this policy right across the board. Apparently, the
issue relates to the Mexican Constitution and the potential violation of equal protection laws under it; i.e. the bank
trust is not a person. Clarification of the matter by the courts would seem to be in order. You can learn more on this
subject by checking out the Useful Links page, watching for updates.
Two points worth noting here: one, there is no longer a two year residency requirement for exemption (it was
eliminated, but you will see it mentioned here and there), and secondly, and more importantly, do not allow yourself,
when purchasing, to be persuaded to declare any value other than the actual purchase price, in US dollars. Agents, or
others, may suggest a buyer to use the “official” appraised value used in the closing process, which can be
significantly lower than the actual purchase price, to save on the 2% acquisition fee. This maneuver has cost sellers
substantial sums when it came to dealing with capital gains upon sale.
You will find there are some diverse opinions on the subject of capital gains, and note too, there is some outdated
information, as referenced above, on the web. More can be found on this matter at
Mexican tax and real estate laws for Americans.
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