Are you considering selling your property in Mexico but don’t know where to begin? Vista Properties is here to help. Please talk to us first. We can guide you through the process of how to sell a house in Mexico so that your experience is easy and positive.
Selling your property in Mexico is similar to selling your property in your own country. There are however, some slight differences that you need to be aware of. Before you start to think about selling, please consider the following:
Capital Gains Tax
A foreigner who sells property in Mexico is liable under special rules, much like the U.S. and Canada, for the payment of I.S.R. tax (Impuesto Sobre de la Renta) which is the Mexican equivalent of the Capital Gains tax. Liability is 35% of the profit from the transaction less the improvements made, commissions paid and other allowable expenses. The formula is complicated and the tax should be figured and confirmed by the Notary Public who will be preparing the final deed and tax declarations. Although a 35 percent capital gains may seem high, there are some means that will assist you in maximizing your cost basis, thereby reducing your net profit and lowering your capital gains.
Manifesting is simply recording the amount of money spent on a house’s construction or remodel, in order to add to the owners’ cost basis-- increasing your cost basis is the key to reducing your capital gains tax. Proper documentation and manifestation of your construction is vital to building and selling your home. When you sell your home, the manifested cost plus the original cost of your property stated in your trust (title), will be used to determine the basis for capital gains tax. Receipts, cancelled checks and bank statements will not help, actual facturas (an invoice to the property owners which is registered with the Mexican government) for building and improvements are necessary. If you have not manifested any new construction on your property, you cannot sell until this is done.
Another way of lessening or eliminating capital gains is if you are an exempt taxpayer. First of all, you have to have lived in your home for three years. You would need to possess an RFC number, which is a taxpayer identification number. In addition, you would need to show income for a least one year by producing a Mexican tax return.
It is also important that your taxes, fideicomiso yearly payment, utilities, property management fees are paid and up to date. If not, this will slow the selling process.
Typical Closing costs for the seller:
- Capital Gains: varies 0 to 35%
- Commissions: varies 6-10% + 16% IVA
- Manifestacion de obra (If needed): $4000-$6000 USD
- Termination of trust (if needed) up to $2500 USD depending on the bank holding the trust document
- Power of Attorney, if needed: up to $250 USD
Selling property in Mexico can be overwhelming. Let Vista Properties help you transform your concerns into peace of mind.
Closing Costs in Mexico
The following is a rough breakdown of the costs (in US dollars) for closing a property purchase on the Baja Peninsula. The fees for the fideicomiso given here are with Banco Interacciones...they vary from bank to bank. The other fees can vary based on which Notary and attorney are used.
- Government Authorization for set up of trust (fideicomiso): $1,900
- Execution of Fideicomiso: $444
- Annual Fee: $468
- Title search, Appraisal and Certificate of Freedom of Liens: $440
- Notary Public fees: 1% of purchase price
- Acquisition Tax: 2% of purchase price
- Registration fee: 0.5% of purchase price
- Attorney fees for processing documents: $900
Closing costs in the Baja Peninsula are slightly more expensive than those in Canada and the United States due to the cost of the trust document (fideicomiso) that is necessary for foreigners to be able to purchase property. The Constitution of Mexico does not allow foreigners to hold title directly to property on the Baja peninsula and other coastal areas of Mexico. Instead, the property is held in the name of a bank trust. This trust allows the beneficiaries to act in the same manner as an owner would in the US or Canada. Second beneficiaries can be added within the trust to establish automatic inheritance of the property in case of the death of the first beneficiaries.
This trust agreement gives all the normal rights of ownership. You may use, occupy and possess the property, build on it or rent it. You may sell the property, either by instructing the Bank to transfer the rights to another qualified owner, or by dissolving the trust and allowing the buyer to set up another trust. The initial term of a fideicomiso is 50 years and it can be renewed every 50 years indefinitely.
At Vista Properties, we can help you with all aspects of purchasing or selling a property in Mexico. Please contact us for help with all your real estate needs.