Capital Gains Tax for Mexico Real Estate

Income, rather than gain, essentially defines the Capital Gains Tax. This is also known as "ISR" (Impuesto Sobre la Renta). Despite this fact, it applies to profit and occasionally gross income in the Mexico real estate business. This tax is required for both Mexicans and non-Mexicans. The law supplies non-residents with either 25% from gross income that receive no rights for deductions, or 29% from profit that do receive rights to deductions. The height for the year reached 30% from gain for Mexico real estate residents.

The question remains what the residents of Mexico real estate can file as far as tax benefits go. There are tax deductions as one avenue, and tax exemptions as another. Deductions require several conditions, according to the law, that possibly could be used to reduce tax base and pay lower taxes. However, this leads to another debate, and addressing the capital gains tax exemption will take prominence.

A year ago the ISR law stated legal Mexico real estate residents were exempt from capital gain tax as related to the sale of their residential property. However, utility bills containing the previous six months had to be provided. Prior to this law, a residency of two years was part of the condition. Today, Mexico real estate residents are required to have the property in the name of the Seller and have residency for five years to exempt these taxes.

The cap price for exemption last year was around half a million with a residency of 6 months required to obtain this price limitation. On the other hand, had a Seller resided for five years or more, there was no price cap.

Currently the only way to achieve exemption from capital gain tax when selling residential property is to provide a document proving 5 years of residency. This is allowed once in five year increments.

The law still remains unclear. The specifications of the five years remain clear, but the amount of transactions tends to be contradictory stating there is no limit.

The Mexican IRS discusses with the Notarios about the validity that a Seller has not sold within the 5 year limit. Likewise, the Notarios notify Haciendas of the transactions and tax payment. Nonetheless, if exemptions are not applied, deductions are a possibility. Having awareness of the law can reward Sellers the highest potential benefit for their Mexico real estate.


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