Capital Gains in Mexico…Separating fact from fiction in Mexican real estate
The information provided here will help you understand the tax system in Mexico and the
important issues related to it. Regardless, we recommend you meet with a tax professional prior
to completing your purchase to confirm whether any of the laws have changed since this
document was published in 2005.
CAPITAL GAINS TAX
Capital gains tax law in Mexico states that tax is owed on the profit you receive when you sell
your home or property. By law, you have two options when it comes to capital gains, and you
can use whichever is the better of the two options for you.
Option 1: 33 percent of the net profit. (There are a variety of deductions included in this option.)
Option 2: 25 percent of the gross sales amount with no deductions.
(Percentages reflect the 2003 Tax Code)
Although a 33 percent capital gains tax may seem high, Mexico does have several laws and
procedures that will assist you in maximizing your cost basis, thereby reducing your net profit,
and thus lowering your capital gains. The key is to understand these laws before you buy, not
when you decide to sell.
Why should you take on the seller’s capital gains liability?
The first step in calculating your capital gains is to subtract the value you have recorded in your
trust (fideicomiso) from the sales price of your property. In the past, some real estate companies
recorded values lower than the actual purchase price in an effort to “save” taxes for their client.
They think they can save money on the 2 percent acquisition tax. This is a big mistake. Never
record a lower value than what you actually paid for the property. Doing so simply establishes a
lower cost basis for the property, which increases your capital gains tax liability.
An oversimplified example is: You wisely purchase a lot for $1 million, but unwisely record a
value of $500,000. In the eyes of Mexican tax law, your cost basis is now $500,000. If you sell
the lot for $1.2 mill