# Taxes, Especially at Transfer



## conklinwh (Dec 19, 2009)

Not sure if a regional problem or more generic. After very little change in tax valuation over the last 4 years, there seems to be a big focus by the municipality on land/buildings owned by expats especially at time of transfer. We are seeing the valuation about triple overnight which a real issue as expats need pay a min of 25% of valuation at transfer unless can use the 5 year exemption. This is creating a real uncertainty in the pricing as very inconsistent.


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## RVGRINGO (May 16, 2007)

If you own property, now is the time to change your INM status to 'inmigrante' and then, when the new rules are in effect, 'residente permanente'. The new time frame for exemption will be four years, as I read the new INM laws. It will probably also be necessary to get any US or Canadian vehicles out of the country and buy their replacements in Mexico. By the way, 'residente permanente' gives the right to work, without INM permission and also eliminates annual renewals with INM.


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## conklinwh (Dec 19, 2009)

All that is good info and I expect right on but problematic in the shorter term as we have two newer and expensive vehicles where would be difficult to sell one.
Going back to base question. Is anyone else seeing an uptic in valuations for expat owned property? I guess the real key time frame will be January when the new tax bills are payable.


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## RVGRINGO (May 16, 2007)

No "upticks" seen on expat owned property. Taxation on sale is based on the sale price; actually, on any profit gained.


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## conklinwh (Dec 19, 2009)

What you said about profit makes a lot of sense and is what I thought. I've now been told by two realtors that isn't true in Mexico. That tax is on the valuation, either tax valuation or "appraisal" at sale that may or may not be the sale price. Also that tax for expats is 25% of the valuation. Would love to be wrong but a series of recent transactions has made me believe that this true.


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## RVGRINGO (May 16, 2007)

Never, ever, believe a realtor or a used car salesman. Talk to your notario or accountant.


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## conklinwh (Dec 19, 2009)

You are right, realtors are also friends but did go to one notario that said that we are responsible for 25% of valuation unless we have facturas that establish a different cost base or have electric bills for 5 years and want to use our 5 year exemption. This is a piece of land where we have decided not to build a stable so no facturas and no electricity. I will certainly confirm but that feedback so far. Would have thought that previous escritura and associated valuation would have established a cost base even without factura but that seems to not be the case.


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## makaloco (Mar 26, 2009)

It appears that changes, in enforcement at least, took place in 2010. These articles may shed some light:
Mexico Cracking Down on Capital Gains Tax
Background - Capital Gains Tax Issues in Mexico
Baja Times - SINCE 1978 - English Language Newspaper of Baja California
Note the first article's reference to "primary residence for at least 5 years".


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## RVGRINGO (May 16, 2007)

There were changes in enforcement, not in the law itself. The 'valuation' at purchase is the cost basis, plus any 'improvements' that can be substantiated by facturas. That total is subtracted from the 'valuation' at the time of the sale and the difference, or 'profit' is the amount that is taxable to the seller.
Sorry if the previous semantics were confusing.


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## conklinwh (Dec 19, 2009)

I found this link. CAPITAL GAINS TAX (ISR) ON THE SALE OF HOMES IN MEXICO | Land, Luxury, Leisure...
Key is residence versus property. This describes very well how taxes calculated on sale of a house by a "resident" as well as the sale of unimproved land.
The former does take in to account the cost basis and has all sorts of deductions. There is a concern with property size as where we are lots are quite large, easily exceeding the 3 times footprint mentioned. The potential good news as that only talks about proving residence via electric or tax bills and not length.
This all changes for land where says tax is 25% of the sales value.


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## RVGRINGO (May 16, 2007)

Yes, raw land is taxed at a higher rate. Sometimes, it can be an unpleasant surprise. We have discovered an unpleasant surprise of our own: We purchased a rather large renovation project and hired a bunch of locals. The result is just what we intended and we're very satisfied with the results. We were very careful to collect and keep some $85k USD worth of receipts and 'notas' for the materials and labor. To our chagrin, we now know that they are worthless, as they aren't 'facturas' and won't count against our 'cost basis' if we ever sell. That, and lower prices in a falling world economy, probably mean that we can't downsize to a smaller place as we become less and less able to keep up, physically or financially with age and frozen income both working against us. Someday, it will be time to ask the maid to move in, with her family, as we fade away.


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## conklinwh (Dec 19, 2009)

In the link that I sent, there is a reference to an option to have the unit appraised versus all the documentation.


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## RVGRINGO (May 16, 2007)

Thanks, I'll check into that when the time comes.


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## TundraGreen (Jul 15, 2010)

RVGRINGO said:


> Yes, raw land is taxed at a higher rate. Sometimes, it can be an unpleasant surprise. We have discovered an unpleasant surprise of our own: We purchased a rather large renovation project and hired a bunch of locals. The result is just what we intended and we're very satisfied with the results. We were very careful to collect and keep some $85k USD worth of receipts and 'notas' for the materials and labor. To our chagrin, we now know that they are worthless, as they aren't 'facturas' and won't count against our 'cost basis' if we ever sell. That, and lower prices in a falling world economy, probably mean that we can't downsize to a smaller place as we become less and less able to keep up, physically or financially with age and frozen income both working against us. Someday, it will be time to ask the maid to move in, with her family, as we fade away.


If you had asked for facturas, they would have either refused to sell to you or would have charged you 15 to 20% more to cover the IVA taxes. Many transactions are part of the underground economy. It is part of the reason the government doesn't have enough money to fix things or pay police a reasonable salary.


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## dongringo (Dec 13, 2010)

The cost basis on escrituras is habitually understated by sellers intent on lowering their capital gains taxes, in a cash transaction of a land purchase. Problems arise when a seller actually wants the real purchase price in the escritura. Many deals then go sour.


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## conklinwh (Dec 19, 2009)

Actually, expect it would most likely be the buyer that would want the full value of transaction.


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## dongringo (Dec 13, 2010)

conklinwh said:


> Actually, expect it would most likely be the buyer that would want the full value of transaction.


yes should have said when buyer expects true price


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