Boat slips at Marina CostaBaja.
Location, Location, Location: La Paz, Mexico
November 1, 2005
Preparing for Mexico’s Capital Gains Tax
Understanding Mexico’s capital
gains tax is imperative at the time of purchase, to properly prepare for when
you sell. The common mistake many people make is underreporting the price that
was paid for the property to lower the 2 percent acquisition tax.
As with the sale of property in the United States, tax is owed when you sell your property in Mexico. Mexico’s capital gains tax provides two options: 34 percent of the net profit, with a variety of deductions available; or 25 percent of the gross sales amount with no deductions.
The first step in calculating your capital gains with either option is to subtract the value you have recorded in your property trust agreement from the sales price of your property. If you have underreported the price you paid for the property, your capital gains tax will be considerably higher than the full 2 percent acquisition tax you would have paid at purchase. Your sales representative should guide you through these steps to ensure all trust documents are recorded accurately. This will save you time and worry when you sell. Your representative should also inform you of the dollar-to-peso exchange rate at the time of recording, since all transactions are calculated in pesos.
Working in your favor once you have paid the 2 percent acquisition tax is the fact that you are eligible to receive an inflationary credit of at least 2 percent per year (based on inflation) from the Mexican government. This credit is added to your cost basis when you sell your property.
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