Misconceptions on the Costs and Taxes of Selling and Buying Property in Mexico

Buyer and seller should be informed what are the closing costs that each party must pay.

The seller must pay:

  • Sales commissions to the real estate agent, (unless it is a sale that did not involve an agent).
  • Property tax.
  • Homeowners’ association fees, if within a community with an HOA.
  • It’s own trust bank fees if the seller is a foreign individual with a fideicomiso.
  • Its closing agent fees.
  • Capital gains, if applicable.

The buyer must pay most other closing costs, such as:

  • Its own closing agent fees.
  • A property acquisition tax (it ranges from 2 to 2.4%) based on the worth of the transaction.
  • If the purchase involves an assignment of trust rights, the buyer must then pay an acceptance fee to the bank holding the deed along with an advance payment of handling fees.
  • If the purchase involves canceling the seller’s trust and transferring the property to a new trust on behalf of the buyer, then the buyer must pay.
  • Issuance duties to the Mexican government to expedite a trust permit to a bank chosen by the buyer to hold the deed for 50 years (renewable).
  • An acceptance fee to the bank to hold the deed on behalf of the buyers along with an advance payment of handling fees.
  • Notary fees.
  • Closing agent fees.
  • Fees associated with a survey, no lien certificates, and an appraisal.
  • Recording fees to the Public Register of Property and Commerce.
  • Recording duties to the National Foreign Investment Commission.
  • Escrow fees.

There are several internet sites that wrongfully interpret the tax exemption provided by article 93, section XIX of the Income-tax Law (LISR), one of which, mistakenly calls a “One-time tax allowance exemption”, this is wrong, the law specifies that the exemption is for the homeowner who has not sold its primary residence in the past 3 years.
Yes, you must also be a legal resident of Mexico to be able to obtain that tax benefit, thus the seller must provide a copy of its temporary or permanent resident visa, along with a Mexican tax ID (known as an RFC, or Registro Federal de Contribuyentes); plus

  • The land subject of the sale must not exceed three times the size of the construction on that land (measured in square meters); and
  • The seller can only claim this exemption once every three years.

There is a flat-rate exemption in pesos for the equivalent of 700,000 UDIs; the value of UDIs fluctuates. At the time of writing, 700,000 UDIs equates to approximately $4.767 million Mexican pesos or $238,381.01 US dollars if we use a $20.00 to 1 exchange rate.
This benefit applies to each homeowner, such as a spouse or other family member as long as all of them are legal residents in Mexico and have their respective Mexican tax ID.

A purchase proposal is not a purchase agreement.

Do not be persuaded to make a down payment while signing a purchase proposal, when you have this proposal signed move to due diligence and conduct a thorough technical inspection, once this has been satisfactorily completed, then you may negotiate a purchase agreement and make that initial deposit.

Mexicans do not pay Capital gains.

Anyone earning money or making a profit in Mexico is a taxpayer, thus, in the case of capital gains, the law applies the same, regardless of national origin. A Mexican national that has a permanent address abroad could be denied the privilege of exempting capital gains for having a permanent address elsewhere.

Foreigners do not qualify for Capital Gains Exemption.

The income tax law specifies that the exemption applies to the homeowner who has not sold its main residence in the past 3 years.

Unfortunately, there is much misinformation on the internet regarding capital gains, just read what I found online.

“Considerations when purchasing Mexican real estate, think ahead about capital gains tax, If you are buying your property through a Fideicomiso Trust, research the bank’s capital gains policies before choosing your Trust company. The Bank Trustee and their Notario may have a policy that does not accept deductions and automatically charges 25% tax on the full sale price before releasing the title to the new buyer. ” False! Banks do not have a capital gains policy, a bank does not nor can it interpret the law nor is able to impose an institutional policy with regards to capital gains, it’s the notario who will do so. Careful trusting just about any source producing unprecise information and advice.

Questions? I am available for a fee.
Rafael Solorzano
Phone 619 409 2610.