By Julie Kershner
Selling your home anywhere is a stressful experience. Finding out at closing that your net proceeds is vastly lower than you expected is a dreadful and avoidable experience.
Capital gains tax is assessed on the profit gained by selling a property. It is possible, however, to reduce or eliminate your capital gains tax, but the process starts immediately after purchase of your home. Whenever possible, get legal with the Immigration Department of Mexico. Exemptions on capital gains tax applies to foreigners who have permanent resident status in Mexico, and of course, Mexican nationals. The exemption has a limit of 700,000 UDIS (investment units) per each seller, which is a variable rate, currently equivalent to approximately $240,000 USD. The exemption applies up to this amount of the sales price, and the exceeding portion of the sales price will still be subject to the capital gains tax.
Next, obtain a factura (legal official tax receipt) for any major expenditures fixed improvements on your home. (In Mexico, only fixed improvements are deductible from capital gains tax; furniture and appliances are not deductible items). Because the requirements can change annually, retain these records, along with all your utility bills. Make sure your utility bills are in your name and show the correct address of your home subject to the sale. This is additional proof of residency.
When you list your property, request assistance from your agent to obtain a capital gains exposure estimate. This can be obtained from many attorneys or a Notario Publico, who might charge you a small fee for doing the capital gains tax study. In many cases, additional steps may be taken to minimize your capital gains tax.
Knowing your position in advance helps mitigate the stress of selling your home. If you are currently listed and don’t know your capital gains exposure, ask your agent immediately for assistance in obtaining this information.