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How to Reduce Capital Gains Tax in Mexico

The ROIs on properties in Mexico, especially in areas such as the Riviera Maya, are extremely high right now. For the last few years, people have been snapping up investment properties in Mexico and then selling them for a great profit.

Things like capital gains tax can really make a dent in that profit after you sell your property. All non-Mexican residents have to pay a capital gains tax of 25% of the total gross income or 35% of the net gain from selling their property. However, capital gains tax can be dramatically reduced or even eliminated if you know how. So, here’s all you need to know about besting the capital gains tax in Mexico.

How to Reduce Capital Gains Tax in Mexico

1. Live in your property

If you have resident status in Mexico and can provide proof that you’ve lived in your property as your principal residence, you can eliminate that pesky capital gains tax. However, there are a few rules… You can only claim this exemption once every 3 years and you must be able to prove that it has been your primary residence for 3 to 5 years, depending on the notary.

How to Reduce Capital Gains Tax in Mexico

2. Choose your fideicomiso and notary wisely

There’s a small loophole in the tax law, as it doesn’t explicitly state that a foreign property owner has to have Mexican residency to qualify for the capital gain tax exemptions. However, many bank trusts (fideicomiso) and notaries do state that this is a requirement in their fine print. Choosing a notary or fideicomiso that offer policies that interpret this law in the way you need is very important.

How to Reduce Capital Gains Tax in Mexico

3. Don’t register low for the seller

Often, sellers like to register a lower selling price as this keeps their gains tax down and may give you a slightly lower transfer tax. However, if you register a lower selling price, this will increase the amount of capital gains tax you’ll have to pay once you come to sell as it will appear like you’re making a bigger profit.

How to Reduce Capital Gains Tax in Mexico

4. Know your deductibles

There are many things that can be deducted from the 25% or 35% capital gains tax, these are known as deductibles. For example, the 2% acquisition tax that you had to pay at the time you purchased your property can be taken off your profit for tax purposes. In Mexico, the government also provides a helpful inflationary credit for every year that you’ve owned your property, so the longer you can sit on your investment property before selling, the better. Finally, if you’ve made any major improvements to your property since purchasing, the cost of these will also be taken off the profit of your sale, reducing your capital gains tax further.

If you’re looking to sell your property in the Riviera Maya or wish to purchase your own investment property here, please don’t hesitate to contact us at The Agency RM with all your real estate needs.

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