Canadian or American selling Mexican property - Usually taxable
QUESTION:
I are selling a mexican property/house that was given to me from my father.Do I pay taxes on the money I recieve from the sale? and if so how much? Money will be wired directly to my bank account.How do I go about this. There must be more people buying and selling in Mexico , because I see and hear of it all the time.
thanks
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david ingram replies:
Who knows? You have not given me any figures to work with. So I will answer a couple of general questions.
Canadian and Mexican purchasers of Mexican homes are always being told not to worry about the sale becasue they can claim it as their personal residence. In addition, because of notary and property transfer fees, it is not unusaul for a purchaser to sign documents stating a lowere purchase price than actually paid to 'save' money on the purchase.
What happens with this is that the seller saved capital gains tax becasue of the lower stated sales price, but the purchaser pays more tax when they sell.
Although a Canadian or an American 'can' claim their personal residence in Mexico tax free, the rules are
1. that it has to be the only house they own AND they have to have occupied it full time for at least two years
2. they have to have an FM3 visa and
3. they have to be filing their tax returns as a year round Mexican resident.
4. They have to apply to Mexico’s Secretary of Hacienda and Public Credit (the Mexican CRA / IRS) and obtain its approval. Each one of these requests is determined on a case-by-case basis. This is similar in concept to the T2062 filed in Canada.
So - back to your question.
* Your father likely owes tax on the disoposal of the home to you unless he was a full time resident of Mexico with an FM3 visa, filed full Mexican tax returns as a resident, lived full time in the house for two years AND did not own a house in Canada or the US or Costa Rica or Spain or Italy, etc.
* Depending upon what stated price he transferred it to you, you will likely have a Mexican Capital Gains tax to pay.
The tax on sale is (subject to change) 25% of the gross sale price OR 34% of the actaul profit. The cost price for this purpose is the purchase (or gift) price plus legal and any improvements made over the period of ownership. Becasue this is a 'documented' ruling, you have to produce the receipts for the work done when presented to the Secretary of Hacienda and Public Credit.
In a similar case involving a house in West Vancouver, I had to produce over $140,000 of actual receipts to the CRA for improvements to a new purchase made by a US citizen. The CRA only accepted 50% of the receipts because the receipts clearly pointed out that much of the work was actually repairs due to previous water and insect damage. The CRA's ruling was that much o fthe work had to be done anyway (I replaced the roof on my house this year and have discovered carpenter ants in a house I have lived in for 38 years) and the CRA only allowed the Improvement part of the bill and not the cost for the remedial work. i.e the rotten deck was doubled in size, dormers were put in the roof, the downstairs bathroom was doubled in size.
Hope it helps. �
I are selling a mexican property/house that was given to me from my father.Do I pay taxes on the money I recieve from the sale? and if so how much? Money will be wired directly to my bank account.How do I go about this. There must be more people buying and selling in Mexico , because I see and hear of it all the time.
thanks
----------------------------------------------------------------
david ingram replies:
Who knows? You have not given me any figures to work with. So I will answer a couple of general questions.
Canadian and Mexican purchasers of Mexican homes are always being told not to worry about the sale becasue they can claim it as their personal residence. In addition, because of notary and property transfer fees, it is not unusaul for a purchaser to sign documents stating a lowere purchase price than actually paid to 'save' money on the purchase.
What happens with this is that the seller saved capital gains tax becasue of the lower stated sales price, but the purchaser pays more tax when they sell.
Although a Canadian or an American 'can' claim their personal residence in Mexico tax free, the rules are
1. that it has to be the only house they own AND they have to have occupied it full time for at least two years
2. they have to have an FM3 visa and
3. they have to be filing their tax returns as a year round Mexican resident.
4. They have to apply to Mexico’s Secretary of Hacienda and Public Credit (the Mexican CRA / IRS) and obtain its approval. Each one of these requests is determined on a case-by-case basis. This is similar in concept to the T2062 filed in Canada.
So - back to your question.
* Your father likely owes tax on the disoposal of the home to you unless he was a full time resident of Mexico with an FM3 visa, filed full Mexican tax returns as a resident, lived full time in the house for two years AND did not own a house in Canada or the US or Costa Rica or Spain or Italy, etc.
* Depending upon what stated price he transferred it to you, you will likely have a Mexican Capital Gains tax to pay.
The tax on sale is (subject to change) 25% of the gross sale price OR 34% of the actaul profit. The cost price for this purpose is the purchase (or gift) price plus legal and any improvements made over the period of ownership. Becasue this is a 'documented' ruling, you have to produce the receipts for the work done when presented to the Secretary of Hacienda and Public Credit.
In a similar case involving a house in West Vancouver, I had to produce over $140,000 of actual receipts to the CRA for improvements to a new purchase made by a US citizen. The CRA only accepted 50% of the receipts because the receipts clearly pointed out that much of the work was actually repairs due to previous water and insect damage. The CRA's ruling was that much o fthe work had to be done anyway (I replaced the roof on my house this year and have discovered carpenter ants in a house I have lived in for 38 years) and the CRA only allowed the Improvement part of the bill and not the cost for the remedial work. i.e the rotten deck was doubled in size, dormers were put in the roof, the downstairs bathroom was doubled in size.
Hope it helps. �
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