Real Estate Tax Responsibilities for Buyers and Sellers in Mexico
When it comes to completing a real estate transaction in Mexico, it is well known that all major closing expenses and costs are the buyer’s burden. In this sense by closing costs we mean:
- Real estate acquisition tax
- Public registry fees
- Trustee bank fees to initiate the trust in the case of a foreign buyer
- Attorney, closing representative and / or title company fees
- Appraiser, translators, home inspectors and other service providers
- Notary Public fees
At Stewart Title Riviera Maya, we explain to clients that all of these expenses are the buyer’s responsibility and are all things that need to be covered well in advance before the established closing date.
It is the responsibility of the seller to cover incidences such as income tax or personal capital gain taxes for the sale of the property. These obligations needs to be paid whenever an individual sells real estate property.
Sellers, as in individuals, are responsible for paying capital gain taxes. If it’s a company that is selling the property, the income generated is also taxed, but whatever net income it produces is accumulated with the overall income of the company for the given year.
Capital gain taxes can be a deal breaker if these are not calculated in advance and the seller is not aware of the amount that needs to be covered at closing. Capital gains are calculated based on the difference between the purchased price and sell price.
The tax rate can be as much as 35 percent of the net profit generated from the transaction. However, there are some ways to reduce the tax burden by applying rules for deductibility allowed under law.
This means that there are some expenses that may be deducted from the income generated to reduce the capital gains, and by consequence, paying less tax. Among the most common deductible concepts are:
- The original acquisition tax
- Property improvement investments, constructions and property extensions
- Notary Public fees and invoiced closing expenses at the time of purchase
- Service providers invoiced fees at the time of purchase
- Brokerage commissions
It is very important to understand that taxes are the Notary Public’s responsibility to calculate and collect at the time of the sale. Therefore, it is key for sellers to be prepared in advance before the closing by ensuring they have all the documentation ready to support any applicable deductibility.
If you have any further questions in regard to your real estate transaction, Stewart Title Riviera Maya are happy to help you with the details. Please contact us at RivieraMaya@stla.net or call us directly at +52 (984) 879-4387.