The Costs and Taxes of Selling Property in Mexico

Selling property in Mexico involves a series of costs and tax considerations that are important to understand. From real estate agent fees to capital gains taxes, each aspect of the transaction can impact your net profit.

Closing and Selling Costs of Property in Mexico
When you purchase property in Mexico, you will encounter various “closing costs” that typically range from 5% to 10% of the property’s sale price. Although the buyer assumes most of these costs when selling, the seller must also consider certain expenses and taxes.

Main Costs When Selling Property in Mexico:

1. Sales Fees
2. Professional Service Fees
3. Taxes

Sales Fees

While you can market and sell your property without a real estate agent, having one can simplify the process.
Real estate agents in Mexico usually charge between 5% and 8% of the sale price as a commission, plus 16% VAT. Thus, a 5% commission becomes 5.8% with VAT included, and an 8% commission translates to 9.28%.

Professional Service Fees

In Mexico, the Notary Public plays a crucial role in real estate transactions. Their fees, paid by the buyer, ensure the legality of the transaction. If the property is held in a bank trust (fideicomiso), you should also budget for a cancellation fee of approximately $1,000 USD.

Taxes on the Sale of Residential Property

Taxation on the sale of residential properties can be complex and varies based on individual circumstances and the tax laws in effect at the time of sale. Consulting a professional for a detailed assessment is essential.

Tax Calculations

The Notary Public will calculate and withhold the relevant taxes, ensuring compliance with the law.
Mexico imposes a capital gains tax of 25% of the gross sale value or between 1.92% and 35% of the net gain, depending on the amount of the gain.

Tax Exemptions

Under certain conditions, a one-time tax exemption is available under Article 92, Section XIX a) of Mexico’s income tax law. To qualify, you must be a resident in Mexico with an RFC, and the property must be your primary residence. Additionally, you can only claim this exemption once every three years.

Co-Titled Property

If the property is co-titled with your spouse or another family member who is also a resident in Mexico, you can deduct an additional 700,000 UDI. It is crucial to meet all the requirements and provide the necessary documentation for these exemptions.

Capital Improvements

You can deduct the costs of capital improvements with official receipts. It is essential to maintain proper records and consult with a notary public or accountant to ensure all deductions are valid.

Effect of Exchange Rates

Transactions in Mexican pesos can affect the calculation of capital gains, especially in areas where properties are priced in US dollars. Understanding how exchange rates influence your tax obligations is important.

Selling Your Property as a Non-Resident

Non-residents cannot claim the one-time allowance exemption but can deduct qualified expenses with official receipts.

Conclusion

The Notary Public is your key ally in any real estate transaction in Mexico. Be sure to consult with a notary and other professionals to efficiently plan your sale and minimize your tax obligations. Maintaining a good relationship with your notary will ensure a successful and well-managed investment.