CAPITAL GAINS TAXES (CGT)
The max. CGT is 35% and it is charged off the gain generated on the sale of the property. The Mexican law provides options that will allow you to diminish or be exempted from paying a CGT. In general, while land and commercial buildings are not subject to tax exemptions, the primary residence is. The government allows to exempt up to 700,000UDIs per person (about $4,500,000pesos) every 3 years. The UDI value fluctuates and you can consult the current value of UDI on the website of Banco de Mexico. The tax exemption can be used only if: the property is your primary residence; you have not sold another home (where you used the tax exemption) in the last 3 years; you have a temporary or permanent visa (in case of foreigners); your CFE bill (or another qualifying bill) is registered to your name and it has your RFC registered on it; your RFC is registered to another address than the property you are selling (foreigners). You can also use qualifying deductible costs to lower your CGT.
We recommend using a tax accountant to estimate your capital gains tax obligations. The cost of the fiscal calculation is between 700 and 900pesos and it will be delivered to you in an excel format, which can be modified in case that the sales price or other factors contemplated in the fiscal calculation vary when you receive an offer/sell the property. In order to be able to conduct the calculation, the accountant will need copies of the following documents: the property title, IDs of the sellers, Mexican visas of the sellers (if foreigners), property’s electric bill, property tax statement, and the estimated sales price of the property.
Yes. Actually, it makes sense not to include furniture in the public deed as if it was included, it would generate a 16% VAT tax due to being a commercial sale. It is recommended that the parties agree in a private sales contract if the furniture is included or not in the sales price.
Any upgrades done to the fixed elements of the property and/or any amplification of the existing construction are considered to be deductible costs, for example: new kitchen, bathroom remodels, roof replacement, construction of an additional floor, new windows, construction of a swimming pool in your backyard etc Furniture, decorations and routine maintenance of the property are not deductible.
Other costs that are considered to be deductible expenses are: sales commission and consulting fees, notary legal fees, public registry fees, original acquisition cost (brought to a present value), and the cost of an appraisal. The owner must have qualifying invoices that include the VAT for the expenses incurred in order to be able to use these costs as deductions.
FINANCING AND MORTGAGES
The financing and the closing date are normally discussed during the offer making process. If the seller is OK with a deferred closing, then it can be agreed to through a private contract between the parties.
Seller financing is not uncommon in Mexico and it is done through a so-called “reconocimiento de aduedo”, which is basically a lien placed on the deed of the property that is being sold. Attention: if you bought your property through a fideicomiso, you need to consult with your fideicomiso bank if it allows placing a lien on the property administered by them.
Our office handles 100% of the supervision of the closing process. We administer the process to assure that it goes to schedule and in case of a fiscal strategy we assure that all parties follow the strategy in order to create the desired tax benefit. The parties that are typically involved in a closing process, in addition to the buyer and the seller, are: a notary, a fideicomiso bank (in case the property is in a fideicomiso), a mortgage bank (in case the buyer is using a loan to purchase the property), a fiscal advisor (in case that the seller is using a tax strategy), and legal representatives (in case that the buyer and/or the seller decide to appoint one).
Yes, it is recommended that you change the utility bills to your name; however, it is not mandatory to change them ASAP in case it does not fit your schedule. You need to go to each of the utility companies in person and take required documentation with you in order to be able to process the change of name on the bills. There are two types of utilities in Mexico: those linked to the property and those linked to the owner/resident of the property. Water and electric are linked to the property, while utilities such as Telmex and Megacable are linked to a person. If you do not wish to continue with the utilities linked to the owner/ resident, you should request that they were cancelled prior to the closing. Invest Mazatlan offers a reasonably priced service of helping new owners process the required changes to the utility bills and set up new utilities for their property
It is a guarantee deposit towards a purchase (or a rental) of a property.
We typically give the sellers 3 working days to respond to an offer, however, it is common to see 3 to 7 working days as the offer consideration period granted by the buyer/buyer’s agent.
The notary will charge the buyer approx. 5-7% of the sales price registered on the deed. The costs consist of taxes such as 2.2% acquisition tax, notary legal fees, the cost of the appraisal, Public Registry recording fees, and others. In addition to the closing costs charged by the notary, foreigners have to pay a fee for establishing a new fideicomiso or taking over an existing one. The fideicomiso costs are quoted and charged by the fideicomiso bank. As far as the seller is concerned, he/she will pay the capital gains tax (if applicable), fideicomiso cancellation or transfer fee (if applicable) and a fiscal calculation fee of about 1000pesos charged by the notary.
For transactions between Mexican citizens, it can take as little as a few days to close a sale. When the buyer and/or the seller is a foreigner, the closing process will take on average 4 to 6 weeks counting from the time that all the required documentation is delivered to the notary’s office (including all Powers of Attorney).
The clock starts ticking when all the documents, including the powers of attorney and the receipts of fideicomiso fees (if applicable) are delivered to the notary’s office.
n case of a sale where the property is owned through a fideicomiso, the letter of instruction is a document prepared by the notary and signed by the seller instructing the bank to cancel or transfer an existing fideicomiso. In case that the buyer has to open a new fideicomiso for the purpose of buying a property, there is no need to sign a letter of instruction as the process is done through signing formats provided by the fideicomiso bank.
In case of foreigners who own the property through a fideicomiso – no. In case of Mexicans, Sinaloa law that states that regardless of the way that a couple is married (with or without a prenap), if one spouse is on the deed and the other is not, forcefully both spouses have to co-sign the deed. If the spouse, who is not on the deed refuses to sign, the spouse who is on the deed has to obtain a court permit allowing him/her to sell the property without the authorization of the other spouse. The spouse can sign through a legal representative if it is more convenient.
If the parents put the property to their child’s name, the property will not be able to be sold until the child reaches the adult age, and once that happens the child will be able to sell the property to the third parties only (not to his/her own immediate family). In order to sell the property before reaching the adult age, the court will need to assign a guardian to represent the child as the legal representative. Under no circumstances, the child will be able to sell or donate the property to the parents or siblings.
The bottom line refers to the least amount of money that the seller is willing to accept as an offer. In most of the cases, the sellers don’t like to share this information as they want the agent to negotiate the highest price possible with the buyer.
Is the real estate commission negotiable?
Our sales commission is set at a very reasonable level as we always look to make a win-win arrangement with our clients. It is worth noting that our commission is lower comparing with various other agencies in town. We also offer incentives to the sellers and always make the best out of every listing that we take on making sure that we assign sufficient marketing budget and resources to promote and sell the property within a quick timeframe.
The listing period is 12 months. We are one of few agencies in town that give the seller an option of cancelling the listing agreement when the initial 6 months of the listing period elapse.
How much below the asking price can I offer without insulting the seller?
There is no rule of thumb as everything depends on the seller’s motivation to sell, however, it is commonly seen that offers within 5 to 10% below the asking price tend to be well-accepted by the sellers.
If you are looking for bilingual staff and good exchange rate, we recommend Intercam Banco, particularly if you plan to receive wire transfers and/or checks in US or Canadian dollars. Intercam also offers regular banking services with a good level of service.
If you have foreign cash that you would like to exchange, we recommend Banregio or CI Banco. You will need a copy of your passport in order to be able to exchange money over the counter. Each of these banks has a set maximum amount of USD/CAD to exchange to pesos per month.
If you are looking for a bank with many ATMs Mexico-wide, Bancomer may be a good option for you.
You will receive an automatic 10% discount by paying your taxes before the end of February. However, if you buy a property for residential use and take your deed to the City Council in order to register the property as your primary residence, you will be eligible for an additional 50% tax reduction. Please note you can own only one primary residence that is subject to 50% off of taxes.
f you wish to rent your property in order to generate income or you do not live in Mazatlan fulltime, we recommend using a property manager. They will make sure your property is well-maintained, your utilities are paid, and your renters well attended. We recommend Mazatlan Rentals http://mazatlan-rentals.com/index.htm as a trusted property manager.
Tap water is not suitable for drinking unless you install a UV and/or reversed osmosis water purification system that treats your water and makes it perfectly safe to drink.
FIDEICOMISO & MEXICAN VISA
Fideicomiso is a bank trust that is used by foreigners to acquire properties along the Mexican beaches as well as along the national borders. The trust is administered by a Mexican bank and it must have at least one main beneficiary and at least one substitute beneficiary. The trust is established for 50 years and can be cancelled and/or transferred to another person prior to the end of the term of the trust.
Every bank has a different fee structure. Bancomer is one of the most commonly used fideicomiso/trust banks. To transfer an existing fideicomiso at Bancomer, the seller needs to pay $406 usd, while the buyer needs to pay $1228 usd (including the first annual fideicomiso fee). In order to cancel a Bancomer fideicomiso, the seller has to pay $706 usd. Bancomer does not open new fideicomisos anymore, however, if we use Intercam Banco as a reference, it costs about $1900 usd including the first annual fideicomiso fee to open a new trust.
As the first step, you will need to go to the closest Mexican consulate in your area to begin the process of getting your temporary visa. The second step will be to travel to Mazatlan in order to finalize the visa issuance process. The first temporary visa will be issued for one year and after this initial period expires, you will have an option of extending the visa for a longer period of time.
If you are in Mexico, the notary will prepare and certify the Power of Attorney for you. You will need to provide the notary with your legal representative’s full name as per his/her official ID. The legal representative does not need to accompany you at the notary’s office; however, in order to be able to sign on your behalf going forward, the legal representative will have to bring his/her ID and a proof of address (for instance an electric bill).
If you are a US citizen who wishes to obtain a Power of Attorney while being in the US, you will need a Mexican notary to prepare the text of the Power of Attorney. As the first step, you will need to go with the Power of Attorney to a notary in your area so that the notary can certify your signature. As the second step, you will need to send or submit in person (depending on the rules of the state you live in) the certified Power of Attorney in order to obtain a so-called Apostil stamp on it.
If you are a Canadian citizen, you will need a Mexican notary to prepare the text of the Power of Attorney, and subsequently you will need to process it through a Mexican Consulate that services your area.