ISR Article (Tax on Sale of Home)

[Ajijic]

http://eleconomista.com.mx/finanzas-personales/2012/08/12/quiere-vender-su-casa-exente-isr

[snowyco]

This article is written for Mexican citizens. It can be a big mistake to read it, and think that it applies to typical (foreign) readers on Chapala.com.

The key issues are explained in an English language general discussion of Mexican tax law and selling Mexican property at Capital Gains Taxes on Mexican Properties . This detailed article describes some of the realities and requirements of how difficult it can be for foreigners to qualify for the homeowner's exemption from paying taxes on the gains from selling a residential home.

The simplest hurdle: You first must have the full approval of the Notario who handles the sale, where they personally financially indemnify you for claiming the exemption. Since the Notario is fiscally responsible to personally pay those taxes (if Hacienda overrules their personal choice in the future), many Notarios only approve the exemption for Mexican citizens or for foreigners who have a valid application for naturalized citizenship pending with SRE.

Do any of us know who the Notario will be when we sell our home in the future, since the Buyer typically picks the Notario. If you have a Fideicomiso, then the Bank picks the Notario, and Bank Notarios are notorious for not approving foreigners of any stripe for the homeowners exemption.

Further, you must prove that the home has been your continuous principal residence and home for the past 5 years, and that this home has been the "principal place of fiscal activities" for the applicant for the previous 5 years. If you traveled back out of US for over 6 aggregate months in the previous 5 years, then the Notario will likely not approve you. If you are having your pension or SSI checks delivered to US or Canadian address (a residence other than the specific Mexican address you claim as your principal center of fiscal activity), then they can use that as justification to shoot down the homeowner's exemption claim.

You can however reduce your tax liabilities substantially, by taking a number of allowed deductions and reductions, to get your tax owed down to $zero, if you do a little planning, as described in the Capital Gains Taxes on Mexican Properties article.

Mexican tax law is surprisingly dense, and actual tax advice should be solicited only from qualified trained professionals. Things are further complicated by the common instance that Notarios do not have training in the current tax law since February 2010, and many Notarios rely on their out of date knowledge from before 2010.

Hire a qualified attorney specializing in taxes or a qualified accountant specializing in taxes.

Generic superficial articles written for Mexican citizens are not good substitutes for being prepared.

[Joco]

Many of us are Mexican citizens. Are those of us who are citizens allowed to read it?

[Orygun Duck]

Puleeese. Snowyco said the information applied to "Mexican citizens." Perhaps he failed to acknowledge there are Mexican citizens among the readers of chapala.com.. Let's be a bit generous. The summary and references provided by Snowyco are excellent and among the most lucid and useful I've seen posted on this board. Thanks, Snowyco.

[Ajijic]

His posts can be read on Yucalandia.

Now lets think that some of us have a Mexican spouse and property may even be in the name of a Mexican.

Now think of this scenario.... you buy a house from a Mexican who did not live in the house but had it for two years. House was under reported at approx 1,000,000. You are buying the house for 3,000,000 pesos. The tax on the gain is 30%. Yes there are some small variables but that is exactly what our seller is experiencing this week. Always good to have an idea of what is happening.

Or say you are Mexican as is Joco and you are selling. Information is always good.

[carib]

I recently sold my house and paid no Impuesto sobre la Renta (capital gain). The buyer's notario followed the rules mention in the article. I have a Residente Temporal but with all the documents proving ownership for 8 years and no lapses in my visa, I was able to save a lot of money. The buyer is a mexican and his notario is from Guadalajara. The receipts has to have the physical address of the property and so do the bank statements. No po box or Laredo forwarding address.

We moved to Georgia and found a wonderful house here.

[jkgourmet]

why did you move, may I ask?