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US Tax on home sale


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11 hours ago, tomgates said:

There is a difference between INCOME and sales of houses. In the US, the sale of a home is reported on a 1099-S. Sale of a home in Mexico does not result in a 1099-S. Nothing is reported to the IRS. You could be opening up a can of worms by reporting a sale transaction for which there is nothing reported on the IRS's end. If you have lived in the house a minimum of 2 years and have a profit of up to $500,000us for a married couple or half of that for a single person, you would owe no tax in the US, so your conscious would be clear.

Following the law does not open a can of worms. Violating the law can do a lot more than open a can of worms. Ask anyone who has been audited.

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Is there a record of what you paid for the house and what you sold it for?  I ask because property sales are recorded in pesos not USD.   With a volatile peso to usd relation it seems you could be ok in usd but face a gain in the peso.  If that’s the case it seems you would really need the us tax attorney and a mxn tax attorney as well.   Interesting subject to me.

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One may have a much bigger problem with the Mexican capital gain tax on a sale here due to the fact one may have bought in much higher valued pesos than one is selling at.  For example, 14 years ago we bought at an exchange rate just over 10 pesos per dollar, and now the rate is over 20.  Hence, the peso equivalent even if we sold at the exact same price we bought at will be double that at the time of purchase.

That could incur a pretty large "gain" tax on a more expensive property even though there was no gain at all in the currency basis on which the property was purchased.  

It seems to me that as far as the IRS goes, having a gain in dollar terms of a half million bucks on a property here is probably going to be a pretty rare thing.  I would expect for almost everyone who sells here there would be no U.S. tax problem.  However you are required to report the sale and basis.

 

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Visit with a Notario long before you plan on selling to learn all the steps you need to take to either avoid or minimize your Capital Gain in Mexico. We had to switch some utilities to be in my wife's name otherwise she would not be exempt. Don't count on a Realtor to guide you through this. They don't get paid for it and thus may not have your best interest in mind. Been there, done that and paid 0 Capital Gain.

Edit: Adding that I believe the utility switch to my wife's name had to have been done at least 90 days before the sale, so 3 statements, yeah, hard copies, what else in Mexico.  Make sure you have all your legal documents, both people, when you go to switch. Much more complicated than when we set them up. "Why are you asking us to switch?"

 

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We had our RFC numbers added to CFE account. That and the fact that we hadn't sold a house in the past 2 or 5 years (I forget), were in possession of our Resident Permanent, we had no capital gains tax on our sale in 2020. MC's comments were accurate in that we bought the house in 2005 when the exchange rate was 10:1 and sold when it was 23:1. The gain in US dollars was $120,000 less immprovements but in MX pesos, it was $598,000. Doesn't seem financially accurate in my opinion!

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Not much you can do about the exchange rate.

You could look at your home purchase and profit in a different way. That's 15 years that you didn't pay rent at approximately an average of $1,000 U.S. dollars a month... 15 years x 12 months x $1,000 U.S. is $180,000 U.S. dollars saved (in addition to the $120,000 U.S. gain on the price).

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