Getting the Shaft on REAL ESTATE in MEXICO

It is also a different ballgame if the property was rented out.

Sideways wrote:Friends went throught this recently. They owned 6+ years here. But also owned a home in the US. They were made to pay capital gains because of that, or at least that's what they understood. If they had not owned a home in US, they would have been exempted from capital gains. Even though they spent 8 months a year in Ajijic, they were toldprove that Mexico was their primary Fiscal residence (term used by Notario and realtor), that they should have filed Mexican tax returns even if no tax was due. They are retirees with US pensions/investments, but the Notario said without Mexican tax returns he had to assess capital gains. It was significant due to low-ball on original deed when that was being done.

Let me see if I understand this reply correctly. Because these people owned a home in the US, they were told they were not exempted from capital gains.
So...here's what I am wondering, first, how does the Mexican government know what they own in the US?
Why does Mexican tax return have to filed? Is that because of the residency status?
I thought you were exempt from capital gains because of having a residency status.

Hoping Spencer will comment on this... Last time I asked him, he said no problem if you have permanente. I have also heard that it depends on the notario. Some are more strict than others.

Pete

Fastfox wrote:

Sideways wrote:Friends went throught this recently.  They owned 6+ years here.  But also owned a home in the US.  They were made to pay capital gains because of that, or at least that's what they understood.  If they had not owned a home in US, they would have been exempted from capital gains.  Even though they spent 8 months a year in Ajijic, they were toldprove that Mexico was their primary Fiscal residence (term used by Notario and realtor), that they should have filed Mexican tax returns even if no tax was due.  They are retirees with US pensions/investments, but the Notario said without Mexican tax returns he had to assess capital gains.  It was significant due to low-ball on original deed when that was being done.

Let me see if I understand this reply correctly.  Because these people owned a home in the US, they were told they were not exempted from capital gains.
So...here's what I am wondering, first, how does the Mexican government know what they own in the US?
Why does Mexican tax return have to filed?  Is that because of the residency status?
I thought you were exempt from capital gains because of having a residency status.

Maybe "recently" wasn't quite right....I remember now it was early to mid 2013, when all the Immigration stuff was changing. And yes, it was called Fiscal Residency.

Before settlement they had to file a paper with the Notary that they were given by their realtor that asked how long they owned their house here and whether they owned another house anywhere else (Mexico or another Country). My friends were honest in their answer (maybe to their dettriment). The Notario said if their Fiscal Residency was Mexico, they should have been filing tax returns with Hacienda (even if no tax was due). The couple and their real estate agent's broker discussed trying to file tax returns with Hacienda for those years but the wife was so anxious to move back to the US, they just paid the capital gains tax and left. They were afraid they'd lose the sale if they held up settlement as there were few buyers back then.

I know there have been a lot of changes in Immigration since early/mid 2013, so maybe what happened to them was due to the state of flux, or maybe the rules have changed or been reviewed. I have lost touch with them and cannot get more info about their case but they certainly paid the cap. gains tax on a house that that owned here 6 years, and that they lived in 8 months a year. Since this was in early/mid 2013, it's possible they had FM3 or FM2's and not the new RP or RT.

It is stuck in the law, if you have a home in another country then Mexico isnt necessarily your center of interests and the exemption doesnt automatically apply. There is no difference between RT and RP, most notaries look the other way and people say there only home is in Mexico and then sell and leave.

Nothing quite like having your whole financial life under a microscope by various governments.

So, should we all be getting RFCs and filling out tax returns in Mexico now?

Pete

Just to clarify  the Capital Gains issue.   As of right now I will not pay capital gains.   According to Norario # 2 the issue came up when I was trying to use a Notary NOB.   I have resolved for now and Deb will be handling the closing.  

When we purchased the home (closed Mar. 2006) We paid $250k, selling now$220k, We used listing price rather than selling price.

The problem is MX GOV uses peso @ time of purchase  and time of sale, to compute profit or loss.

CanuckBob wrote:And we aren't all Americans with the 16.5 to 1 dollar......

Seriously though I would check with Spencer on this one or with another Notario. Something doesn't sound right. Do you have a permanente visa Jim?

Yes Bob....Permanente Oct. 2013. CB, the only reason I posted this, other than shock......I felt like a deer in the headlights....... Honestly, no one has explained, nor have I asked my realtor to explain Capital Gains. I emailed documents to you please use discretion when shared.

CanuckBob wrote:Being that you are permanente and had the house for over 5 years, I didn't think there should be any capital gains unless something has once again changed.

It does need to be your residence too. Do they somehow know you haven't lived in it for a few years?

GEEZ Bob, the only thing that regularly changes in Mexico....other than underwear is Mexico Law.

SunshineyDay wrote:Jim did you get stuck with paying the "Finquito"? Buyer beware here.

SunshineyDay, For tax purposes at closing we paid based on listing not sell price.

For all the people that purposely listed a low ball vs. listed value cost.....GOOD FN LUCK. I have one question for the people that purchased their home in Mexico, why would you post a purchase price vs. asking.....WHY THE F@@K would you try to cheat on real estate taxes.......in Mexico......real estate taxes are cheaper than a case of beer. WTF....How ridiculous is this?

That is the way it used to be done until the law changed..It was done all over Mexico not just in Chapala.

Jim, with a tax improvement appraisal we may be able to raise your basis and chop off much of that 100,000 tax.

Intercasa wrote:Jim, with a tax improvement appraisal we may be able to raise your basis and chop off much of that 100,000 tax.  

Thank You Spencer talk soon, Jim.

I am totally confused, Jim. Are you or are you not going to have to pay capital gains tax? What does a notary NOB have to do with the sale of your house here? Geez, I sure am happy I rent!

By using a nortary NOB it tipped them off that Jim was living NOB hence they deemed his house here to be a "secondary residence" which is not eligible for the capital gains exemption.

Thanks CBob!
And, Jim is looking at his U.S. dollar loss while Mexico only cares about his Mexico peso profit.
Good news is his Notario caught it before Jim's NOB POA was presented and triggered off the whole capital gains issue.

All has been resolved. Jeremy and I are driving to Nogales today. The whole issue is total BS. Nice 2 hour drive each way......lunch in Mexico. My primary residence is Mexico purchased 9 years ago. INVESTED in a 2nd home 3 years ago.

See, all's well that ends well. Have a great lunch in Mexico!

GRACIAS......Deb made it to Lakeside yesterday.......lucky her.....she gets a break from Jim W.

And a great learning lesson for anyone else who has a secondary residence.

Yes. And remember that when asked about owning property in another country honesty may be the best policy but it is not the cheapest!

I'm still confused about the List price vs Sale price reference.  List price frequently has nothing to do with reality and I would think MX taxing authorities care only about the real $$/pesos that change hands.  In some parts of Calif. people are now paying 2-300K over asking, and believe me the Property tax/ Transfer tax/ Sales tax going forward is based on that Sales price not the Asking/ Appraised or Zillow number

Just returned from Nogales, Mx. It took approx. 4 hours to drive round trip, with POA in hand.........problem solved.

My thought is the poster meant to say "sales price" instead of listed price, as states above the actual sales price is what should be reflected on the deed. The new ground rules are meant to eliminate the old method of the Notary entering a low ball value to reduce the buyers taxes. Having purchased 2 houses I can attest that the price reflected on the deeds is the purchase price.