“Inmigrante [FM2]” interaction with capital gains

Here is an article I wrote for another person:

Immigration Papers Necessary to Avoid Capital Gains Tax in Mexico
Recent changes to interpretations have made it necessary for people to have an “inmigrante” immigration document, previously known as an “FM2” to be able to qualify for an exemption on paying taxes if there is a gain* on the sale of their home.
Changing from a “no inmigrante [FM3]” to an “inmigrante [FM2]” requires the following:
1) Proof of economic solvency, currently defined by showing bank statements for the last 3 months with:
a) Monthly deposits of 400 times the Mexico City minimum wage ($62.33 pesos) which is $24,932 pesos or $1,944US (at the exchange rate of $12.82 pesos per dollar as of 2/22/2012).
b) A balance equal to or exceeding 12 times the above, i.e.$299,184 pesos or $23,337US in a bank account.**
c) The law has a provision for an exemption of up to 50% of the income requirement if you own your residence and live in it.
d) Spouses and dependent children can be economic dependents of the primary person and therefore only need to show 50% of the income required. For example a husband and wife where only the husband has income or the bank statements are only in his name would have to show 150% of the income or $37,398 pesos or $2,917US per month or the minimum running balance of $448,776 pesos or $35,005US. The aforementioned still may be reduced by the 50% for home ownership.

2) Copy of a utility bill (electricity or phone). Copy of the bill for property tax payment if attempting to use the owner occupied income reduction option.

3) Current valid “no inmigrante [FM3]” immigration document. Please note if your “no inmigrante [FM3]” is expired or you are renewing late you may be required to renew your “no inmigrante [FM3]” prior to obtaining an “inmigrante [FM2].” Please check the reverse side of your “no inmigrante [FM3]” to see the expiration date under the heading “”Fecha de vencimiento” and remember Mexico uses a different date system where the day appears before the month so 10/03/2012 means you expire March 10, 2012.

4) Copy of current, valid passport.

5) Payment of fees (we charge $5,250 pesos total*** including all government fees)

6) New photos, 3 front and side.

7) Application filled out and request letter.

Important note about changes to the current immigration law in use:
A new immigration law was passed last year and is supposed to be implemented this year. There will be no more “no inmigrante [FM3]”, “inmigrante [FM2]” and “inmigrado” immigration statuses and instead the current “no inmigrante [FM3]”, “inmigrante [FM2]” will revert to the new status of “resident temporal” and those with the “inmigrado” status will revert to the new “residente permanente” status.
These changes have been rumored to be implemented this year but currently the regulations have not been created nor changes to companion laws such as the customs law for importing foreign vehicles.
One thing we do know for sure is that the notaries will require people to have the new “residente permanente” status to be able to qualify for an exemption on gains from the sale of their home. People may change to the new status at the time their “inmigrante [FM2]” comes up for renewal. As the regulations have not been created yet, it is hard to say what the requirements will be and any difference to the ones currently in place.

Two myths about the “inmigrante” immigration document, previously known as an “FM2”:
1) Under current law you (assuming retiree and not working papers) may import and drive a foreign plated vehicle. Many people have heard erroneously that “inmigrante” immigration document, previously known as an “FM2” holders may not drive or import a foreign plated car. This is untrue.
2) You may go directly from a tourist visa (FMM) to a “inmigrante” immigration document, previously known as an “FM2” without the need to first obtain a “no inmigrante” immigration document, previously known as an “FM3.”

*Please note that many times there is a “phantom gain” which may trigger a taxable event due to the old custom of placing a value on the deed of less than the transaction value and the current practice of placing the true transactional value, thereby in many cases creating a taxable gain even where the seller realizes no gain or even sells for a loss.
**By bank account any deposit account is accepted whether in the US, Canada or Mexico, among other countries. Please note they will accept checking accounts, savings accounts, investment accounts, retirement accounts and the like. Any account statements not in Spanish will need to be translated into Spanish.
***Economic dependents add $300 pesos to price.
My office does all the paperwork and tries to make all of the process less of a bureaucratic nightmare. You see us one to fill out the papers and then the next time to get your new “inmigrante [FM2]” card.

Lic. Spencer Richard McMullen
Attorney At Law (Mexico)
Jalisco State Court Approved Translator

Speaking of FM2s I have to renew mine in May,will I have the option of renewing for 2,3,4 years as was mentioned in an earlier post.Thanks
Chris

Yes and No. “Inmigrante” FM2 and “no inmigrante”FM3 will be merged into the "residente temporal"status and can renew for 1, 2, 3 or 4 years. The "resident permanente" appears to be a one time thing like the current inmigrado.

Thanks for your reply Intercasa,if I remember right paying 2,3,4 years in advance could result in some savings not to mention not having to do the paperwork and trips to the INM every year,will this be in effect by May?
Chris

those with the “inmigrado” status will revert to the new “residente permanente” status.

Does that mean that if you already have your Inmigrado card, that you must replace that card with the new card? I had hoped to never set foot in Immigration again.

I'm not sure for those with the current inmigrado card, should be the same as new residente permanente but until new procedure is in place, it can change.

Intercasa quote - "3) Current valid “no inmigrante [FM3]” immigration document. Please note if your “no inmigrante [FM3]” is expired or you are renewing late you may be required to renew your “no inmigrante [FM3]” prior to obtaining an “inmigrante [FM2].” Please check the reverse side of your “no inmigrante [FM3]” to see the expiration date under the heading “”Fecha de vencimiento” and remember Mexico uses a different date system where the day appears before the month so 10/03/2012 means you expire March 10, 2012."

If your current FM 3 has NOT expired, does this mean you can convert directly to FM 2? I thought FM 3 doesn't exist anymore, as it is now a combined document.

If you are selling your house wouldn't it make more sense to get the FM 2 for 4 years instead of the shorter time?

You can go directly from an FM3 to an FM2, even from a tourist card to an FM2. Even if you get an FM2 tomorrow, you'll have to change next year to the new classification.

As far as your 4 year question, the ability to pay for 1, 2, 3 and 4 years will be for the new "residente temporal" category only which will not give you a capital gains exemption, the "residente permanente" will and it is a one time deal (from what has been published so far).

Intercasa wrote:You can go directly from an FM3 to an FM2, even from a tourist card to an FM2. Even if you get an FM2 tomorrow, you'll have to change next year to the new classification.

As far as your 4 year question, the ability to pay for 1, 2, 3 and 4 years will be for the new "residente temporal" category only which will not give you a capital gains exemption, the "residente permanente" will and it is a one time deal (from what has been published so far).

I don't understand your last paragraph. When I go from an FM 3 in November to an FM 2, am I "residente temporal" or "residente permanente"? So what is residente permanente?

As far as I know now, no one is paying capital gains tax. Has this law even passed yet?

"And you said from what has been published so far", I thought these new rules were supposed to be finalized in January.

Mexico puts all these restrictions on foreigners and they shoot themselves in the foot wondering why no one wants to come here. They keep changing the rules on everything that just pizzes off everyone.

It's high time the US puts restrictions on Mexicans going to the US with ID cards, checking their bank statements and income requirements. Let's see how many will go then. And enforcing the border.

People with the current FM2/FM3 will revert automatically to the "residente temporal"status. One will need to apply and qualify for the "residente permanente." There are the regulations to the new law that need to be published plus other collateral laws such as the aduana vehicle to name one that need to be changed and manuals for administration, etc.

Until the new law is implemented they still use the "FM2" and "FM3"

Intercasa wrote:People with the current FM2/FM3 will revert automatically to the "residente temporal"status. One will need to apply and qualify for the "residente permanente." There are the regulations to the new law that need to be published plus other collateral laws such as the aduana vehicle to name one that need to be changed and manuals for administration, etc.

Until the new law is implemented they still use the "FM2" and "FM3"

What is "residente permanente"? So, if I sold my house tomorrow, I don't need an FM 2 to avoid capital gains, as the law is not in affect yet?

johninajijic wrote:

Intercasa wrote:People with the current FM2/FM3 will revert automatically to the "residente temporal"status. One will need to apply and qualify for the "residente permanente." There are the regulations to the new law that need to be published plus other collateral laws such as the aduana vehicle to name one that need to be changed and manuals for administration, etc.

Until the new law is implemented they still use the "FM2" and "FM3"

What is "residente permanente"? So, if I sold my house tomorrow, I don't need an FM 2 to avoid capital gains, as the law is not in affect yet?

John:

I´m not certain as to the precise nature of your inquiry but "residente Permanente" is the equivalent of today´s "inmigrado" status which is similar to the U.S. green card or what would be known in the U.S. as "resident alien". We hold that status today in Mexico after five years as visa holders under the old FM-3 and then five years as visa holders under the old FM-2. As of yet, I don´t know if we need to apply for "residente permanente" status from "inmigrado" status once the new rules are implemented although, if so, I don´t anticipate any problem with here hthat conversion at no cost or bureaucratic difficulty if required. In any event, one or both of us will soon apply for Mexican citizenship but regardless of the outcome of that, I am of the opinion that in all probabliity, the designated status of "permanent resident" will be sufficient to mitigate the issue of capital gains taxes. As it happens, we have two permanent residences in Mexico, one in Ajijic and another in San Cristóbal de Las Casas and neither residence has ever been rented to any third party for even a day nor was either residence purchased with the notion of income potential or speculative financial gain. What is not clear to us at this point is whether or not, if one is truly designated a "permanent resident" as are we, one can own two permanent residences with no ongoing pecuniary interests in either, one can escape capital gains taxes upon liquidation of either or both properties. It hardly matters in our case as we have no intention of selling either property but it is an interesting conundrum.

I know you are trying to sell your Ajijic property and wish you the best of luck in both selling it and avoiding capital gains taxes but it seems to me that, unquestionably, you are better off seeking premanent resident designation ASAP if you have that capacity within the short run. Right now, things seem to be up in the air so good luck. When you and we bought real estate here back at the turn of the century this seemed no big deal. Live and learn.

FM2 until the new law comes into effect and then at renewal swap it for residente permanente