5 June 2008 77 views No Comment

There is no question that Mexico real estate presents many opportunities for significant investment gains, but significant loses can occur if you do not fully understand Mexico’s real estate law. While there are several similarities with US practices, assume nothing or you will risk everything. Here are some of the most important differences-

Cost of Real Estate Trusts

Unless you are buying land 50 km inland, you will have to pay to have a fideicomiso, or bank trust set up to hold your property for you. You can not officially own land 50 km from the ocean or 100 km from international borders, but if the bank holds your property in trust, it would be just as if you own it (since you can inhabit, lease, improve, bequeath, or sell). The cost to set up a fideicomiso varies, but is approximately $500 plus a percentage of your property value. You will also have to pay an annual maintenance fee.

Capital Gains Taxes

Mexico considers capital gains as normal income at a tax rate of up to 35%. The capital gain is the official selling price minus commissions, seller closing costs, original land cost, depreciated construction cost, and improvement expenses. US citizens who pay capital gains taxes in Mexico can generally subtract this from taxes they owe in the US (always consult a professional accountant for advice for your situation). The loop hole is that you do not have to pay capital gain tax in Mexico if you can provide conclusive evidence that the property was your primary residence for the past two years.

Requirement of a Notario Publico

In order to complete a transaction you are required to acquire a Mexican government attorney known as a notario publico. The notario publico provides several important roles:

-Examining documents for accuracy.

-Conducting a search of public records to determine status of seller’s title.

-Authorizing the signatures on the deed (escritura).

-Collecting all applicable property taxes, capital gains taxes and government transfer taxes.

It is also recommended that you acquire US title insurance, since the notario’s title search is not guaranteed to be 100% accurate and they are not liable unless neglect or misrepresentation can be proven in court.

To be continued…

Source: Cashing in on a Second Home in Mexico by Tom Kelly and Mitch Creekmore