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Tax Allowance Exemption when selling your home in Mexico

A one-time tax allowance exemption is available under Article 92, Fraction XIX a) of Mexican income tax law that reduces the tax liability for many family homes, although you and the property must meet certain criteria to qualify for the exemption:

  • You must be a legal resident in Mexico with a Mexican tax ID (known as a RFC, or Registro Federal de Contribuyentes)
  • The property you’re selling must be your primary residence.
  • You can only claim this exemption once every three years.

The flat-rate exemption is the peso equivalent of 700,000 UDIs; the value of UDIs fluctuates and you can get current UDI exchanges rates on the Bank of Mexico website. At the time of writing, 700,000 UDIs equates to approximately $4.9 million Mexican pesos, and you can deduct this amount from the sale price if you qualify.

If the same home is properly co-titled with your spouse or other family member and they are resident in Mexico with a Mexican tax ID, and the house is their primary residence, you can deduct an additional 700,000 UDIs in their name.

NOTE: the tax-deductible allowance is not automatic: you must qualify, and you must prove the qualification. Talk to your Notary Public or Closing Coordinator about how to arrange this and what you need to do to present the necessary records for proof.


Selling your Mexican home as a Non-Resident

If you are not a resident in Mexico and/or you don’t have a Mexican tax ID, you cannot claim the one-off allowance exemption explained above, although you can claim qualifying deductions, so long as you have the official receipts (facturas) to prove the expenditures which can be deducted.


Allowable Tax Deductions

The costs of any capital improvements (e.g. building extensions, new flooring, swimming pools, new rooms) while you owned the property, You need official tax receipts —in Mexico, these are known as ‘facturas’. Any capital improvements, including general maintenance and home improvements made using a firm or builders who didn’t issue you with facturas for the work cannot be deducted.

Some closing costs and transfer taxes commonly incurred when purchasing a residential property are deductible. The cost of the real estate agency fee upon exhibit of the validated factura is 100% deductible against the capital gains tax. Often, this deduction is the only valid deduction that most sellers have available to them and quite often means the difference between paying the capital gains tax or not.


The Currency Exchange Rate effect on Capital Gains

In most locations across Mexico, prices are quoted in Mexican pesos. However, a few places and such as Baja California Sur home prices are often seen quoted in USD. Even though the transaction may be quoted in dollars, the deed will show the amount in Mexican pesos at the exchange rate published by the Bank of Mexico at the Official Federation Gazette, prevalent on the date of the closing. Any capital gains are calculated only in Mexican pesos and therefore, shifts in the exchange rate can affect – and create - a capital gain calculation as expressed in a foreign currency. Thus foreign exchange rates can influence capital gains calculations on property in Mexico, because your tax liabilities when you come to sell are calculated in pesos, not dollars.


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