CLOSING AND TAXES COSTS OF SELLING PROPERTY IN MEXICO

By Dolores Pérez Islas

Closing a real estate transaction can be complicated, reason why it’s important to get help from a professional closing service to complete it, and make sure the process goes as smoothly as possible. Anybody going through the process of purchasing their Mexican property should calculate all of the expenses in order to assure they present an offer that will be feasible.

Closing costs and fees

Closing costs must be considered in addition to the down payment to determine the total funds required to close. The closing costs in Mexico are slightly higher than in the United States and Canada, but the yearly property taxes in Mexico are relatively low. Closing costs in Mexico mostly range between 6% and 8% of the purchase price (although they depend of many factors, some of which will be enunciated in the following paragraph). These fees may seem high but, in the long run, they add up to less money when considering property taxes. In Mexico, unlike the U.S., most fees are charged upfront and property taxes are relatively low.

Many things can affect the closing costs: the location of the property (e. g., it’s not the same to purchase a property in a historic city than by a beach location), the citizenship of the buyer, the bank used to set up the trust, the character of the trust (if the trust is being transferred or a new trust is being set up), or which notary is being used. It is important to use a professional closing company and to be guided and advised in negotiating by a trained real estate agent.

Normally, the buyer pays the closing costs and the seller pays the capital gains tax and sales commissions. Certain fees are paid prior to closing for services provided by third parties (such as the appraisal, notary deposit, trust permit, trust set up fee). It is important to get a good faith estimate up front from the closing company and to have a real estate agent review it.

The following is a list of some closing items:

  • Public Registry Rights: The permit can be processed through the notary, and is based on the sales price of the property. Once the corresponding rights are paid, the notary can process the registration in the Public Property Registry of the town where the property is located. The costs vary per state.
  • Property Acquisition Tax: This is a State Tax. The notary is responsible for charging and declaring it without surcharges. It is around 2%, based on the highest value of the previously authorized construction appraisal. In order to calculate this tax, a special procedure must be applied, and the real closing costs must be determined by a notary.
  • Certificate of no liens on property tax or water/maintenance fees: The notary must check that the subject property has no liens. The notary will gather the certificates from the corresponding Government offices. This charge is normally not more than $100 dollars.
  • Title Search
  • Bank Trust (fideicomiso) Fees: These are charged on a yearly basis and are paid upfront. They may vary according to the transaction, the property and the trustee bank; most of them charge around $600 for properties priced under $700,000. For properties priced over that, the fees will increase accordingly. All the trustee banks collect the following:
    • Trust Acceptance Fee – This is a one-time initial fee to set up the Trust. It varies for each bank, and a 16% VAT rate is levied on it.
    • Trust First-Year Fee – Yearly fee charged by the bank to maintain the trust. This is paid in advance, so the trust’s first year must be paid at closing.
    • Trust cancellation fee – If the property being sold is held in a Bank Trust, then it would be necessary to budget for a ‘trust cancellation fee’ levied by the bank. The amount varies, but around US$1,000 are usually enough to cover this.
  • Professional fees (Notary and Attorney): The role of the notary public in Mexico is enormously important in property transactions. A Mexican notary public is a legal professional with very important statutory roles.   The fees for the notary public are paid for by the buyer.  Some buyers also choose to hire a lawyer, which can add several thousand US dollars to their total fees, but this is not necessary for most transactions.

The notary fees are regulated by a list authorized by the Notary Law valid in every State. The fees can be for a lesser amount but never for an amount over this list. Sample fee list is as follows:

  • From $1,600 up to $6,492 = 2.75%
  • From $6,493 up to $16,230 = 2.00%
  • From $16,231 up to $32,462 = 1.50%
  • From $32,463 up to $162,311= 0.95%
  • from $162,312 up to $324,622 = 0.55%
  • From $324,623 and over = 0.35%
  • Appraisal by Authorized Valuator: This is used exclusively for tax purposes.
  • Property survey: This is a sketch showing the property boundaries and physical features, like federal zone, roadways, easements, etc., as well as some topographical information.
  • Permit from the Ministry of Foreign Affairs (SRE): This is a permit processed by the notary or the Trustee Bank through the closing agent and it may cost around $1,100 USD.
  • National Registry of Foreign Investment: The Trustee Bank has the obligation to register the Deed within a 30-day period after the granting. The costs vary depending on the Bank and the fee will range from $350 up to $800 Dollars.
  • Title Insurance: This varies according to the value of the transaction and the insurance company, but it should not exceed 0.5% – 0.7% of the price of the property.
  • Escrow Account: Recommended for managing the funds for the purchase of a property. It’s normally set up by a closing agent when depositing earnest money. Funds for the real estate purchase are deposited into the escrow account prior to closing, and then disbursed in the moment of closing, based on specific, previously-prepared disbursement instructions. The fee is $550-$750, depending on the sales price and title company that is used.
  • Selling fees: Although it’s possible to sell a property without the services of a local realty agent, a good realty agent provides a marketing service, a conduit between the negotiating parties, as well as paperwork management.  Realty agents in Mexico typically charge between 5% and 8% of the sale price in commission, on which a 16% VAT rate is levied.

Taxes

Taxation on residential property sales is a complex area of Mexican tax law and every case will be slightly different depending on the circumstances.  In addition, tax laws are subject to reform and, since house purchases tend to be long-term investments, tax laws which apply today when purchasing a property might apply entirely, partially, or not at all when said property is being sold.

Taxes due on the sale of residential property are calculated by the Notary Public, who also withholds these amounts for direct transfer to the Mexican Treasury.  The tax law makes each Notary Public fully liable for taxes due, so they will ensure that the rules have been followed and certify that sellers qualify for any exemptions and deductions they are claiming for tax relief.

It is important to know the conditions where foreigners are considered as taxable residents, which are, according to the Mexican tax code, as follows:

  • Establishing a place of residence in Mexico.
  • Having Mexico as the center of vital interests (or deriving more than 50 percent of total income from Mexican sources), and carrying out primary professional activities in Mexico.

Non-residents are obligated to pay Mexican taxes if they own property located in Mexico.

Capital gains tax

Mexico applies a capital gains tax on residential property of 25% on the gross sales value of the transaction without any deductions OR between 1.92% and 35% on the value of the gain (purchase costs less allowable exemptions and deductions). The percentage is calculated on a sliding scale in relation to the gain; it’s suggested to assume 35% as residential property sales with gains above $250,000 MXN (c. $13,000 US dollars) will be subject to this rate.

Generally, the profits from selling any property in Mexico are taxable, with the exception of gains from the sale of a resident taxpayer’s principal residence. When selling a property, it is the joint responsibility of the owner and the Public Notary (or the lawyer) to pay the capital gains tax to the Mexican government. Any capital gains are calculated only in Mexican pesos and therefore, shifts in the exchange rate can affect the capital gain calculation as expressed in a foreign currency. A tax attorney should be consulted to determine the lowest possible amount of taxes to pay.

Historically, a property’s appraised value listed on the deed is far below its actual resale value, in an effort to save on property taxes and transfer taxes at the time of purchase. This low listed value benefits the seller allowing them to avoid paying capital gains on the sale. The problem comes when selling the property, as the value is listed low, causing a large gap between the deed price and the sale price, resulting in a higher Capital Gains tax. It’s recommended to ensure that the value declared on the deed is equal to the transaction price. If the property has undergone a significant renovation, and the expenses exceed 20% of the purchase price, a new assessment will be required.

If selling a home that is not the permanent residence, there are other tax applications for selling a second home in Mexico. When selling vacation real estate, the capital gains tax rate is of 30%, calculated by the difference between the price on the current title of the property and the new sale price to be declared on the new title. There are restrictions regarding the price and gain from the property, which should be discussed with a Tax Attorney, as procedures may change.

Inherited property is exempt from capital gains tax. Donated property may be exempt under some conditions; to learn about them, a tax attorney should be consulted. Raw land is taxed differently than developed properties.

Taxes

Taxation on residential property sales is a complex area of Mexican tax law and every case will be slightly different depending on the circumstances.  In addition, tax laws are subject to reform and, since house purchases tend to be long-term investments, tax laws which apply today when purchasing a property might apply entirely, partially, or not at all when said property is being sold.

Taxes due on the sale of residential property are calculated by the Notary Public, who also withholds these amounts for direct transfer to the Mexican Treasury.  The tax law makes each Notary Public fully liable for taxes due, so they will ensure that the rules have been followed and certify that sellers qualify for any exemptions and deductions they are claiming for tax relief.

It is important to know the conditions where foreigners are considered as taxable residents, which are, according to the Mexican tax code, as follows:

  • Establishing a place of residence in Mexico.
  • Having Mexico as the center of vital interests (or deriving more than 50 percent of total income from Mexican sources), and carrying out primary professional activities in Mexico.

Non-residents are obligated to pay Mexican taxes if they own property located in Mexico.

Capital gains tax

Mexico applies a capital gains tax on residential property of 25% on the gross sales value of the transaction without any deductions OR between 1.92% and 35% on the value of the gain (purchase costs less allowable exemptions and deductions). The percentage is calculated on a sliding scale in relation to the gain; it’s suggested to assume 35% as residential property sales with gains above $250,000 MXN (c. $13,000 US dollars) will be subject to this rate.

Generally, the profits from selling any property in Mexico are taxable, with the exception of gains from the sale of a resident taxpayer’s principal residence. When selling a property, it is the joint responsibility of the owner and the Public Notary (or the lawyer) to pay the capital gains tax to the Mexican government. Any capital gains are calculated only in Mexican pesos and therefore, shifts in the exchange rate can affect the capital gain calculation as expressed in a foreign currency. A tax attorney should be consulted to determine the lowest possible amount of taxes to pay.

Historically, a property’s appraised value listed on the deed is far below its actual resale value, in an effort to save on property taxes and transfer taxes at the time of purchase. This low listed value benefits the seller allowing them to avoid paying capital gains on the sale. The problem comes when selling the property, as the value is listed low, causing a large gap between the deed price and the sale price, resulting in a higher Capital Gains tax. It’s recommended to ensure that the value declared on the deed is equal to the transaction price. If the property has undergone a significant renovation, and the expenses exceed 20% of the purchase price, a new assessment will be required.

If selling a home that is not the permanent residence, there are other tax applications for selling a second home in Mexico. When selling vacation real estate, the capital gains tax rate is of 30%, calculated by the difference between the price on the current title of the property and the new sale price to be declared on the new title. There are restrictions regarding the price and gain from the property, which should be discussed with a Tax Attorney, as procedures may change.

Inherited property is exempt from capital gains tax. Donated property may be exempt under some conditions; to learn about them, a tax attorney should be consulted. Raw land is taxed differently than developed properties.

DISCLAIMER: Articles presented on this website are provided for your convenience and do not constitute legal advice. Information provided on this website may not be applicable for all situations, and you must not act without any specific legal advice, based on particular situations. Previous results do not guarantee a similar result.

8 Reviews

  1. Marietta
    August 02, 2022

    Greetings from Colorado! I’m bored at work so I decided to check out your blog
    on my iphone during lunch break. I really like the info you present
    here and can’t wait to take a look when I get home. I’m shocked at how quick your blog loaded on my cell phone ..
    I’m not even using WIFI, just 3G .. Anyhow, very good blog!

  2. Craig Smith
    July 06, 2022

    I am selling a time share where do I send the capital gains too

  3. xmc.pl
    June 09, 2022

    Z szacunkiem i podziwem ślędzę twego bloga, uważnie czytam wszystkie posty, to jest dobra i właściwa droga budować dydaktyczne “mosty”.

  4. xmc.pl
    June 07, 2022

    Służysz społeczności blogowej, pięknie składasz frazy. przyjmij najszczersze wdzięczności moich wyrazy 🙂

  5. Michael McCarthy
    May 09, 2022

    Thank you for the the excellent explanation. We’re trying to sell/transfer ownership our vacation membership to a Mexico-based travel company. The Mexican tax authority requires us to pay the capital gain (which we are not in a position to do so); however, the buyer wants to cover that cost (but the Mexican tax authority requires us – as the beneficiaries – to make the payment). Is there a reasonable solution or workaround here to make it happen?

    • IT
      May 10, 2022

      We understand the situation and clear that we will give you the best solution or advice of the case if you like to communicate with our legal area of SILMEXICO We can verify the problem 9512266240 Lic. Adrian.

  6. Valentina
    March 10, 2022

    Where is title registry agency located in Huatulco Mexico?

  7. john garrity
    January 26, 2022

    thats one of the best comprehensive explanations of Mexican Tax law I’ve read on the internet. Gracias!

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