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Capital gains tax calculations are normally calculated by Notary Publics here in San Miguel de Allende and in Mexico generally. The calculations are complicated as they not only consider the price the property was bought and sold for but also, improvement costs paid, whether you have receipts for the improvement payments, when the property was bought, what the peso to dollar exchange is and was on the date of the purchase, and other factors. While the SRE Permit you must obtain as a foreigner in order to purchase a property in San Miguel requires you to be treated like you are a Mexican citizen with respect to your ownership of the property, an expat will not be treated exactly the same as a Mexican citizen when they wish to obtain capital gains tax exemptions.


The capital gains tax exemption value changes from year to year but it can be worth upwards of approximately $200,000 USD (in pesos) for each name on the deed who qualify*. Note, the tax exemption does not apply to undeveloped land and lots regardless of your immigration status.


For Mexican nationals, qualifying for the exemption requires proof that they have been issued an RFC number by the Mexican Federal tax authorities. This number essentially verifies that the person is registered with the Mexican tax system (SAT); the Mexican equivalent to the IRS in the United States.


For expats however, qualifying for the capital gains exemption requires that they can prove all three of the following*.

  1. They hold either a temporary or permanent immigration status (including possession of temporary or permanent cards).

  2. They have been issued an RFC number by the Mexican Federal tax authorities.

  3. The property being sold is their primary residence.

An expat that cannot prove all three of these criteria will not be entitled to this ample tax exemption and will face a capital gains tax rate of more than 30%.


Obtaining RFC numbers has recently become more difficult and time consuming than in the past. It now requires an appointment be made at an SAT office and an in-person application. Obtaining both temporary or permanent immigration visas (and turning the visa into immigration cards) also is time consuming. So, some planning is needed before putting your house for sale if you want to claim the tax exemption. We can help you in these processes.


Under current Mexican law, this tax exemption can be utilized once every three years. You don’t have to wait three years to use the exemption the first time but once used, you must wait another three years to claim it again.


When we take our selling clients to determine what their capital tax liability will be, we ask the Notary to assume a range of hypothetical sales prices in advance so that the client has a clear idea of what their tax will be, or if they will be subject to a tax at all.


It is very important that you use an attorney or a professional agent to help you determine that you do meet the required criteria and determine what your capital gains tax will be before you list your property or have offers to purchase. Scrambling to lower or eliminate your tax after you are in contract to sell can create big problems that can easily be avoided.


*As of the date of this article this is the approximate manner that the exemption is calculated, and criteria required of expats. The tax exemption law changes regularly so you must check when you are thinking of selling to know exactly what the exemption can save you.

 

Jeff Kimmel is a lawyer and a member of the California bar since 1980. He became a partner of the Mexican law firm PORTILLA, RUY-DIAZ Y AGUILAR in 2017 (https://www.portilla.com.mx/attorneys). He is a licensed Mexican real estate broker in Guanajuato. He started KIMMEL REALTY GROUP in San Miguel de Allende in 2021 with the mission to help its clients take the risk out of buying real estate in Mexico (https://www.krgsanmiguel.com/).



© 2022 Jeff Kimmel DBA KIMMEL REALTY GROUP all rights reserved.

Use by others requires prior written permission.

Buying real estate in Mexico does not require any special immigration status if you are an expat. However, Mexico requires you to be treated exactly the same as any Mexican citizen if you do buy property here.


In San Miguel de Allende and anywhere in Mexico (excluding the Restricted Zones), you can buy real estate even if your immigration status is that of a tourist. Regardless of immigration your status however, all expats must obtain a permit issued by the Ministry of Foreign Affairs (SRE permit) before the property’s deed can be put in your name. When an offer is made and accepted applying for this permit is one of the first things that you will need to do. Your attorney or your agent can seek the permit for you, but the application will require your signature. Note that your application will be specific to the property you wish to buy and to the notary that will be handling the transaction so, you cannot request a generic permit. In addition, since Covid, the wait time to receive the permit has extended to 3 to 6 weeks as of the date of this article.


The SRE permit words are actually written into the deed. The reason for this is that you as a foreign buyer of property you must agree to treated be as if you were a Mexican citizen with respect to your ownership of the property. In doing this (again related only to your ownership of the property you are buying) you agree not to invoke the protection of your government (E.G. USA or Canada) with regard to the property and your ownership of the property. If you breach this agreement, you can lose your ownership rights to the property in favor of the Mexican government.


The Restricted Zone includes all land that is located within 100 kilometers of Mexico’s border with the USA, Guatemala, and Belize and within 50 kilometers of any Mexican ocean coast. In these zones, no foreigner can acquire direct title to land. They can however, purchase property in the Restricted Zone by establishing either a bank trust (FIDEICOMISO) or a Mexican Corporation.


Considering the requirements of the Restricted Zone land for foreigners, the SRE permit obligations are understandable to most expat buyers. Knowing all of this is part of what your attorney or representative should explain to you before you make any offers to purchase a property.

 

Jeff Kimmel is a lawyer and a member of the California bar since 1980. He became a partner of the Mexican law firm PORTILLA, RUY-DIAZ Y AGUILAR in 2017 (https://www.portilla.com.mx/attorneys). He is a licensed Mexican real estate broker in Guanajuato. He started KIMMEL REALTY GROUP in San Miguel de Allende in 2021 with the mission to help its clients take the risk out of buying real estate in Mexico (https://www.krgsanmiguel.com/).



© 2022 Jeff Kimmel DBA KIMMEL REALTY GROUP all rights reserved.

Use by others requires prior written permission.


Updated: Mar 23


View of the Parroquia from Ancha de San Antonio in front of Instituto Allende.
View of the Parroquia from Calle Aldama

So, you have discovered this most incredible town, San Miguel de Allende, and you have decided to buy a house and you are ready to start your search.


That is great, it has happened to many of us. However, do yourself a favor, take a deep breath, and think about where you are and what is entailed in buying property here.


Normally when you buy real estate in Mexico you do so by paying the full purchase price in cash at the closing. Not many expats have purchased property in this manner. The reason is because it is commonplace for banks to be in the middle of these transactions putting their money in the deal along with yours. It is the lender that protects its own interests by having the property’s title, the language of the deed and the contracts of sale thoroughly checked by lawyers it hires and charges those costs to the buyer in the form of closing costs. These are processes that the average real estate buyer takes for granted in the USA, Canada, and Europe


Take the lenders out of the equation (like is done here) and who protects the buyer’s interest in these critical areas? Who is making sure that the buyer and seller receive the benefit of their bargain? The answer is scary: no one.


In a large majority of real estate transactions in San Miguel, neither the seller nor the buyer is properly represented legally. Almost no real estate agents and brokers are lawyers and, even if they are lawyers, they are not acting as your attorney in the transaction. They are salespeople making their living on real estate commissions.


It is a widely held myth that Public Notaries in San Miguel (and nationally) are protecting the interests of the buyers and the sellers. The truth is, Public Notaries do not represent either the buyer or seller in real estate transactions. Public Notaries are special lawyers, with special additional legal education, that are appointed by the State government to represent the State making sure that certain projects (like real estate transactions) are handled uniformly and are properly recorded with the State’s public registry.


It is therefore incumbent upon buyers and sellers to protect themselves here in Mexico. So, before you start your property search seek brokers that have qualified attorneys on their team that will assure your interests are protected from beginning of the transaction to the end. Remember where you are, take a deep breath and make sure you are taking logical precautions because if you don’t protect yourself, no one else will.

 

Jeff Kimmel is a lawyer and a member of the California bar since 1980. He became a partner of the Mexican law firm PORTILLA, RUY-DIAZ Y AGUILAR in 2017. He started KIMMEL REALTY GROUP in SMA in 2021 with the mission to help its clients take the risk out of buying real estate in Mexico.


© 2021 Jeff Kimmel DBA KIMMEL REALTY GROUP all rights reserved.

Use by others requires prior written permission.


Things to consider when buying or selling  Real Estate in San Miguel