During buying property in Mexico, it is essential to realize what taxes and fees are a part of buying. These are incurred on your budget overall and are required for ensuring a sound and legal procedure for buying. In the succeeding section, we have an extended discussion of key real estate tax and associated fee that you have to be familiar with while performing a purchase of property in Mexico.
1. Acquisition Tax (Impuesto Sobre Adquisición de Inmuebles - ISAI)
The Acquisition Tax is a one-time fee that the buyers are required to pay when purchasing a property. It varies by state but typically ranges from 2% to 4.5% of the price on which the property is being acquired or its assessment value, whichever is higher. The tax is paid upon the transfer of the property and is paid through the notary public engaged in the transaction.
Example: Suppose you're acquiring a property which is valued at $200,000 USD from a state whose Acquisition Tax rate is 3%. You'll be required to pay $6,000 USD as the Acquisition Tax.
2. Value-Added Tax (Impuesto al Valor Agregado - IVA)
The Value-Added Tax (IVA) pertains mainly to the sale of commercial lots or new residential lots sold directly by developers. The default IVA rate is 16%. It's necessary to confirm with your developer or seller whether or not this tax is applicable to your purchase.
For resale properties, IVA normally does not apply to the sale of the property itself but may be charged on services related to the sale, such as notary and attorney fees.
3. Property Tax (Predial)
The moment you become a property owner in Mexico, you're going to be responsible for paying an annual property tax known as Predial. It varies with the value of the property and the municipality. However, it's very reasonable compared to other countries' property taxes, usually ranging from 0.1% to 0.3% of the value of the property annually.
Property taxes are usually paid at the local town hall, and early payment is usually discounted.
4. Capital Gains Tax (Impuesto Sobre la Renta - ISR)
If you do eventually sell your home in the future, you will potentially be paying Capital Gains Tax. This is paid on the profit gained from selling your home. How much tax needs to be paid can be 35% of the gain to non-residents, although it may be worth less or sometimes even nothing because of exceptions and allowances that apply, such as if the property was your only home or when you have been owning it for a certain number of years.
Deductions may also be claimed on some expenses, like renovations to the property or fees paid on acquiring.
5. Notary Fees
While not considered a tax, notary fees are an integral part of Mexico's real estate transaction process. A notario is a governmental official who deals with property deals, ensures payments of taxes are made, and registers the property in the nearby Public Registry. Notary fees are usually from 1% to 2% of the property value.
6. Registration Fees
After you purchase it, you will need to register the property at the Public Registry of Property in your area. The registration fee is normally a percentage of the property value and is paid to make your ownership legitimate.
Conclusion
It is necessary to know the taxes and fees to be paid for purchasing real estate in Mexico so that you can prepare your finances and make a hassle-free transition. Even though the taxes seem complex, with the help of a professional real estate agent and a trustworthy notary, you can easily go through the process. Further, making preparations for these costs beforehand will help you make an informed decision and avoid any financial surprises.
Regardless of whether you are buying a vacation home, an investment property, or a new home, being aware of the tax implications will set you up for success in your Mexican real estate venture.
