1) Anything you do to improve or maintain your property is deductible from your eventual Capital Gains.
Some exceptions to the new law are, no architects or engineer fees are deductible. They were before. Why? Simply the
government changed the law and is glamming more money.
You still have to pay the IVA (16%) so you may as well get the OFFICIAL TAX RECEIPT, a factura anyway...it can be a deduction used in the United States.
Some attorney fees MAY be deductible, like closing costs, or Notario costs when acquiring the property are deductible...so that brings me to my subsection.
a) Just last year, the Mexican IRS changed the law and stated that unless you have a FACTURA for the closing costs and the acquisition tax, you cannot deduct the amount of the sales price or the closing costs when you sell. So, you bought the place for $420,000 and sell for $500,000...Guess what? Without those facturas, you pay capital gains on the entire amount of $500,000, and at 35%, that is a whopping amount.
b) So RIGHT NOW, write an Email to your sales agent. CC the closing company. Tell them you want the following:
i) A factura for the closing company's fees THIS MONTH.
ii) A factura for the Notarios fees THIS MONTH
iii) A factura from the Notario for the purchase of the property. It should list the property the amount you paid and will be for the amount of the 2% acquisition tax that you paid.
iv) A factura for the Appraisal you paid for IN YOUR NAME, if the closing agent does not include that in his factura to you
v) Copies of the costs you paid for for the certificate of No Liens and No Tax Debt. (2)
vi) A factura for any other service done like Home Inspection...IN YOUR NAME
vii) Any Bank fee where IVA was collected...You need those facturas too. It is part of your closing costs. Signing fees, establishing a trust, etc.
2) So how do you do that? Get a factura? Well, depends on your immigration status.
If you are a person who owns property here but come here with just a visa from the plane- a tourist.
They need to get facturas in the following manner:
Name of Property Owner or Owners
Address of the property as is in your title document, but including the Postal Zip Code
RFC Number (Registered Tax Number) for Foreigners who have NOT registered with SAT is
Plus you need your email address too.
If this is your case, type it up, print it and carry it in your wallet
If you have an IMMIGRATION STATUS:
What type? With a Permanent Resident Card, we can go to SAT and get you an official Tax ID number. That is your RFC. They will also give you an official tax
address. You will need your registered property title, a utility bill in your name, your immigration card, your passport. THEN you can get an appointment there
and get an official Tax ID. Which is MUCH better for getting Tax exemptions and deductions.
See an example of my personal RFC attached. You have already a CURP number, it is on the Immigration card itself.
3) Now what to get deductible facturas on: any permanent improvement or labor. You cannot deduct your maid. You cannot deduct CD and video tapes. You
cannot deduct a refri or pots and pans, but you can deduct the installation of a satellite system, paint, doors, screens, contractor costs...ONLY with facturas.
The Cabinet maker should give you one, the sound system guys should give you one, Home depot, hardware stores, etc.
Look it is the law that they charge you 16% IVA anyway, although many don't...IT's tax evasion and both you and they are in violation of the law. Get caught? The Mexican IRS can make a "guess", always in their favor how much you owe. and they send 5-6 guys for 10 days or so, and YOU pay for the audit. Worth it?
NO!... But besides, if you don't get a factura, with the 16% IVA, you get ZERO deduction for the money and later you lose 100% of that deduction and end up paying 35% on your gain...Simple Math...16% now or 35% later?
4) So let's say a worker does not have facturas... Two choices, hire a legitimate business...or Two) pay a pay service, called a pagador. They pay the worker and give you a factura. BUT, you have to choose a pagador that can give you a deductible factura. If they give you a factura for administration services for a painter...it does no good. But some have construction services as one of their line items. They all charge a fee for it. Mine charges 22%...so 16% IVA and 6% for them. Still better than 35%. There are many Pagador companies. SAT, the Mexican IRS is trying to get rid of them and the rules are tightening up significantly.
5) CASH. Use checks or debit cards or credit cards to pay anything over $1999 pesos. Anything $2000 pesos and over paid in cash is
automatically NOT a deduction. The store or supplier will need to input the last 4 digits of the Card number and state if it is debit or credit. Or if it is a check, they need to state the bank name, that it is a checking account and the last 4 digits of the account number.
6) FILE KEEPING: VERY IMPORTANT. especially if you have a generic
Foreigner XEXX01010000 factura.
Make sure each factura is also sent to your email.
KEEP BOTH the pdf and the xml file FOREVER until you sell. ONLY these
electronic files since 2013 count. Prior to 2013, only original handwritten
or typed facturas count. COPIES do not count.
Make a file on your computer and a backup. Keep them ALWAYS. These
are your potential deductions. Without them, you are just shit out of luck!
7) Capital Gains Tax Exemptions: ONLY foreigners who live and work in BCS with permanent residence, approval to work can potentially qualify for the Mexican Residential Capital Gains Tax Exemption. It is a one in 5 year opportunity, not unlike the United States, where a person can claim a tax exemption from capital gains. There is a limit to the amount of exemption. Last I checked it was a property worth $2,500,000 pesos or less. There may be a partial exemption for properties over that amount. BUT, a foreigner cannot get this exemption unless he jumps through a million hoops, one of which is that he reports taxes yearly in Mexico. This will probably not be the case now, but bear it in mind for later. AND it can only be done on a PRIMARY RESIDENCE once every 5 years.
7) Some other reasons why doing this extra work is important: Some NUMBERS! And these numbers are for talking sake only.
This example is something that is coming up ALOT now due to the exchange rate.
Say you bought a house in 2004 for $100,000 USD at an exchange rate of 10:1 (pesos to dollars)
Now in 2016, you sell the house for $100,000 USD at an exchange rate of 18:1 (pesos to dollars)
You would think there are no capital gains....BUT you are WRONG. Your purchase in 2004 was registered at the rate in 2004 in PESOS, the monetary system of the country. Today, that same $100,000 USD is worth not $1,000,000 pesos but $1,800,000 pesos (say 18:1). Automatically you have an $800,000 pesos gain.
You get to deduct the sales commission, say 10% if you paid IVA or $208,800 pesos, the acquisition tax you paid in 2004 or $20,000 pesos, and if you have NO OTHER FACTURAS, your gain is adjusted to $571,200 pesos. ONLY the Notary has the program for calculating capital gains, but there are some miscellaneous small deductions for time, etc....so let's just say he gives you an additional $70,000 pesos of deductions...then your gain falls to $501,200 pesos or YOU OWE THE GOVERNMENT approx. $31,733 USD in Capital Gains Taxes.
Say you painted the house for $14,000 USD in 2008 at 12.5:1 ($175,000 pesos), you put in a fence in 2006 for $5000 USD at 11:1 ($55,000 pesos), say you re-did the cabinetry in 2010 for $10,000 at 12.5:1 ($125,000 pesos), say you put in a pool for $20,000 USD at 13:1 in 2011 ($260,000 pesos). And you didn't get facturas? You just gave a $31,7333 USD GIFT to the government!
But if you had facturas,that totals an additional $615,000 pesos of deductions plus the other deductions above...Suddenly your $571,200 gain GOES AWAY, and there are no capital gains....follow?
So want to save the sales tax? A legal and required tax now and for as long as anyone can remember? Save a few dollars? Well, OK, then prepare to pay 35% later!
By Cheryl T. Miller, Broker, Baja Realty and investment, 624-122-2690, email@example.com, www.forsaleinbaja.com