Most people get what are Capital Gains Taxes. It is the tax applied to the difference between the Seller’s
final purchase price and the Seller’s original purchase price less all allowed deductions. It is a whopping 35% of the difference and applies only to the Seller. There have been many articles written about the importance of keeping official facturas to mitigate this tax. See http://www.mlsinbajasur.com/facturas-and-why-they-are-sooooo-important.html, for more in depth information.
But the regular ISR, Impuestos Sobre la Renta (Capital gains tax) applies to Sellers only.
Did you know that the BUYER may be subject to a Reverse Capital gains tax, Impuestos Sobre la Renta Inverso?
What is reverse capital gain tax?
It is a tax that must be paid by the buyer in a real estate transaction when the purchase price of the property is below the fiscal value of the property. The fiscal value is given by the municipality through an appraisal and it is recorded in the municipal records for purposes of calculating the yearly property tax.
The Government looks at your “great deal” as an instant gain, a financial windfall for you, so the BUYER is taxed on this at the time of purchase.
But, since you pay the acquisition tax on the higher value, it is the recorded value at the time you sell.
How much is the percentage?
The percentage of the reverse capital gains tax has been raised from 20% to 35% of the capital gains to the BUYER. The capital gains would be the difference between the purchase price and the fiscal value (appraised value) of the property.
Example: Say you buy a plot of land for $25,000 USD or say $475,000 pesos at 19:1, but the appraised value comes in at $800,000 pesos ($42,105 USD), the difference, or $325,000 pesos- $17,105 USD is subject to a 35% tax or an additional closing cost of $5,987 USD. So your great deal of $25,000 USD is now costing you $30,987 USD. It MAY be still a great deal, however, if the neighboring properties are selling for $35,000 or more. That decision lies in the hands of the Buyer. Appraisals, however, do not get ordered until within 30 days of the closing, as they have validity for the transaction for only that period. So if you or your realtor suspects your deal is below appraised value, be prepared to pay this tax as well. Ask your realtor before you write an offer!
How can a buyer pay just the regular closing cost instead the reverse capital gain tax?
If the purchase price of the property is at least the same as the fiscal value, then there will be no reverse capital gains for the buyer.
If the purchase value is below the fiscal value, then the buyer MAY be able apply certain deductions, such as: the transfer of property tax, the notarial and registrar fees. But, if the Notario allows the deductions at the time of the purchase, once used, it cannot be used when you sell again.
Bottom Line: If you get a whopper of a deal, they may be additional costs in taxes. Be prepared. There is no way for your realtor to know the exact extent of your tax exposure until the appraisal is ordered and finished. The current tax value on the Seller’s property tax bill may give a clue, but the final word lies with the official tax appraisal done within 30 days of the closing. You can pay for an appraisal to be done prior to this 30 day period, but just be aware that you will need to pay for the appraisal again to be incompliance with the law.
By Cheryl T. Miller, Broker of Baja Realty and Investment, Architect, 624-122-2690, firstname.lastname@example.org, www.forsaleinbaja.com.