Understanding Capital Gains Taxes on Mexican Properties
As a foreigner, when you sell a Mexican property that has appreciated in value you are expected to pay taxes on all your profits. This capital gains tax on Mexican property is normally 28 percent. It is calculated taking into account the price you originally paid (what the title or escritura says you paid for the property) and the amount you sell the property for.

Many people evade taxes by negotiating with buyers directly. They basically sell the property for a certain amount and receive part of the payment under the table. That means they tell the government that the property was sold for less than what it was really sold for and therefore pay less taxes on their profits. While this seems to be a popular practice, it is completely illegal and can get you into trouble if discovered.

Legally Lowering Capital Gains Taxes through Exemptions and Waivers
The 28 percent capital gains tax bracket can be lowered for several reasons. Here are some examples:

**A capital gains tax waiver exists if you can prove residence and that you actually live full time in the property. The residence waiver will lower your capital gains tax requirement to only 5 percent. However you must prove several things:

   1.You must actually live in the property full time or most of the year.
   2.Fifty percent or more of your total income must be produced in Mexico unless you are a pensionado.

Pensionados (retirees) are only required to prove that they have lived in Mexico for more than 5 years and that you have a valid FM2 visa or immigrant (immigrado) status.

**Exemptions for inflation: You can write off up to 10 percent of your capital gains earnings for inflation purposes. You do this by using the Consumer Price Index. An example would be if you purchased a home for $100,000 USD and sold it for $200,000. Your capital gains tax would normally be $100,000. However if inflation was 5 percent you would only be taxed on $95,000.

**Exemptions for home improvements: You can write off expenses for home improvements as long as you have "valid" receipts. A valid receipt is one that has been duly authorized by the government, which includes sales tax (IVA) and generally has the word "Factura" written on it.

As a foreigner you can chose to pay a 25 percent capital gains tax instead of the 28 percent bracket, but you will not be allowed any exemptions. So this is generally more costly. There may be other legal ways to lessen the capital gains bracket. It is therefore highly recommended that you consult a Mexican tax attorney and / or Mexican accountant before you close the deal.

Paying Your Taxes Back Home
Keep in mind that just because you paid taxes in Mexico does not mean that you are exempted from paying them in your home country. Several country's such as the U.S. do give you a tax credit for any taxes you pay on your Mexican earnings. However, this is not true in every country so you should consult a tax specialist back home in order to determine what your particular requirements are.

About the VivaReal Network
VivaReal is a Latin America property listings network with a major focus on the Mexican Real Estate Market Their current mission is to help expats, investors and retirees connect with local sellers, brokers and agents in Mexico as well as other Latin American countries.