By Agustín Galindo, Attorney-at-Law
As I wrote in another article, when you sell your property you have to consider in advance the amount of income tax to be paid on your gain. The tax rate as foreigner is either 25% without deductions, or 35% with deductions.
Now, which are your deductions? In this regard, the Income Tax Law gives us a limited list of the applicable deductions for individuals obtaining an income for transferring property:
- The updated cost of the property with the understanding, that in the case of properties, this cost will be at least 10% of the transfer price.
- Investment in construction, improvements and extensions.
- Notarial fees, taxes and rights for the deeds of acquisition, including the transfer tax and appraisal fees.
Please be aware that for these deductions to be applicable you need to have invoices that fulfill the requirements of the tax code; otherwise, your deduction will not be considered valid by the notary public formalizing the transaction, who is legally liable to estimate and withhold the taxes.
If you realize that you have no valid deductions for the case of constructions, you still have the following options:
- To use as “cost of the construction” the one stated in the termination license of the construction. (When such license specifies the percentage of the value of the constructions, improvements and extensions of the property allocated to the land and construction, then the seller may only consider the value as “cost of the construction”).
- If you have the termination license, but provides no values, then the tax law regulation still gives you the benefit of obtaining an appraisal which is referred to the date of the termination license and can be deducted only to an 80%. Technically this appraisal is known as a “referred appraisal value”.
When you sell your property, before accepting any offer, please take the time to carry out the following:
- Get your tax calculation.
- Check if you have valid deductions for the time you acquired your property or you built it.
- Check if you have your construction and termination licenses, with the understanding that you can still regularize them and be able to get a “referred appraisal value”.
This way when you sell your property you can have your tax calculation in advance, know your applicable deductions, and be able to legally reduce your taxes.
About the Author:
Agustin Galindo is a Mexican attorney with a Master of Law (LLM) from Southern Methodist University and taxation degrees from ITAM. You can contact him at firstname.lastname@example.org and on his website at www.galindoabogados.com.
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