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HOW TO BUY REAL ESTATE IN MEXICO
The Process In some areas it is common practice to deliver to the seller, as an advance payment, the equivalent to a 20-50% (including the initial deposit) of the total price upon signing the purchase-sale agreement which should contain a penalty clause applicable in case there is a breach of contract by any of the parties. |
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Notario Publico or Notary Public
The Notario Publico is a government appointed lawyer who processes and certifies all real estate transactions, including the drawing and review of all real estate closing documents, thus insuring their proper transfer.
Furthermore, all powers of attorney, the formation of corporations, wills, official witnessing, etc. are handled and duly registered through the office of the Notario Publico, who is also responsible to the government for the collection of all faxes involved.
In connection to real estate transactions, the Notario Publico, upon request, receives the following official documents, which, by law, are required for any transfer:
- A no lien certificate from the Public Property Registry based on a complete title search.
- A statement from the Treasury or Municipality regarding property assessments, water bills, and other pertinent taxes that might be due.
- An official survey and appraisal of the property for tax purposes.
Closing Costs It is common practice that the buyer pays the transfer or acquisition tax as well as all other closing costs including the Notario tees and expenses, and the seller, pays his capital gains tax and the broker's commission. Since January 1, 1996, the federal law regarding the real estate transfer tax, which was 2% for all the Republic of México, was modified in order to allow each of the Mexican States to determine its own tax. In Baja California is 4.3% of the tax appraisal value, generally less than the sales value, this tax obligation is divided as follows:
- Two percent (2%) is the government’s transfer tax.
- One and three tenths of percent (1.3%) goes to the department of public record as a registry fee and
- The final (1%) one percent is paid to the Notario.
The rest of the closing costs, which exclude the transfer cost mentioned above, may vary from 5-7% of the appraised tax value or more, depending on the particular State. These percentages are applied to the highest value of the following:
- The amount for which the property is sold.
- The value of the official tax appraisal.
- The value designated by the property assessment authorities.
Capital Gains Tax
In México, the concept of capital gains tax does not apply in the sense in which it is determined in the United States. Here, the gain from the sale of the property is considered as normal income at a tax rate of up to 35%. In order to determine the gain, the following costs and expenses are deducted from the amount for which the property is officially sold:
- The original land cost and the depreciated construction cost, based on the number of years the property was held and adjusted for inflation according to the official consumer price indexes.
- Additions, modifications and improvements, but not maintenance, made on the property (construction), adjusted as above.
- Commissions paid to real estate brokers by the seller.
- The closing costs, including all expenses, taxes and tees paid by the seller.
The Notario will retain the calculated gain after deductions forwarding it to the Mexican tax authorities.
The seller will then deduct this amount against his her annual tax return, which becomes an adjustable tax credit in the U.S.
On the other hand, there is no capital gain tax in México if there is conclusive proof the seller has had the property as his primary residence for the previous 2 years.
Real Estate Broker’s Commission
Most real estate companies in México charge a 5-7% commission based on the actual sale price of the property. However, different area broker rates reflecting higher broker expenses may be found, such as in the resort areas.