Guide to Buying Real Estate in Mexico
Mexico has a lot to offer in terms of great weather, beautiful scenery, and authentic Latin American culture; plus, you will find lots of affordable real estate in Mexico.
Best of all, it’s perfectly legal for foreigners to own Mexican real estate.
It is the United States’ closest neighbor to the south, and at no other time in the long history of that relationship have the benefits of living and investing in Mexico been more apparent…and easier to take advantage of. Not just for U.S. citizens, but for Canadians, Europeans, South Americans…anyone looking for great weather, low prices, rich culture, and potential profits.
Transfer Tax
An acquisition tax is payable by the buyer when property changes hands. The cost varies by location. This is typically 3% to 3.3% in the Riviera Maya.
Inheritance/Gift Tax
Although Mexico does not impose an estate or inheritance tax, there is a tax on certain gifts involving real estate (payable by the recipient). Gifts between spouses and direct family members are not taxable.
Property Tax
The property tax on Mexican real estate is called predial. Compared with property taxes in the U.S., the cost of the predial is quite reasonable. It is a local tax and in most areas is payable quarterly. The average is approximately 0.1% of the assessed value of the property at time of sale.
It is very common in many communities in Mexico to use the “assessed” value of the property as the basis for these taxes, and the official assessment can be considerably lower than the market value of the home—often only 30% or 40% of the actual sale price. You should know, though, that under Mexican law, using an assessed value less than the actual commercial value for tax purposes is illegal. And, it means you’ll likely pay more capital gains tax when you sell.
Rental Income Tax
If you do not reside in Mexico but rent out your Mexican property, your rental income is subject to tax at a rate of 25%. For residents, rental income is taxable at the regular income tax rates.
Capital Gains Tax
If you sell the property, you’ll owe capital gains tax. This can be up to 35% of the profit, but can be lowered based on how long you have held the property, authorized deductions, etc.
To ensure that capital improvements you make to a property can be deducted, make sure you get the correct receipts. In Mexico, you can only claim deductions for services and materials that are recorded on official receipts and invoices called facturas. Facturas must be printed on a government-authorized press and have the tax ID number (RFC number) of the company or individual issuing the receipt. No factura, no tax deduction.
The closing costs in Mexico are usually paid by the buyer. Fees for closing, in a regular transaction, usually come to between 5% and 9% of the cost of the property. The fees will cover an acquisition tax, property-registration fee, a fee for the tax certificate, the title-search fee, the property-appraisal fee, the notary’s fee, and any miscellaneous clerical fees, as well as a value-added tax on anyone whose services were engaged in facilitating the transaction (the appraiser, the notary, etc.). You can get an estimate of these fees from your notary and/or real estate agent when you make your offer.
The seller pays the real estate agent’s fee—usually somewhere between 6% and 10% of the sale price.