The Importance of Recording Real Values
When buying land in Mexico, it’s very important to make sure that the price stated in your Trust is the price that you paid for your Property.
You might hear that you will save money on the acquisition tax if you register your property at a lower value. Although, this maybe initially true, the long term effect can be considerable significant when you sell your property.
Acquisition tax is only 2% of the purchase price, but whenever you sell your Property, your Capital Gains Tax will be 35% of the difference between the price that was recorded in your deed and the price established on the deed for your buyer.
Things get more complicated when you decide to build on your lot, as you will need a construction license to do so. When you request the construction license, they will ask for a value to assign to the. Based on that value, they will charge a certain percentage for taxes and rights. Whenever you finish your construction, you will need to file for a Termination of Construction, which will establish the value that you assigned to the Construction License (this is usually taken care by your builder).
After you have your Termination of Construction, you will need to go into Catastro and record your construction. You will receive a “Manifestación Catastral” showing both the value that you paid for the lot as well as the value that has been assigned to your building (based on what you assigned to it when you filed for your construction license).
Whenever your property is sold, the Capital Gains will be based on the price that you paid for your property (including building as recorded in the Termination of Construction) and the price that you sell your property for. An income tax of 35% will be assessed on the gain. Deductions such as sale commission are allowed.
Therefore, our advice to you is to always record both your lots and your constructions at the real price that you paid for them. You might have had to pay a higher acquisition tax and construction license, but in the long term you will save a considerable amount on the Capital Gains generated from the sale of your property.
In case you’re reading this article and thinking to yourself that probably you didn’t manifest at the correct value, give us a call or send us an e-mail. We will request some information and documents from you to assess the status of your property and let you know if we can help with a solution.
For more information about Coldwell Banker Riveras Real Estate services, Closing Procedures and Baja California Sur news, call us to + 52 (624) 143.1342 or send us an email to email@example.com