Buyer Capital Gain Tax

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After finding your prized property of choice the next point of purchasing Real Estate is the negotiation between a buyer and seller. The real and fair value of the property is what a buyer is willing to pay and what a seller is willing to accept.

In the cases of a buyer capital gain being triggered, it is typically when the Real Estate market in a down turn where values are dropping for some reason that is affecting the market or maybe you got lucky and a seller is in need of liquidation at any cost and accepting a low purchase price.

In Mexican Real Estate each transaction has a government appointed appraisal that is part of the closing process. This is not a mortgage related appraisal as most transactions in our vacation oriented Real Estate market in Los Cabos are cash sales. Most often the appraisal comes in lower than the negotiated purchase price. However, in the case of the “quick sale cash selling price” or the “great deal” the appraisal comes in higher than the purchase price. This triggers what is called reverse capital gains that is calculated as a buyer expense.

Really, the buyer pays capital gains? Yes in this case scenario. When the appraisal is 10% above the agreed purchase price the buyer is responsible to pay 20% Capital Gains Tax on the difference calculated in pesos between the purchase and the appraised value. 

In all real estate closing’s there is a 2% acquisition tax that is calculated on the purchase price as part of the buyer closing costs. There are actually 3 values that are used, which are :

  1. The purchase price
  2. The catastral value
  3. The appraised value.

The buyer will pay the 2% acquisition tax on the highest of the 3 values. This is standard to every real estate purchase. 

Example Buyer Capital Gain:

Sale Price of the property in US Dollars                           $150,000 USD

Today’s exchange rate  (Feb 2021)                                  $20.93 Pesos

Sale Price in Pesos                                                           $3,139,500 Pesos

Appraisal cannot be lower than the current recorded  value at today’s peso exchange rate which is:                   $3,845,360 Pesos

If the appraised value is more than 10% higher than the sale price in pesos then there is a buyers capital gains tax at the rate of 20% of the difference between those 2 

values, which would be:                                                     $141,172 Pesos

Which would be:                                                                 $6,744 USD

*I know it sounds a little complicated but note that Real Estate laws are subject to change. If you are making a low offer on a property and it gets accepted be aware this can trigger buyer capital gains tax paid at closing on the property. Ask your closing attorney about possible solutions based on what the current law will allow.

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