This article is dedicated to the topic of all of the taxes a Baja real estate buyer will have to deal with during and after the buying process. This includes the taxes you pay when you purchase the property, in front of the notario when you close, and the property taxes you will be paying on an annual basis afterwards. There can be much variation in these taxes depending on the situation, so for purposes of this article, we will be referring to an individual buyer, not a corporation, who is purchasing a single property for his personal use.
At the closing of a Baja real estate sale, the moment in which property rights are transferred from the seller to the buyer, the buyer has to pay a 2% acquisition tax. For example, a home purchased for $300,000 would have an acquisition tax of $6,000. This is a significant expense that must be paid in order to acquire property in Mexico.
The acquisition tax can be based on the selling price or the appraised value of the home. Even though a selling price has been agreed upon, the tax appraisal can still affect the amount of the acquisition tax. For example, a selling price of $300,000 has been agreed on, but the appraiser only values the home at $250,000. The buyer and seller can agree to list the sale price as $250,000 (without changing the selling price) in order to reduce the acquisition tax from $6,000 to just $5,000. Depending on the seller’s goals, this may not be a viable option, but from a buyer’s perspective, it can be highly advantageous.
Another potential cost is capital gains, called “Impuesto Sobre la Renta” in Spanish. Here in Mexico, capital gains has a different side than we are used to seeing. In many cases the buyer rather than the seller will pay capital gains. For example, if a property sells for $250,000 but is appraised at $300,000, this gives the buyer a $50,000 advantage, and the government will charge the buyer capital gains at a rate of 20%. However, they will only have to pay that 20% on gains greater than a 10% variance. In other words, the government forgives the buyer 10% of the selling price before charging capital gains. Here’s how it works.
1) calculate 10% of the selling price: 10% of $250,000 is $25,000
2) subtract that from the buyer’s “gains”: $50,000 - 25,000 = $25,000
3) multiply that reduced amount by 20%: 20% of $25,000 is $5,000
This $5,000 in capital gains will be paid in addition to the 2% acquisition tax, amounting to a fairly large sum of money. In 2012, with the downturn in market values, this is fairly common, since appraisal values tend to be about two years behind market values. Currently, about 10% of our clients have to pay these capital gains. One final consideration about these taxes is that they are subject to the interpretation of the notario. For example, if acquisition taxes were paid on the property within the last 6 months, they do not have to be charged again, but can be at the notario’s discretion.
The last tax a buyer will face is property tax. Each year in January, the owner must go to the municipal building and pay his property taxes. Usually these taxes are extremely low and tend to range from $70-80 for a small house and up to $400 for a huge mansion. Compared to a standard U.S. 1% property tax, this is extremely economical! Raw land tends to have higher property taxes, but once a dwelling has been established, the property can be considered a “vivienda,” and these taxes go down. For that reason it is a great benefit to have your land re-valued after building a new dwelling.
These are the three main taxes a buyer will have to contend with: the 2% acquisition tax, potentially a 20% capital gains, and the annual property taxes. Both the acquisition tax and capital gains can vary based on the appraised value of the home, but must be paid in order to close on the home. Be sure to include these costs in your budget as you do your shopping.