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Tax Deductions on Property Tax Deductible in Mexico: When and How to Deduct Them?

Posted by AmorTulum on 17 de November de 2023
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Tax Deductions on Property Tax Deductible in Mexico: When and How to Deduct Them?

When it comes to buying and selling a property, there are taxes to consider for both the buyer and the seller. Let’s dive into the world of real estate transactions.

 

What are the costs involved in registering a property? Generally, the buyer bears the burden, including the acquisition tax (which varies depending on the location and may be called transfer tax), registration costs, the costs of obtaining certificates or documents from various authorities (such as freehold certificates, proof of tax compliance, land use certificates, cadastral plans, etc.), miscellaneous expenses (such as payments to agents, appraisals and travel expenses) and, finally, notary fees plus VAT.

 

What about the seller, is he obliged to pay taxes? Well, when someone sells a property and makes a profit, he has to pay Income Tax. This tax only applies to individuals and, in many cases, the notary who oversees the transaction is responsible for withholding it.

 

 

There are cases in which it is possible to exempt or deduct expenses from the income obtained from the sale of the property, thus paying less or no taxes.

In the case of legal entities, their income from the sale of real estate is subject to taxation, together with the rest of their income. It is worth mentioning that there are non-profit legal entities that are also obliged to pay this tax as if they were individuals.Additionally, there are situations in which certain individuals operating under the economic activities regime do pay this tax, but the notary does not withhold it. If you find yourself in one of these specific scenarios, due to the complexity of the matter, it is advisable to seek guidance from a notary.

 

Now then, you may be wondering, how can you be exempt from paying IRPF?well, income obtained from the alienation of a dwelling house is exempt, up to a limit of 700,000 UDI (approximately 4,376,000 Mexican pesos) for each seller involved.However, it is necessary to present the proper documentation to prove that the property in question is indeed the principal residence.The purchase or sale of a property entails a number of tax considerations. Make sure you are well informed and seek professional advice when you need it.

This is for all sellers, as long as they provide the following documents to prove that it is indeed the home in which they reside:

 

Receipts for electricity payments

Telephone bills

Bank statements, department store statements, or non-bank credit card statements

Voter’s credential with residential address that matches the home being sold

These documents may be in the name of the taxpayer, his or her spouse or direct ascendants or descendants.

The exemption can only be requested once every 3 years.

 

Get ready to sell your home smoothly! Make sure you have these documents handy.

The purchase or sale of a property implies the payment of taxes for both the buyer and the seller, but don’t worry! There are ways to exempt or deduct taxes, as long as you meet certain conditions and have the necessary documents.

However, what are the costs of the deed to be borne by the buyer?

Normally, they are the real estate acquisition tax, public registry fees, certificates from various agencies and other small expenses. And let’s not forget the notary’s fees, I’ll tell you more!

But wait, does the seller also have to pay any tax?

Of course. When a property is sold, individuals must pay Income Tax (ISR), although in many cases the notary is in charge of withholding it. But here comes the interesting part…

Guess what? It is possible to exempt or deduct ISR expenses for the sale of the property,

which means that you could pay less tax or even none at all. But keep in mind that this tax also affects legal entities and there are several special cases that you should be aware of. In this case, it is advisable to have the advice of a notary.

Do you want to know how to exempt the payment of ISR?

If the income from the sale of your primary residence is up to 700,000 Udis (approximately 4 million 376 thousand pesos), you are exempt! This is valid for every seller, as long as you can prove that it is your main house.

It’s not as complicated as it seems! Know your options and rights when buying or selling a property. Remember that a notary is your best ally to advise you in this matter.

for each of the sellers concerned; that is for each person selling, provided that he/she proves that it is precisely the house in which he/she lives with the following documents:.

  1. Tax receipts of payments made for electricity.
  2. Tax receipts for telephone payments.
  3. Bank, retail or non-bank credit card statements.
  4. Credencial para votar que consigne como el domicilio la casa habitación que se vende.
  5. The aforementioned documents may be in the name of the taxpayer, his/her spouse, ascendants or descendants in a straight line.
  6. Exemption is only possible once every 3 years.

Did you know that you can obtain tax benefits when selling a property?

Here are some key points about income tax deductions that may be of interest to you:

Acquisition cost: This is the amount the seller paid for the property. If you acquired it before April 2014, you will be able to credit it with the corresponding deed. After that date, you will need the complement of the notary’s invoice (CFDI). Remember that it is important to have the invoice from the moment of the purchase in order to be able to deduct it when selling.

Investments in construction and improvements: If you made constructions, improvements or extensions to the property, you will be able to prove these expenses with the corresponding invoices or, in some cases, with an appraisal. Keep all your invoices in order and do not forget to give the necessary notices to avoid problems in the future.

Notary expenses: These are the expenses associated with the purchase and sale process and can be accredited with the corresponding invoice. Do not forget to take it into account when making your declaration.

Commissions and mediations: If you paid commissions to real estate brokers, be sure to demand an invoice at the time of purchase. Without a valid invoice, you will not be able to deduct this expense.

 

Remember that it is essential to ask a notary all the doubts related to the ISR exemption and deduction from the acquisition of the property. This way, you can make sure you have all the necessary information and documents at the right time. Make the most of the tax benefits when selling your property!

If you decide to buy a commercial space, a warehouse or an office, and you are registered as a landlord, you will be able to deduct taxes when investing in properties of this type in the Riviera Maya.

What is the VAT rate for the sale of commercial properties in Mexico?

In the event that your property is for commercial use, this is when VAT applies. The VAT rate for the sale of property in Mexico is 16%. In other words, if you sell a property for $1,000,000 MXN, you will have to charge the buyer $160,000 MXN of VAT. It is important to note that the VAT is added to the sale price of the property, so the buyer will have to pay a total of $1,160,000 MXN for the property.

 

What about rental properties?

In most cases, property rentals are exempt from VAT. However, there are exceptions: if the lessee is a company, the rent will be subject to VAT. In this case, you will have to charge the lessee a rate of 16%. There are also some cities and states in Mexico where an additional tax is charged on property rentals, so it is important to research local regulations.

Sailing in the Sea of Taxes

Analysis of the different types of taxes applicable to properties.

There are several types of property-related taxes in Mexico. This range includes purchase tax, annual property tax, and capital gains tax, which applies when a property is sold. Effective management of these tax obligations is critical for any investor or property owner.

The Art of Tax Deduction

Conditions and criteria for deducting taxes on VAT properties

The first thing you should know is that, in order to be able to deduct taxes, you must have all your accounts in order and be up to date in your payments. This means having all VAT payments up to date for construction services, maintenance and services/entertainment provided by third parties on the property. In addition, owners must also have the invoices corresponding to these payments.

 

In addition, the taxes that can be deducted vary according to the type of property and its use. For example, real estate property intended for sale is not subject to VAT deduction. On the other hand, personal property that is required for the maintenance and upkeep of the property, as well as expenses for utilities such as electricity and water, are deductible. In this sense, it is important that owners inform themselves adequately and seek advice as to what taxes they may or may not deduct.

 

On the other hand, property owners can also deduct taxes for expenses incurred for the maintenance and repair of the property. This includes everything from changes of furniture and appliances to the hiring of professional services such as cleaning and painting. However, in these cases the corresponding tax receipt proving the expenses is also required.

 

Another important criterion to consider for the tax deduction is that the property must be used for commercial or business purposes. This means that if the owner uses the property for personal or household purposes, he or she will not be able to deduct the taxes. In summary, it is advisable for owners to have all their expenses and income documented and to be aware of the taxes they can deduct.

 

Other deductible expenses related to property

In addition to VAT, there are other expenses related to your property that you can deduct from your taxes. Some of these include the payment of wages and salaries to employees if you have them, IMSS fees if you are an employer, maintenance and water consumption expenses, certain interest paid on loans, and property tax on the leased property. You can also make deductions for investments made in the leased property, such as additions or improvements. It is important to remember that these expenses are only deductible if they are strictly necessary for your activity.

Solving common problems with VAT deduction on properties

1. Invoices not issued in the name of the property.

 

One of the most common reasons homeowners cannot deduct VAT is because utility bills are not in the name of the property. You should make sure that utility bills, such as maintenance and repairs, are always in the name of the property and not the owner. If they are not, you will not be able to deduct the VAT.

 

Incorrect VAT amounts.

 

Another common problem is the incorrect amount of VAT on invoices. Before calculating deductible VAT, you should make sure that the invoices have the correct VAT. Sometimes, invoices may have an incorrect VAT rate or may not have the VAT itemized. This error can result in fines from the SAT, so it is important that you verify the amount of VAT on each invoice.

 

3. Incorrect VAT calculation.

 

A common problem in calculating deductible VAT is not taking into account the income you earn from the property. If you rent out your vacation property, for example, you must include the VAT in your income and then calculate the deductible VAT. In addition, it is important to classify costs into two categories: costs that generate VAT and those that do not generate VAT, in order to correctly calculate deductible VAT.

 

4. Hiring of informal services.

 

Hiring informal services, without formal invoices, may seem like an economical solution but may result in fines by the SAT at the time of deducting VAT. In addition, this affects the quality of the services and the protection of the owners, since there would be no legal backing for any of these services.

 

5. Failure to file tax returns in a timely manner.

 

Finally, a problem that affects many homeowners is the late filing of tax returns. This can result in fines and penalties from the SAT. That is why it is important to keep a record of all invoices and file the tax return within the established deadline.

Preguntas Frecuentes

¿Puedo deducir el IVA si mi propiedad no está alquilada?

La deducción del IVA en propiedades no alquiladas dependerá del uso que se le dé a la propiedad. Si la usas para fines relacionados con tu actividad económica, podrías tener derecho a la deducción del IVA. Sin embargo, si la propiedad no está generando ingresos o no se utiliza para fines de negocio, es probable que no puedas deducir el IVA. Como siempre, es mejor consultar a un profesional fiscal para entender completamente tus obligaciones y derechos en esta área.

¿Hay límites o topes a la cantidad de IVA que puedo deducir?

En general, no existe un límite máximo en la cantidad de IVA que puedes deducir. Sin embargo, solo puedes deducir el IVA correspondiente a gastos e inversiones que estén vinculados directamente a tu actividad económica. Además, debes tener en cuenta que algunas actividades económicas tienen limitaciones específicas sobre la deducibilidad del IVA. Por lo tanto, es crucial que te informes bien sobre las normas específicas para tu situación y consultes cualquier duda a un asesor fiscal.

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