Property tax is a tax paid by an individual who owns a property or any other legal establishment. Property tax is considered a Real Estate ad-valorem tax, which means that the tax corresponds to the underlying asset’s value. “Predial” is the term for annual property tax in Mexico. The local government where the property is located is responsible for calculating the property tax paid by the owner. The tax depends on the property’s value as well as the land. Moreover, property tax is standard in most countries and is collected annually. Properties that are included in property tax are building, land, machinery, and land or building improvements. Property tax is implemented to provide a foundation for local governments and to advance decentralization. In addition, property taxes are used to improve public infrastructure and other services that benefit the community. Property tax in Mexico is low. It ranges from 2 percent to 5 percent of the purchased property’s assessed value. However, it also depends on the owner’s income, deduction, property’s location, size, age, and construction type. Furthermore, Mexico has a tax regulation where owners can have a 25 percent discount if the tax is paid in advance. Predial or annual property tax is usually due every January, and a 20 percent discount is still offered to owners who pay the tax immediately in January.
What are the Tax Rates for Property Owners in Mexico?
Property owners in Mexico are Mexican nationals and companies that own property. According to one of Mexico’s laws, foreigners owning land in a prohibited zone are prohibited. Foreigners must obtain a Fideicomiso, a bank trust that permits individuals to invest or buy any property in Mexico. Mexico’s property tax has three different types, the Acquisition Tax, Annual Property Taxes or Predial, and the Capital Gains Tax. Acquisition Tax is paid when buying any Mexican property, which ranges from below 2 percent up to 5 percent of the property’s estimated value at the purchase time. The level of tax differs in every Mexican state. On the other hand, Annual Property Tax (Predial) is quite a low tax paid before the 31st of March. The calculated amount of the tax depends on the property’s location, size, age, and construction type. In addition, the Mexican government offers a 10 to 25 percent discount to every property owner that pays tax on or before March, depending on the property’s location. Meanwhile, Capital Gains Tax is only required to pay when owners sell their property. The owed capital gains tax will be calculated based on how much profit the owner made from the sale, how long the owner lived in the property before selling, and other factors. Moreover, the tax is equivalent to around 25 percent of the offered value of the transaction,this amount can be lowered substantially with tax deductions. The Federal Tax Code regulates property taxes in Mexico.
What a US Citizen should know for Property Tax Rates for Landlords in Mexico?
US citizens are taxed by the United States on their worldwide income. Canada taxes citizens on global income, not until citizens officially transfer their legal residence outside Canada. However, the income must be reported on the Canadian or U.S. tax return if US citizens earn any profit in Mexico. Additionally, the taxes that US citizens already paid in Mexico will be credited on their home-country return.
What are the Tax Regulators in Mexico for Property Owners?
Mexican Tax Administration Service (Servicio de Administración Tributaria, SAT) is a federated agency of the Ministry of Finance and Public Credit that implements fiscal and customs legislation, ensuring that individuals and businesses contribute evenly to public spending. In addition, SAT is responsible for auditing taxpayers to ensure they comply with tax and customs rules, facilitating and encouraging voluntary compliance, and producing and providing the necessary information for the tax policy’s design and evaluation. Mexico’s official laws include the Federal Revenue Law (FRL), the Mexican Income Tax Law (MITL), and the Value-Added Tax Law (VATL).
How do Tax Rate Change based on Property Types in Mexico?
The property tax rate in Mexico rarely changes or increases, but hardly ever exceeds $500. The property tax rate also varies depending on whether the property owner is a Mexican resident. A non-Mexican resident must pay a property tax by calculating a 25 percent tax added to the total gross income. A 35 percent tax is deducted from the net gain after deducting expenses for commissions, upgrades, and other permitted deductions. In contrast with Mexican residents, property taxes are quite low. However, the tax rate for the property for sale in Mexico may increase because the owner owes capital gains tax. There are two methods to calculate capital gains tax. First, the seller can pay 25 percent of the declared value of the sale. Second, the seller can pay 30 percent of the net worth with several considerations, including determining how long the property was owned, checking whether any upgrades are performed, verifying if any commissions are paid, and other factors.
1. Condo and Apartment Tax Rates in Mexico
Condo and Apartment tax rate ranges from 2 to 5 percent. However, tax rates depend on whether the condo and apartment are owned or rented. Rental property tax is based on 25 percent of the gross income earned. Also, if the property is furnished, there is a possibility for valued added tax (VAT). Moreover, condo sale in Mexico is under the capital gains tax, which is taxed from 20 to over 30 percent depending on the final sale price.
2. Houses and Villa Tax Rates in Mexico
Residential property is taxed approximately 6.5 pesos for every 1000 pesos assessed value, which is equivalent to 0.33 dollars for every 50 dollars. Like other properties, the tax rate for houses and villas in Mexico ranges from 2 to 5 percent. However, the tax varies differently in every Mexican state. In addition, the tax rate will increase or double for every house for sale in Mexico. Selling houses or villas in Mexico should have taxes to pay by following the law for capital gains tax.
3. Farming Lands Tax Rates in Mexico
Article 74 of the Mexican Tax Law stipulates that to qualify for the “Agricultural, Forestry and Fisheries Regime” (AGAPE), at least 90 percent of gross income must be generated by agricultural activities. In 2019, very small farming units with yearly incomes of less than 8 Units of Measures (UMA must draw at least 25 percent of their income from the agricultural operation to be eligible for the AGAPE regime. Additionally, under the AGAPE, individuals, corporations, and/or other types of organizations are included.
4. Warehouse Tax Rates in Mexico
A warehouse is considered a commercial property. Thus, the corporate tax rate for warehouses in Mexico is 30 percent. Thus, selling commercial properties results in lower capital gains tax than residential property. A tax of 10 percent is collected for basic-rate taxpayers and 20 percent for higher-rate taxpayers or if the property is owned. Also, if the property is owned for longer than 24 months, it will be considered long-term and subject to a 20 percent flat tax, regardless of the amount. Moreover, non-Mexican residents before should pay a 25 income tax on the purchase price of the commercial property or an alternative of 30 percent gain tax. However, a change in tax rates is possible due to the recent tax reform proposed by the current Mexican government.
How does Property Tax Rate Change for Buying and Selling?
The property tax rate change for buying and selling is different in Mexico. Acquisition Tax is a Mexican tax that requires payment from every buyer upon purchasing a property. Every Mexican state imposes taxes at a different rate that ranges from less than 2 percent to 4 percent of the property’s assessed value at the purchase time. Meanwhile, Capital Gains Tax is a requisite tax only when the owner sells a property. Factors including sales profit, length of time the owner lived in the house before the sale, and other factors are considered to determine and calculate the amount payable. Thus, approximately 25 percent of the profit made from the sale is the equivalent of the tax. Moreover, residents in Mexico renting a property are subject to deducting the same expenses on the Mexican tax return for the rental income. Then, a flat rate of 25 percent is charged on gross rental income if an individual is a nonresident renter.
What are the ways to decrease the tax burden for property ownership in Mexico?
Real estate investment is one of the best methods to increase wealth and lower taxes. Various benefits also include opportunity. However, the tax burden for property owners sometimes cannot be avoided. Several methods decrease the tax burden for property ownership in Mexico, such as staying in a lower tax bracket, harvesting the losses, gifting the stock, moving to a tax-friendly state, and investing in an opportunity zone fund. Taking advantage of property tax discounts if owners are retirees or in a lower tax bracket with less than $75,900 is beneficial to stay under the threshold. If the losses are higher than the gains, then a $3,000 deduction for up to a year is the best way to capitalize. In addition, the owner can gift up to $15,000 in stock worth to a lower income bracket so that they don’t have to pay any capital gains tax. Thus, moving to a tax-friendly zone and investing in an opportunity zone decrease the 10 percent value of capital gains taxes. For example, buying old buildings or infrastructure, improving them, and managing them as residential properties is one of the most high-yielding methods to decrease a tax burden.
What are the Property Tax Discounts in Mexico?
A property tax discount is a deduction in federal income taxes that are paid on real estate and personal property. Enumerating personal deductions on a tax return when a person pays property taxes are all that necessary to claim a tax discount. In Mexico, the annual property tax or predial is calculated every January, and the Mexican government offers up to 25 percent discount if a taxpayer pays in advance. Then, the government still provides a 20 percent discount if the taxpayer pays immediately in January. Additionally, one of the Mexican laws offers up to 50 percent discount for homeowners that are 60 years old or considered senior citizens and disabled individuals depending on their municipality.
What is the definition of Predial in Mexico?
Predial, or Mexican property taxes, are calculated annually or are due every first month of the year. It is common in most places or countries and utilized to operate local governments. The total number of taxes depends on the property’s size and location. Predial or Annual Property Tax in Mexico is reasonable, unlike in any other country. One of the standard processes of predial in various communities of Mexico is the use of the “assessed” value of the property, which is approximately 0.1 percent. However, based on Mexican law, the assessed value should not be less than the actual commercial value, and using it for tax purposes is considered illegal.
What are the most convenient Property Investment Regions for Tax Rates in Mexico?
Listed below are the most convenient property investment regions for tax rates in Mexico.
- The Riviera Maya: The number one convenient destination for real estate investment is the Riviera Maya because it is the most popular tourist destination in Mexico. It is the best location in Mexico for investors to purchase real estate, since it is the area with the highest return on investment in Mexico. This area sits on the Caribbean shore, consisting of the unmatched natural beauty of the underground natural places. Moreover, ideal locations for real estate investment in Riviera Maya include Tulum, Playa del Carmen, Akumal, and Puerto Aventuras because of the remarkable rise in development and infrastructure.
- Los Cabos – Baja California: One of the most popular beach and golf locations in all of Mexico is Los Cabos, which has world-class golf courses, opulent resorts, undeveloped beaches, and a breathtaking coastline. It is one of the ideal destinations for real estate investment in Mexico, whether for retirement or as a rental property, because of its excellent property market, international cuisine, and hospitable locals.
- Puerto Vallarta: The allure of Puerto Vallarta rests in the winning combination of a traditional Mexican environment with a top-notch gastronomic selection next to extensive expanses of beaches with golden sand. The cobblestone lanes and colonial-style structures with boutiques, art galleries, and fine dining establishments made Vallarta famous. Moreover, Puerto Vallarta was awarded as “The friendliest city in the world”, “The best gourmet destination”, “The best place to retire”, and “The best vacation destination in Mexico,” resulting in one of the ideal cities in Mexico to invest real estate or any property.
- La Paz: The breathtaking scenic route of La Paz is witnessed when traveling to the destination two hours away from Los Cabos. The scenery of beaches is in the list of the most beautiful worldwide beaches, even though its name is not widely recognized. La Paz is a prime real estate destination where residents enjoy a cozy and relaxed lifestyle. It is one of the most convenient property investment regions for tax rates in Mexico because the cost of properties is less expensive than those in Los Cabos. Now is considered the great time to purchase a retirement or vacation house in La Paz because it is still relatively unknown to real estate investors and maintains a low profile.
