When selling a residential property as a natural person in Mexico, it is common to wonder what taxes must be paid and what is the basis of said calculation. These taxes can vary due to various factors such as the value of the property and the time that possession of said property has been held. In this sense, the ISR (income tax) is undoubtedly the most relevant since it taxes the profit from the sale of properties, so the amount to be paid could be significant for the seller.
Before explaining the mechanics of the calculation, it is worth mentioning that there are some exemptions which could apply to the sellers in question and therefore the tax generated by the sale would be completely exempt from payment or significantly reduced. The considerations are as follows:
In the event that the sale price is greater than 700,000 UDIS, the calculation of the tax will be made on the excess amount. The acquisition costs updated for inflation up to the sale date and adjusted for the depreciation of the buildings may be deducted from said amount in order to arrive at the taxable income. This profit is divided between the number of years that the property was kept in the seller's possession and said amount equals the tax that will be withheld by the notary public.
For example; If a person acquired a property 8 years ago for 3,000,000 pesos and it is sold for 10,000,000 pesos, the tax will be calculated based on the excess of the sale price minus the exempt amount (10,000,000 - 5,400,000) = 4,600,000 pesos. To this amount, the acquisition costs updated with inflation can be deducted less the annual depreciation of the buildings (3% per year) for the years that the seller maintained the property. Assuming that 80% of the acquisition cost corresponds to construction and the average annual inflation of the last 8 years has been 4%, the deductions would be calculated as follows: Updated land (600,000 * 1.32) = 792,000. Depreciated and updated buildings (2,400,000 * 76% *1.32) = 2,407,680. The sum of the deductions corresponds to 3,199,680 pesos. In this way, the utility would result from subtracting the surplus minus the deductions (4,600,000 - 3,199,680) = 1,400,320 pesos. Finally, to determine the cumulative gain, the profit is divided by the number of years that the seller maintained possession of the property (1,400,320 / 8) = 175,040 pesos. To said amount the notary will apply certain factors to determine the income tax to withhold, however the amount of the tax is usually similar to that of the cumulative profit (175,040 pesos).
Regarding the Value Added Tax (VAT), it is not applied directly to the sale of a house, since it is exempt from this tax. However, it is important to take into account that if the sale of the property includes the transfer of personal property or the provision of additional services, such as the sale of furniture or the making of improvements, these concepts could be subject to VAT. It is necessary to clearly distinguish which elements are part of the sale of the house and which other services or goods may be subject to this tax.
In terms of the Real Estate Acquisition Tax (ISAI), although it does not correspond to the seller, the buyer will be obliged to pay it through the public notary that formalizes the transaction and, as it is a state tax, it can vary according to the location of the property. The tax is normally located in a range between 2% and 5% of the appraised value.
Here are 5 useful tips that you should keep in mind when selling a property.
Remember that the choice of sales method depends on your objectives, deadlines, the location of the property and your personal preferences. It is also important to ensure that the property is in good condition and that you have all the necessary documentation ready for the sale. Consider consulting with a real estate agent or a real estate professional to obtain specific guidance so that they can advise you in the best way and you can consider the expenses and taxes that result from a real estate operation; remember that beleta has the best community of real estate experts in selling premium properties.
