Ask a Realtor

Q: I heard that the Capital Gain tax law exemption for foreigners has changed. Is this true?

George M. Flamingos Beach, Nuevo Vallarta

A: The law has not changed, but the interpretation and enforcement have. It is very important to remember that the intent of the exemption granted for Capital Gain tax on the sale of a primary residence is supposed to be just that; YOUR PRIMARY RESIDENCE!

That means you can’t have your primary residence in the US and exempt your capital gain tax there and do the same here in Mexico. The SAT (Servicio de Administración Tributaria), also known as “Hacienda”, is the federal tax collector.

They collect all federal taxes such as the ISR (Income or Capital Gains) tax, the IVA (Added Value) tax and the IDE (Tax on Cash Deposits).

Recently, the director of Hacienda has issued a memorandum stating: “The foreigner who does not have a valid immigrant status before the proper Mexican authority is assumed to NOT be a resident of the country and is subject to the capital gain tax.”

A valid immigrant status is considered an FM-2.

So tourist visas and FM-3’s are no longer acceptable as valid immigrant status for the purpose of proving your residence.

So if you DO NOT have an FM-2 visa, the sale of your property is considered VACATION OR SECOND HOME OR A RENTAL PROPERTY and no exemptions are permitted.

The tax on non-exempted transactions is 30% of the difference between the value declared in the deed (in pesos) and the value of the new sale, less allowable deductions or 20% of the entire amount of the transaction, whichever is less.

Therefore, when you buy your property in PV, you must insist upon having the full amount of the sale declared in the deed, in order to avoid overpaying taxes upon sale.

It is also vitally important to ask for a “factura” (official tax receipt) when doing any capital improvement on your property. In the event you have not done this, it is possible to have your property re-appraised by an authorized appraiser and this increased amount can be credited towards your tax basis.

So if you do not have an FM-2, be prepared to get one prior to the sale of your property, or be prepared to pay your Capital Gains Tax here in Mexico. Now some good news:

There is no “double-taxation” on the sale of your property here. So if you pay your Capital Gain tax here in Mexico, you will not be subject to another tax in the US and you can re-patriot the funds legally.

Please remember that your friends who may have avoided the Cap Gain tax here previously are STILL subject to audit here in Mexico (for up to five years) and Cap Gain Tax in the U.S.! So nobody gets off for free, legally.

The tax authorities in the U.S., Canada and Mexico work together and share information.

Every day there is more cooperation between the countries due to tax treaties.

It is no longer possible to own a property in one country, enjoy income from that property, and not report it in BOTH the country where the property is located, and the country where the owner lives.

Failure to comply means the owner is subject to double taxation and heavy penalties when the omission to file and declare is discovered.

So if you are considering selling your property here in PV, you should consult with a tax expert here and also your accountant in the US in order to determine the best way to file your taxes.

Here is something else to ponder; paying Capital Gains tax implies you have made a gain on the sale of your property.

Congratulations!

Would you rather have lost money, so you would not have to pay tax?

Do you have a question about Real Estate in Puerto Vallarta? Just ask!

Michael Green moved here in 1997 to take advantage of the unsurpassed lifestyle PV offers. Mike can be reached by e mail: pvgetaways@hotmail.com

Ask a Realtor

Q: How do we meet people here, make friends and become part of the community? Joe K. Wisconsin

A: This can be a challenge for many new residents as they are moving to a different country with a different culture and language. So a good place to start might be to take a Spanish language class.

Yes, this is a tourist town and many of the locals speak English. There are plenty of long-time residents who have gotten by without speaking Spanish. But you want to thrive, not survive!

A basic Spanish vocabulary can always come in handy, and it can be a real pleasure to be conversational. Besides, understanding the language will give you a good insight to the culture and the Mexican way of thinking. Hint: “ahorita” does not necessarily mean “in just a minute”…

There are many Religious Services and 12 step meetings, a list is provided in this paper. Expats in Vallarta is an informal group is for Expats living around Vallarta or for those considering the area. They are meeting on Tuesday March 15th at 5:00pm at Langostino’s on Los Muertos Beach. Visit their website at www.expatsinvallarta.com

The Downtown Art Walk is held every Wednesday from 6PM-10PM. Fourteen different galleries host different events and this is a great way to meet the artists and art lovers. www.vallartaartwalk.com. The “Southside Shuffle” is another fun event on Olas Altas and Constitución Streets every other Friday from 6PM-10PM. The local Farmers Market is every Saturday from 10 am to 1pm at the new Paradise Community center at Pulpito #127.

Who can resist the sights and sounds of fresh coffee, bread and produce, and the great opportunity to make new acquaintances? There are also some great events this spring in our brand new air conditioned theater. http://www.teatrovallarta.com

You should also consider an active pursuit, enroll in yoga or Pilates class, learn to play tennis or golf, take a sailing or diving class, or just get out and take a stroll on the Malecón. And to keep up your energy, don’t forget to patronize the local shops, markets and restaurants. Vallarta is home to a plethora of amazing markets and world-class restaurants, and they could all use your patronage right now. Strike up a conversation with the proprietor and you may be surprised with the friendships you can make.

And as you discover special places, you will also begin to become a source of information for new arrivals and will have a topic to discuss. Finally, and perhaps most importantly, there has never been a better time to become involved with a charitable foundation. It is no secret that the economic slowdown has had a drastically negative economic impact on our beautiful town and there are many people in need.

There are wonderful opportunities to help children, animals, the needy and make our city a better, kinder place. Besides the feeling of well-being that can come from contributing, there is the added benefit of meeting some wonderful caring people and starting lasting friendships. One of the most active organizations in our bay is called PEACE; their website is: www.peacemexico.org.

Best of all, you are not limited to just one charity. I have many friends and clients who are involved in several. So get up, get out and find your passion!

And by this time next year you will be writing and asking, “How am I going to find enough hours in the day to…”
Do you have a question about Real Estate in Puerto Vallarta? Just ask!

Michael Green here in 1997 to take advantage of the unsurpassed lifestyle PV offers. Mike can be reached by e mail: pvgetaways@hotmail.com