What is their relationship when selling or buying in Mexico?

Countries price local real estate in their own currency. Europe prices in Euros, Canada in Canadian dollars and the USA in US dollars. Mexico prices real estate in Mexican pesos. In resort areas here there has been a trend set by real estate agents and sellers to price real estate in US dollars.

In the past, this practice has helped the foreign buyer better understand the cost of what he is buying, much like knowing square feet better than square meters. Also, it can be a negative to foreign buyers to need to convert their cash into local currency because it is different from what they are used to doing, and they fear if they don't close the transaction, they will lose money converting back to their own currency.

Pricing in US dollars has been convenient and understandable to a foreign buyer demographic. US pricing will probably continue, but we need to remember that larger cities and non –tourist cities price their real estate in Mexican pesos.

We realize when a currency is weaker, prices of goods go up. We as foreigners don't usually think when we purchase a property here that our US dollar is weak or strong, we just think: "We bought in dollars and we will sell in US dollars." We think we know what our possible tax situation is here.

By now most of us realize that we may owe capital gains tax when we sell and this will be paid first to the Mexican government. Why? The property is located here and any taxes are owed to the home country first. Some countries have a treaty agreeing that ISR or capital gains taxes in Mexico may be credited toward tax liability in the country where we are citizens or file tax returns.

The "gorilla in the room" is that the Mexican IRS or Hacienda has all along considered the buying and the selling of the property in terms of pesos. The exchange of pesos on the day of closing was used to convert the US dollars we used for the purchase into Mexican currency for a total peso value. The same goes for when we sell, the US dollar price will be converted into pesos at the current rate, and this will become the value of the sale from which Hacienda computes any tax owed.

Consider this: If you bought a condo in Puerto Vallarta in 2005 and paid $100,000USD for it when the US dollar was worth 10 pesos, your price was one million Mexican pesos. If you are selling it for $100,000. USD in February of 2012, the rate may be 13.50 on the date of closing. Your property is selling for 13,500,000. USD. Do you have a gain or a loss? Are your US dollars stronger or weaker in 2012 compared to 2005? Next month, we will discuss how capital gains taxes are computed for a real estate sale in our market Email to a Friend

Harriet C Murray

E-mail: harriet@casasandvillas.com
As first published by The PVMirror City Paper

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review.

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