Canadian or American selling Mexican property - Usually taxable -


QUESTION:

I are selling a mexican property/house that was given to me  from my father.Do I pay taxes on the money I recieve from the sale? and if so how much? Money will be wired directly to my bank account.How do I go about this. There must be more people buying and selling in Mexico , because I see and hear of it all the time.
thanks
 
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david ingram replies:

Who knows?  You have not given me any figures to work with. So I will answer a couple of general questions.

Canadian and Mexican purchasers of Mexican homes are always being told not to worry about the sale becasue they can claim it as their personal residence.  In addition, because of notary and property transfer fees, it is not unusaul for a purchaser to sign documents stating a lowere purchase price than actually paid to 'save' money on the purchase.

What happens with this is that the seller saved capital gains tax becasue of the lower stated sales price, but the purchaser pays more tax when they sell.

Although a Canadian or an American 'can' claim their personal residence in Mexico tax free, the rules are

1.    that it has to be the only house they own AND they have to have occupied it full time for at least two years

2.    they have to have an FM3 visa and

3.    they have to be filing their tax returns as a year round Mexican resident.

4.   They have to apply to Mexico‚Äôs Secretary of Hacienda and Public Credit (the Mexican CRA / IRS) and obtain its approval. Each one of these requests is determined on a case-by-case basis.  This is similar in concept to the T2062 filed in Canada.

So - back to your question. 

*   Your father likely owes tax on the disoposal of the home to you unless he was a full time resident of Mexico with an FM3 visa, filed full Mexican tax returns as a resident, lived full time in the house for two years AND did not own a house in Canada or the US or Costa Rica or Spain or Italy, etc.

*   Depending upon what stated price he transferred it to you, you will likely have a Mexican Capital Gains tax to pay.

The tax on sale is (subject to change) 25% of the gross sale price OR 34% of the actaul profit.  The cost price for this purpose is the purchase (or gift) price plus legal and any improvements made over the period of ownership.  Becasue this is a 'documented' ruling, you have to produce the receipts for the work done when presented to the Secretary of Hacienda and Public Credit. 

In a similar case involving a house in West Vancouver, I had to produce over $140,000 of actual receipts to the CRA for improvements to a new purchase made by a US citizen.  The CRA only accepted 50% of the receipts because the receipts clearly pointed out that much of the work was actually repairs due to previous water and insect damage. The CRA's ruling was that much o fthe work had to be done anyway (I replaced the roof on my house this year and have discovered carpenter ants in a house I have lived in for 38 years) and the CRA only allowed the Improvement part of the bill and not the cost for the remedial work.  i.e the rotten deck was doubled in size, dormers were put in the roof, the downstairs bathroom was doubled in size.

Hope it helps.
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David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $400 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada.
 
This is not intended to be definitive but in general I am quoting $800 to $2,800 for a dual country tax return.
 
$800 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,000 would be the same with one rental
 
$1,200 would be the same with one business no rental
 
$1,200 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,500 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,600 would be for two people with income from two countries

$2,800 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $150.00 up.
 
With a Rental for $350
 
A Business for $350 - Rental and business likely $450
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $800 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.
 
Just a guideline not etched in stone. 
 
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