CAPITAL GAINS TAXES 2007.

THE TAX EXEMPTION.

In México, The Capital Gains Tax is part of the Tax known as "IMPUESTO SOBRE LA RENTA", (ISR) which taxes individuals and corporation’s income.

This year there will be two types of tax exemptions.

I.- One type of exemption applies for 100% of the selling price if and when you are able to prove to the Government that you have lived in the property for at least 5 consecutive years, have a telephone, electrict or Gas bill for each year and have a Mexican Nationality or Inmigrado status if you are a foreigner. (We are currenly trying to determine if an FM2 is acceptable. The second option is to exempt an amount equivalent to 1,500,000.00 invesment units (which equals approximately $5,750,000.00 pesos or $518,000 US Dollars at an exchange rate of 11 pesos per dollar). The exedent will be taxed according to the established bracket in IV chapter of the Law for Mexicans and 28% for foreigners.

The first type of exemption will be granted once every five years and the second type once a year.

Some of the requirements a foreigner must have to be able to apply for exemption are: (The Notary is the only one who authorizaes the exemption and calculates the tax if any as he is legally responsible for the collection of the Capital Gains Tax)

1.- Have an FM2. Most notaries are not accepting FM3 when exempting sales. Talk to us about this.

2.- Have receipts for either electric, gas or telephone, in your name or spouse, parentsor children showing the correct address matching the address on your title.

3.- State under oath that the property is your residence and you have no other residences anywhere in the world or if you do, that your primary residence is Mexico where you are registered to pay taxes (A notary may request to see your tax registration).

If you comply with these requirements, you can apply for one type of exemption according to your situation. There are a few other ways to reduce Capital Gains Taxes so talk to an expert about Improvements Appraisals.

Other acts that are exempted from paying the tax are:

1.- Donations to your spouse, parents or children.

2.- Inheritance. It is important that you name death beneficiaries and that their names are included in the deed. This will make it easier for them to dispose of the property.

3.- Selling, for the first time, regularized parcels (Ejido parcels that have been regularized).

Commercial property and lots are not excepted from paying Capital Gains Tax.

WHO PAYS CAPITAL GAINS TAXES?

If you are one of those owners who, every time they come to México, you do it on a tourist VISA, it will be hard to qualify for tax exemption, since a tourist card allows you to stay in the country for periods of only 180 days at a time. Besides, airport immigration will request that you return the Tourist card to them when you leave México, which will leave you with no record of the amount of time you have stayed in the country.

Tourists, who have purchased real estate and wish to sell it, will have two options when paying their income tax (capital gains tax)

First Option: 25% of the total sales price.

Second Option: Mexican law provides that foreigners can opt to pay 28% on the amount that represents the difference between the purchase price and the selling price.

If you know, based on the information you have read so far that you do not qualify for tax exemption, request your attorney or real estate agent to help you figure out which option is best for you. Your attorney should obtain an estimated tax to pay, before you decide to list your property for sale.

At closing, the notary issuing the deed, will also calculate and collect all applicable taxes, including: transfer tax, property registration tax and capital gains tax.

I hope that this article is as clear as possible. Of course each case should be analyzed individually. A real estate attorney or professional real estate agent will help you find the best legal way to help you save on taxes. A few hundred dollars investment now could mean thousands of dollars savings in a future transaction.

LIC. ALEJANDRO NIÑO MERINO.

IGNACIO LUIS VALLARTA 441

COLONIA EMILIANO ZAPATA, PUERTO VALLARTA, JALISCO

011 52 (322) 22 35674.