Capital Gains Information

By Lloyd Real Estate

THE 2007 MEXICAN TAX CODE RELATING TO CAPITAL GAINS IN THE SALE OF YOUR HOME

Dear Lloyd Client:

The New Year brought in significant changes as to the conditions that you could apply in order to reduce the payment of Capital Gains taxes when selling your property. (Please note, that the maximum tax on total income a person is liable in Mexico, has been reduced from 29% in 2006, to 28% in 2007)

In order to explain these changes, we would like point out first, how these new regulation affect all Mexican Nationals. Then we will point out how a foreign person may in some cases, also apply to obtain these benefits:

A. In order to be exempted from paying any Capital Gains Taxes, you must have owned and lived in the property for a minimum period of 5 YEARS AND NOT SOLD ANY OTHER PROPERTY WITHIN THE LAST 12 MONTHS. (Fiscal year)

B. If you have owned and lived in your property LESS than 5 years, then you are subject to pay taxes on the amount that exceeds a selling price of 1,500,000 UDIS* (Approximately, 5,700,000 pesos or about $ 500,000 US/DLLS). Again, this benefit applies only if you have not sold any other property within the last 12 month period (Fiscal Year)

C. As before, it is mandatory that ALL transfer of property be made before a

NOTARIO PUBLICO or "Notary Public".

The NOTARIO is held responsible by law, to ascertain that all property

Titles are clear of all encumbrances and that the corresponding amount of due taxes have been withheld and in turn, paid to the Authorities. Also, prior to the transfer of any property he must obtain written confirmation from the Government tax office, that seller has not sold another property within the last 12 months. (Fiscal Year)

How this law applies to Non-Mexican residents:

1. If you now hold "Imigrado" status (FM-2), you can also apply for the above
mentioned benefits.

2. At time of this writing, there were no clear rules as to the conditions that these tax changes apply to holders of (FM-3) Status. Therefore, it is suggested that you consult your NOTARIO as to the latest legal aspects applicable to this immigration category.

* An "UDI" is a Mexican peso unit that for investment purposes is tied to the annual National inflation rate. (Value of an UDI on Jan. 10, 2007 = $ 3.7971 pesos.

Note: The above basic tax explanation was written based on the latest legal advice obtainable. You must be aware, that some changes are expected due to reviews being offered before the Mexican Courts.

For a more in depth explanation on the above, please read: Legal FAQ's