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Subject: buying real estate in Mexico
Expert: taxman@centa.com
Date: Sunday April 20, 2008
Time: 08:56 PM -0000
QUESTION:
Is it safe to buy a not yet built condo in Mexicoalive.com [Puerta Vallarta]. My Realtor is doing so and is very confident about the investment. What does one need to know before jumping in to such an investment?
Thanks
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david ingram replies:
I am not sure if you are a Canadian or an American. I am answering
this for both sides of the line.
If your Realtor is also selling the units, all he or she has to do is
sell 20 units to others to get one free for himself or herself. The
fact that your Realtor has bought is possibly the last reason to buy.
I am not making any observation about whether Mexico is a good or bad
place to buy. I have dozens of clients who have bought in Mexico and
are happy. Their sad day is when they get too old to continue to go
down. My ex wife of 20 years (who is sleeping on the couch behind me
now) has spent five months a year in Mexico since she rode off into the
sunset. My next door neighbour of ten years who retired to Pender
Harbour in the summer and Mexico in the winter two years ago at 50 just
died in Cabo (obit in yesterday's Vancouver Sun) and my associate David
Holroyd who works with me for five months a year moved to Guadalajara
Mexico 14 years ago and even became a Mexican citizen. He is sleeping
downstairs right now as well. Mexico is a marvelous place. You have
asked about pre-construction purchases and my answer below applies
whether it is in Palm Springs, Whistler, downtown Vancouver OR Mexico.
You have to be very careful about what you buy.
I have not and will not at this time comment on the specific project
you mention because it is tax time and I have no time or inclination to
research a specific unit or project now. HOWEVER,
It is NEVER safe to buy a pre-build if you are putting up a lot of
resources and the outcome represents a lot of your net worth. Anything
in Mexico is dependent upon North American buyers and in particular US
resident buyers. My experience is that US people are sellers, not
buyers at the moment. A lot of Americans are selling their BC
properties now because they need the money to cover their US losses.
But, some general rules about buying prebuilds in general are:
1. Buy in a start-up or emerging real estate market.
2.
Look to see what other organizations are building in the area. Big
names like
Four Seasons, or Bosa, means that you probably have an increasing
market. It is NOT a guarantee however.
3. Look at the developer's financials closely. Several Vancouver
projects have either collapsed or refunded the purchaser's down payment
because the developers were unable to complete. Although the
purchasers did not lose their money, they lost the potential profit and
if they had sold their old home to get in to the new development, are
now out of the market. Get a local financial person who is unrelated
to the project in any way to give you an opinion in writing about the
project.
4. If money is important, only buy in well known big resorts.
5. Stay away from phase 2 and phase 3 projects.
Buy Phase One of three phase pre-construction. Wait until lots are
sold. You lose the best pick but have a better chance or the project
going ahead.
6. Walk the spot. You are only buying what is already there for
sure,. If it is just a lot with a sign and a pretty mock up unit, you
are buying pie in the sky. - Remember those financials. Is a real
person behind it or only a couple of numbered or shell companies that
have no assets.
Last, but not least. It is easy to get excited about a sales
presentation. In 1967, I worked for Gulf American Land Corporation.
We sold some 5,500 lots in a place called Cape Coral Florida to
Canadians from Winnipeg, Toronto and Montreal. Ii am pleased and even
proud to say that today Cape Coral Florida is recognized as one of the
prime retirement areas in the world. We sent four Convair 990 jet
planes full of Canadians to Florida for a 3 day and 2 night viewing of
what they had bought at a presentation at the Four Seasons in Toronto,
the Charterhouse in Winnipeg or the Queen Elizabeth in Montreal. We
flew 132 people a plane load at the time and less than 3% of the
purchasers backed out. However, if they had escaped the captive sales
pitch and viewing they could have bought twice as much ten miles down
the road.
The same thing happened in Vancouver (in my opinion) when properties
at Sudden Valley in Whatcom County in Washington State were being sold
to Vacouverites. Even though it was only 30 miles away, people only
looked at the Sudden Valley property. If they had driven out of the
gates, they could get two or three or four times as much two miles down
the road.
This older question can help with the sale of the unit and IS
specific to Mexico.
QUESTION:
I are selling a Mexican property/house that was given to me from my
father.Do I pay taxes on the money I receive 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 because they can claim it as their personal
residence. In addition, because of notary and property transfer fees,
it is not unusual for a purchaser to sign documents stating a lowered
purchase price than actually paid to 'save' money on the purchase.
What happens with this is that the seller saved capital gains tax
because 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’s 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 disposal 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 actual profit. The cost price for this purpose is the
purchase (or gift) price plus legal and any improvements made over the
period of ownership. Because 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 of the 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.
--------------------------------
On April 6. 2008, David
Ingram wrote:
It is very unlikely that blind or unexpected email to me will be
answered. I receive anywhere from 100 to 700 unsolicited emails a day
and usually answer anywhere from 2 to 20 if they are not from existing
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and get answered first. I also refuse to be a slave to email and do
not look at it every day and have never ever looked at it when I am out
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However, I regularly search for the words"PAYING
CUSTOMER" and always answer them first if they did not get spammed out.
For the last two weeks, I have just found out that my own email notes
to myself have been spammed out and as an example, as I wrote this on
Dec 25, 2007 since June 16th, my 'spammed out' box has
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at and deleted and I have actually answered 1234 email questions for
clients and strangers without sending a bill. I have also put aside
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interesting. -e bankruptcy expert US Canada Canadian American
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Therefore, if an email is not answered in 24 to
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You can try and resend it but if important AND YOU TRULY WANT OR NEED
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Disclaimer:
This question has been answered without detailed information or
consultation and is to be regarded only as general comment. Nothing
in this message is or should be construed as advice in any particular
circumstances. No contract exists between the reader and the author and
any and all non-contractual duties are expressly denied. All readers
should obtain formal advice from a competent and
appropriately qualified legal practitioner or tax specialist for expert
help, assistance, preparation, or consultation in connection with
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included." e bankruptcy expert US Canada Canadian American
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David Ingram
gives expert income tax service & immigration help to non-resident
Americans & Canadians from New York to California to Mexico
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Phone consultations
are $450 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. ($472.50 with GST if in
Canada) expert US Canada Canadian American
Mexican
Income Tax service and help.
This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.
$1,200 would be the same with one
rental
$1,300 would be the same with one
business no rental
$1,300 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.
$1,600 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
$1,700 would be for two people with income from two countries
$3,000 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 $200.00 up.
With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.
A Business for $400 - Rental and
business likely $550 to $700
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 $900 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.
Catch - up returns for the US where we use the
Canadian return as a guide for seven years at a time will be from $150
to
$600.00 per year depending upon numbers of bank accounts, RRSP's,
existence of rental houses, self employment, etc. Note that these
returns tend to be informational rather than taxable. In fact, if
there are children involved, we usually get refunds of $1,000 per child
per year for 3 years. We have done several catch-ups where the client
has received as much as $6,000 back for an $1,800 bill and one recently
with 6 children is resulting in over $12,000 refund.
This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.
This from "ask an income trusts tax service and
immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax
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