Tuesday, November 07, 2006

What's the Story with Capital Gains Taxes in the Riviera Maya

Local Professional Clarifies the Issues between Capital Gains and the New Mortgage Financing Opportunities

By Shawn Bandick

Hello Everyone. It has been a while since I have made the time to write an article. Now be sure it is not that I didn’t have anything to write about! On the contrary it is completely the opposite, there is just so much to say.

Today let’s touch on two major topics Mortgages, Capital Gains Tax.

I am seeing confusion among the buyers, about mortgages. Let me give you the straight scoop as of today. In many cases the consumer is hearing, yes you can get a loan and then the confusion starts. It is such a different market here that the consumer wouldn’t even think of all the challenges they may face in getting a loan here in Mexico. Now don’t get me wrong there are some great loan brokers out there who will do everything they can to help you, but getting the loan might only be part of the challenge. After your approval you have to find the acceptable property with a flexible seller. Also please be aware financing may be easier and more established in other areas of Mexico out side of Playa del Carmen and the Riviera Maya.

First let’s be clear on what properties you can get a loan on. This is a changing part of the puzzle and I’m sure in the near future more options will be available but right now it is unlikely that you will be able to get a loan for commercial investment, rental property (apartment Building) or raw land. I know some lenders are very close to having construction loans available and are working on options as we speak. Now if you want to buy a family vacation home or condo then you have a good chance to get financing. Take note you are going to need to pick a property that has all the city paperwork ready. What does that mean? Well it means that new construction or preconstruction will not have all the final paper work registered with the city including individual title. So you need to choose a condo or house that is not new and has all the title work in place already. Sometimes we find people selling houses that they have had for years and they never went through the title process! This is not so unusual here but it will be a problem for your finance company. Also most lenders do not want to hear that you intend to rent this property out. The challenge here is that it now sounds like a rental investment and they want it to be your second home. Most are okay if you say you may have some incidental rental when your family and friends are not using it, that’s easy!

Let’s talk about sellers. Suppose you find just the right property. Well you may still have some challenges with the seller. Why is that? Well the government is getting stronger on collecting Capital gains tax. The seller may not want to put the full selling price on the paperwork otherwise he will get hit with a substantial capital gains tax. Unfortunately everyone seems to have their own point of view on this and I have seen first hand where sellers will wait for the cash buyer so they can make their own deal.

Now let’s say you make your purchase. How will you set yourself up so you don’t pay any more capital gains tax than you have to? At the time of this writing here’s what you as a foreigner have to do. When you purchase your property you apply for an FM3 as a retiree or an investor. On the FM3 you have your new property address as your residence here in Mexico. You have your contract of sale, your trust, your Fm3, and all your bills with your name and the property address on them. Then, as of the law today, when you sell (minimum of two years latter) you can show all this information and you will not have to pay capital gains. I know it sounds like a lot, but like anywhere investment property pays capital gains and your resident may not if you qualify for an exemption so take the time to set it up properly in the beginning.

That’s it in a nut shell.


Shawn Bandick is originally from Canada, a published author, and owns One Stop Real Estate (www.onestopmc.com). He can be reached by email at shawn@onestopmc.comThis email address is being protected from spam bots, you need Javascript enabled to view it This email address is being protected from spam bots, you need Javascript enabled to view it or by phone at +52(984)100-5016 mobile 984 803 3739 office

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