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Real Estate Taxes in Mexico
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What is "Legal Residency" in Mexico?
Legal permanent residence is granted pursuant to Article 48 of the General Population Law and is evidenced by possession of an FM-2 visa. Temporary visitors on an FM-3 visa pursuant to Article 42, or on a tourist visa, are not considered permanent legal residents. In fact, the FM-3 document specifically states that the holder does not automatically acquire residency by merely holding the visa.
Building a Case for Exemption
Your Notario will carefully examine a "fact pattern" before deciding if you qualify for a homestead tax exemption when you sell your Mexican residence. By complying with as many of the points below, you can greatly increase your chance of obtaining a homestead exemption on your Mexican property:
- Obtain an FM-2 visa to establish legal and permanent residence. There are some Notarios in Mexico who will indeed grant holders of an FM-3 visa a homestead exemption to the extent that the seller qualifies under the tax laws. However, you will gain more credibility as a legal resident with the FM-2. Most Notarios will allow the tax exemption if you hold an FM2.
- Obtain a Mexican tax identification number, known as "RFC", to show that you take your tax responsibilities seriously. Remember: the homestead exemption is available to "taxpayers" per Article 109 of the Mexican Income Tax Law. What better way to prove that you are a taxpayer than by showing that you have a Mexican tax ID?
- Open a Mexican bank account that pays interest. The bank will withhold income taxes on your behalf, making you a taxpayer.
- Live in your home for at least six months. While there is now no time requirement to establish tax residence, often Notarios will want to see at least six months of continued residence at the house.
- Make sure that your utility bills are in the name of the person who holds title to the property. If the property is owned jointly, try to obtain at least one utility bill in the names of both persons. Gather at least six months of these utility bills as documentation for your Notario.
- Make sure that the address of the property is exactly the same as the address listed on your FM-3 or FM-2.
If you meet most of the requirements above, and you have been told that you do not qualify for a homestead exemption, you owe it to yourself to get a second opinion and possibly save yourself thousands of dollars in taxes. There are Notarios who follow the tax laws -- and who will grant you the homestead exemption, even if you only have an FM-3. You just need to make the effort to find one!
Raoul Rodríguez-Walters, CFP ® is the founding partner of Mexico Advisor, the only company in Mexico offering financial management, legal, tax and title services sunder one roof, to English-speaking foreigners wanting to live, retire or set up a small business in Mexico. Read more about the comprehensive, integrated services provided by Mexico Advisor at the website www.mexadv.com or you can contact Raoul at his San Miguel de Allende office: Correo #24, CP 37700 tel.: 415-152-0586;
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