Mexico Real Estate - The Importance of Catastral Manifestation
By Max Guerrero
When buying land in Mexico, it’s very important to make sure that the price stated in your Trust is the price that you paid for your Property. When you receive your Trust from the closing agency you should also receive a piece of paper called “Manifestación Catastral” which states the price that you paid for the Property.
You might hear that you will save money on the acquisition tax if you register your property at a lower value. Although this may be initially true, the long term effect can be detrimental when you sell your property.
Acquisition tax is only 2% of the purchase price, but whenever you sell your Property, your Capital Gains Tax will be 29% of the difference between the price that was recorded in your Manifestation and the price established on the Trust for your buyer after allowed adjustments to that basis.
Things get more complicated when you decide to build on your lot, as you will need a construction license to do so. When you request the construction license, they will ask for a value to assign to the construction. Based on that value, they will assess a 2% charge for taxes and rights. Whenever you finish your construction, you will need to file for a Termination of Construction, which will establish the value that you assigned to the Construction License.
After you have your Termination of Construction, you will need to go into Catastro and record your construction. You will receive a “Manifestación Catastral” showing both the value that you paid for the lot as well as the value that has been assigned to your building (Based on what you assigned to it when you filed for your construction license).
Whenever your Property is sold, the Capital Gains will be based on the price that you paid for your Property (Including building as recorded in the Termination of Construction) and the price that you sell your Property for. An income tax of 29% will be assessed on the adjusted gain.
Therefore, our advice to you is to always record both your lot and your construction at the actual price that you paid for them. You might have to pay a higher acquisition tax and construction license, but in the long term you will save a considerable amount on the Capital Gains generated from the sale of your Property.
In case you’re reading this article and thinking to yourself that probably you didn’t manifest at the correct value, give us a call or send us an e-mail. We willrequest some information and documents from you to assess the status of your property and let you know if we can help with a solution.