When you grow up in a country that has the richest nation in the world as neighbor, being constantly aware of the exchange rate between both currencies becomes part of your life. I’m not sure if this applies to Canadians, but for sure it applies to us Mexicans. Our economy is still dependent on the U.S. economy. Many things in our internal economy are ruled by the U.S. dollar, and many transactions in Mexico are priced in U.S. dollars. For us the price of the U.S. dollar against the Mexican pesos has always been a sign of how our economy is doing. We have seen here an expensive U.S. dollar many times before and you learn to become very cautious when it comes to engaging in transactions priced in U.S. dollars, because eventually they can cost you a lot of money.
So if you are foreign and you have property in Mexico, can a strong dollar make you lose money?
The expensive dollar that we have seen in the past months (in Mexico economists now call it the “Super Dollar”) is a global phenomenon and not exactly a sign that the Mexican economy is not doing well, but more of a sign that the U.S. economy is out of its recession. However, it can still affect you if you are planning on selling your property here in Puerto Vallarta due to the Mexican Capital Gains Tax.
How? Let’s make some numbers.
Even though transactions in Mexico can be agreed and contracted in U.S. Dollars, for tax and legal purposes the amount to be paid has to be converted into pesos at the official exchange rate published by the Mexican Central Bank for the date in which the payment is done. So let’s say that you bought your property in Mexico five years ago and you paid USD$200,000.00 for it. Back in 2011 the exchange rate was around MXN$12.00 pesos for USD$1.00 dollar, so in Mexican pesos you paid MXN$2,400,000.00 pesos. If you want to sell now in 2016 for sure you want at least to get the amount you paid for your property (meaning the USD$200,000.00), but in pesos that amount is now much higher because of the exchange rate, which is around MXN$18.00 pesos for USD$1.00 dollar, meaning that you are selling your property for MXN$3,600,000.00 pesos. That’s an increase of 50%.
Therefore, selling your property now at the same price you bought it, still means for the Mexican Government that you have a 50% capital gains on the price. In the example I was mentioning above, for tax purposes you would have a gain of MXN$1,200,000.00 pesos which are USD$66,666.66. To that amount, and depending on your resident status, you might be able to apply deductions, but in the end you will probably still have to pay some amount for capital gains tax (about 35% of the final gain).
So if you have interests in Mexico, now you are aware of one of the ways a volatile exchange rate between the U.S. dollar and the Mexican Peso, can impact your patrimony.
