Determining the price of real estate property is not an easy task. Many specific factors have to be considered in this process, such as the price of the land, materials and finishings, and the age and condition of the construction. And then there are also other factors that must also be considered, but that are somewhat relative, like supply and demand or location. In any case, whatever amount you agree with the seller as the purchase price, has to be accurately stated in your purchase deed. It has been a common practice in Mexico that, at the request of the seller, the purchase deed states a price on the property lower than the actual price the buyer paid for. This is done to reduce the capital gains tax that the seller has to pay, but if you are buying and you get this proposal, you should decline it for your own benefit.
So what can happen if the correct price is not stated in my purchase deed?
If when you bought you agreed with the seller to state in the purchase deed, a price lower than what you actually paid for, you can later have a problem when you try to sell the property. This problem will be that you will end up paying more capital gains tax than what you really should, since your acquisition price will be very low compared to what you are selling for. This is why you should verify with your real estate agent and your attorney that the price you are paying is the actual price stated in the deed.
And the tax authorities will follow the money ….
Tax and money laundering regulations have become stricter in Mexico during the past couple of years. These regulations involve not only seller and buyer in a real estate transaction, but also other parties such as Notaries and real estate agents. Raising a flag to the tax authorities, either from Mexico or abroad, is something you should avoid by having a transparent transaction regarding the price of your property.
