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Understanding Capital Gains

Posted by Ray Smith on February 8, 2018
| 0

You may think you understand Capital Gains, but you probably don’t. In Mexico, foreigners are taxed 25% for profiting on real estate transactions. This is referring to selling your vacation condo or property and realizing a gain. So here is where you need to pay attention. You may think you are paying a certain amount of capital gains tax and if you have owned that property for 3-4 years, you will find out that it is much higher than you expected. So here is why!

Profit is always calculated in Mexico pesos. So you may have purchased a property for $200,000 US$ in 2013 and sold it Feb 2018 for $240,000 US$. You think you have a gain of $40,000 and of that amount, you will lose 25% in taxes (approximately $10,000 US$) but you are wrong!

The Mexico government, through the Notaries, calculate the purchase price of your property in Pesos at the historic exchange rate when you purchased it. In our example using Oct 2013, the exchange rate was 12.8 pesos to 1 US$. Today, February 7, 2018, the exchange rate is 18.77 to 1.

$200,000 USD in October 2013 (12.8 to 1) would mean your property was purchased for $2,560,000 pesos.

$240,000 USD 7 February 2018 (18.77 to 1) would mean that you sold your property for $$4,504,800 pesos

Capital Gains Calculation ($4,504,800 less $2,560,000 = $1,944,800 profit) Selling price – purchase price.
The balance is taxed at 25%  $1,944,800 x 0.25=$486,200 pesos or at today’s currency exchange $25,903 US$

You originally thought you were paying approx $10,000 US in capital gains, but with the difference of the rate of currency exchange from 4-5 years ago to now, increases your capital gains to almost 2.5 times as much.


You thought you earned $40,000 profit and after taxes would have a net profit of $30,000 but you were wrong. In reality, after paying the $25,903 US, you made less than $15,000 US. So before you sign the deal to sell your condo or home in Mexico, know your real after tax payout.