Income Tax Exemption For Disposition (Sale) Or Otherwise Transfer Of (Conveyance Of Title To) A Residential Dwelling
Many of our clients have had questions regarding the exemption of Income Tax upon the disposition (sale) or otherwise transfer of (conveyance of title to) their residential dwelling, the rules with regard to same, as well as the documents required for such. We therefore decided to group these together in this article in the hope that we can clear up doubts and/or questions on the issue.
1. I am a foreigner who acquired a residential dwelling through a Trust. I am currently in the process of disposal (sale) or otherwise transfer of (conveyance of title to) the dwelling, and would like to know if I can be exempt from the Income Tax.
Yes. In Official Letter No. 600-04-04-2010-67607, dossier SAT-325-04-01-/379/08, dated May 4, 2010, the Central Administration of Internal Revenue Regulations of the Tax Administration System established that an individual of foreign nationality with the immigration status of Immigrant (FM2) or Permanent Resident, who disposes of (sells) or otherwise transfers real property (conveys title) within the National Territory may possibly be able to take advantage of being exempt from payment of Income Tax stemming from said disposal (sale) or otherwise transfer (conveyance of title) of such real property.
2. We are foreigners who decided to purchase a lot for our residential dwelling, and we purchased said lot through a business corporation. Can we be exempt from Income Tax?
No, because the exemption set forth in Article 109, Section XV, subparagraph a) of the Income Tax Law, is found in Title IV of said Law, and therefore, only applies to individuals.
3. I am a foreigner and directly acquired ownership of a residential dwelling outside the restricted area. Can I be exempt from the Income Tax when I dispose of (sell) or otherwise transfer (convey title to) said residential dwelling.
Yes, provided you have the immigration status of Immigrant (FM2) or Permanent Resident.
4. I want to dispose of (sell) or otherwise transfer (convey title to) my residential dwelling. What are the requirements I need to meet in order to be exempt from the Income Tax?
The requirements that must be met are as follows:
A) That the amount of the consideration obtained does not exceed 1,500,000 (one million five hundred thousand) investment units. This limit does not apply when the person transferring ownership (grantor) evidences having resided at his/her residential dwelling for a period of five years immediately preceding the date of disposal (sale) or otherwise transfer of (conveyance of title).
B) That the transaction is carried out before a Notary Public.
C) That during the five years immediately preceding the date of disposal (sale) or otherwise transfer of (conveyance of title) in question, the taxpayer had not disposed of (sold) or otherwise transferred (conveyed title to) another residential dwelling for which he/she obtained the exemption as prescribed in this subparagraph and, under penalty of perjury, states such circumstances to the notary public before whom the transaction is formally recorded (i.e., entered in the book of Notarial records).
D) That the total surface area of the buildings that make up the taxpayer's residential dwelling does not exceed three times the total surface area of the land.
5. What documents do I need in order to be exempt from the Income Tax?
The supporting documents are as follows:
I. Voter identification card, issued by the Federal Electoral Institute.
II. Proof of payments for the electricity or landline telephone services contracted.
III. Account statements provided by the institutions that make up the financial system, or commercial firms, or non-bank credit cards.
The documentation referred to in the foregoing sections should bear the name of the taxpayer, his/her spouse, or his/her relatives in the direct line of descent or ascent.
IV. Passport and Immigrant or Permanent Resident (Mexican) immigration document.
6. What are the UDIs?
These are Investment Units – a unit of value as determined by the Banco de Mexico in order to settle or satisfy the obligations of mortgage loans or those of any financial or commercial act.
7. - What value do the UDIs have currently?
Being that the UDIs are a protection of sorts against currency devaluation, their value in pesos is updated daily in order to maintain the purchasing power of the currency and is published daily in the Official Gazette of the Federation (Mexico). The value of the UDIs is established according to the variation of the Mexican Consumer Price Index (Indice Nacional de Precios al Consumidor or INPC or IPC in Spanish), i.e., taking into account inflation. This leads to interest rates being fixed and stabilizes debts (Wikipedia).
Today, its value is approximately $4.59 pesos.
8. - How do I know if the value of my residential dwelling exceeds the value of 1,500,000 UDIs?
If your transaction were to be carried out today, the value would be calculated as follows:
Value of the UDI = $4.59 pesos (approximately)
(=) $6,885,000 pesos (approximately)
In the event the value of your property exceeds the amount mentioned in the foregoing paragraph there would be an Income Tax payment for the difference (surplus).
This shall be applicable only when the exemption requirements are met as established in Article 109, Section XV, subparagraph a) of the Income Tax Law, as well as those established in Articles 129 and 130 of the Income Tax Law Regulation.
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