Visa Status and Capital Gains Taxes

[Hound Dog]

In 2008, I understand there was a significant change in the law regarding capital gains taxes on the sale of a private primary residence owned by a foreigner in Mexico. In this country, if you hold a private primary residence for a certain period of time, you need not pay capital gains taxes upon sale at a profit. Since the capital gains tax is normally quite significant, this is an important provision of the law which can save the seller a large sum of money upon sale of the property.

The change, as I understand it, is that, beginning in November, 2008, one must reside in Mexico under FM-2 status or "inmigrado" status or as a naturalized citizen in order to take advantage of this tax exemption. In the past, residents iving in Mexico under an FM-3 status were also eligible for the capital gains tax exemption but no more.

For those of you unaware of the difference between FM-2 and FM-3 residency visa status, suffice it to say that the FM-2 is a path toward permanent residency whereas FM-3 is more like an extended tourist visa for those planning to reside in Mexico for a limited amount of time or only periodically . An important feature of an FM-2 visa is that, during the five years of its term, the holder is not allowed to be out of Mexico for more than 18 months in the aggregate. Therefore, an FM-2 is not appropriate for part time residents who may live in Mexico part of the year and some other country for part of the year. For instance, snowbirds who come to winter in Mexico and return to their native lands in the summer.

If this change is correct, this may have a significant affect on those living in Mexico only part time as they may no longer be able to invest in residential properties with the notion that they will sell those properties without incurring a capital gains tax liability in the future.

This change in the law may have a significant impact on future residential property sales in such places as San Miguel de Allende and Lake Chapala with their large expat populations. We are fortunate to be FM-2 holders but are wondering if those of you who are FM-3 holders have looked into the provisions of the new law and could enlighten the readers, especially those planning to move to Mexico and invest in residential real estate, as to the law's ramifications from your point of view.

[RVGRINGO]

Has the law actually been changed, or simply interpreted differently? A similar attempt was made to re-interpret the qualifications for a Mexican drivers license and was quickly 'broken' when put to the test. Then, there was an attempt to re-interpret the qualifications to obtain DIF or INAPAM cards for those on FM3 visas. We were personally involved in getting that overturned and now have both cards. We have just begun the process of 'testing' the ability to become naturalized or 'inmigrado' directly from FM3 with over five years residency. It may take some time, but we are encouraged. As a part of that process, we're also going to attempt to permanently import our non-NAFTA 1999 vehicle. We are told that there are many 'holes' in the laws, as well as protections in the law, which prevent new laws from causing 'injury'.

[Hound Dog]

Originally Posted by RVGRINGO

Has the law actually been changed, or simply interpreted differently? A similar attempt was made to re-interpret the qualifications for a Mexican drivers license and was quickly 'broken' when put to the test. Then, there was an attempt to re-interpret the qualifications to obtain DIF or INAPAM cards for those on FM3 visas. We were personally involved in getting that overturned and now have both cards. We have just begun the process of 'testing' the ability to become naturalized or 'inmigrado' directly from FM3 with over five years residency. It may take some time, but we are encouraged. As a part of that process, we're also going to attempt to permanently import our non-NAFTA 1999 vehicle. We are told that there are many 'holes' in the laws, as well as protections in the law, which prevent new laws from causing 'injury'.

Good point, RV. We are reporting what we assume may be a change in the law based upon a post made on another forum asserting that a change had actually taken place. Part of the reason I posted this comment was to get feedback from other members as to whether or not the law had changed and, if so, what the ramifications of that change were. Those of us who are property owners in Mexico benefit from having as widespread a market as possible when reselling so I am all for meintenance of the status quo.

As holders of Jalisco driver´s licenses and Chapala issued DIF Cards, we are familiar with the turmoil created by proposed changes in issuance rules which never came to fruition - at least to date - so we are posting the above comment to clarify whether or not rules on capital gains exemptions have changed. Perhaps I´ll look into this further and get back to the forum with that clarification. No sense in needlessly stirring the pot.

[HolyMole]

I've been under the impression that most full-time expats, including those who purchase real estate, don't bother with FM2's....they simply keep renewing their FM3's.....some of the reasons being the higher income requirements for FM2 and the time-spent-out-of-Mexico travel restrictions. Is this not the case?

A request: When you are using acronyms, (DIF, INAPAM, etc), could you write-out the full description, in English or Spanish, the first time you use the acronym, so those of us not familiar with them can better understand? Thanks.

[Hound Dog]

Originally Posted by HolyMole

I've been under the impression that most full-time expats, including those who purchase real estate, don't bother with FM2's....they simply keep renewing their FM3's.....some of the reasons being the higher income requirements for FM2 and the time-spent-out-of-Mexico travel restrictions. Is this not the case?

A request: When you are using acronyms, (DIF, INAPAM, etc), could you write-out the full description, in English or Spanish, the first time you use the acronym, so those of us not familiar with them can better understand? Thanks.

You are correct but there was a thread on another forum saying that a new law had passed or an old law had been clarified as of the first of this year. The law was supposed to restrict the capital gain exemptions to Mexican citizens and holders of FM2.

We are here on an FM2 so we will not be affected but I suspect it would affect the realestate market if this was correct.

By the way RV, did people who had the elderly discount cards get a discount this year on their water and the property taxes in Chapala?
Down here in San Cristóbal de las casas (Chiapas), where there are few foreigners relative to the size of the community, we got 30% off on the annual water assessment and 50% off on the property taxes. Chapala has always refused to give us the DIF Card discount on water and property taxes because we are foreigners even though we hold FM-2 visas. That is clearly discrimination.

DIF or SNDIF is the National Agency for Family Development


INAPAM Instituto Nacional de las Personas Adultas Mayores (old folks institute).

[RVGRINGO]

Chapala continues to have a local rule requiring citizenship for the discounts. I understand that Jocotopec does give the discounts.

[bournemouth]

Originally Posted by HolyMole

I've been under the impression that most full-time expats, including those who purchase real estate, don't bother with FM2's....they simply keep renewing their FM3's.....some of the reasons being the higher income requirements for FM2 and the time-spent-out-of-Mexico travel restrictions. Is this not the case?

A request: When you are using acronyms, (DIF, INAPAM, etc), could you write-out the full description, in English or Spanish, the first time you use the acronym, so those of us not familiar with them can better understand? Thanks.

HolyMole - you will find Sr. Google is your friend if acronyms puzzle you.

[HolyMole]

Originally Posted by bournemouth

HolyMole - you will find Sr. Google is your friend if acronyms puzzle you.

Thanks bournemouth. I sometimes forget that Google includes foreign-language stuff.

I wasn't aware that Mexico offers a discount program for expats. Panama also has one that's quite attractive, I've heard.
In Mexico, this sounds like a national program, but appears to be entirely local in its application, right?
Out of curiousity, how do the locals feel about (relatively rich) gringos getting discounts on things like property taxes and other services that Mexican nationals have to pay more for? In our area of British Columbia's Okanagan Valley, there are a fair number of Europeans.... many of them from Germany.... who buy lakefront and other prime property which, although very expensive by Canadian standards, is a steal compared to similar property in Europe. Personally, I would be outraged if these well-heeled expats were being subsidized by my government with lower property taxes, etc.

[RVGRINGO]

The discounts are for everyone who is over the age of 60 and has applied for and obtained the appropriate DIF or INAPAM cards. It appears that local governments can initiate their own rules for local taxes; some require citizenship, others don't. There is come controversy over that and it is subject to change if it conflicts with national laws.