Mexican Law/taxes

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QUESTION: I am a citizen of the USA and a Residente Permanente in Mexico.  I bought a house in 2004 for about $1.1 million pesos and spent about $1.8 million pesos to remodel it.  The Notary put $284,000 pesos on the escritura which I signed without knowing it's importance.  In 2006 I bought a lot for $625,000 pesos and the notary put $310,000 pesos on the escritura.  I sold part of the lot last year and paid a lot of "Phantom Tax."  I have read that I can go to the local Catastral to have the rest of the lot revalued which will cost more annual property taxes but will give me a larger cost basis when I sell.  My two-part question is:  a.  Is this true?  b.  Can I do the same thing with the house?  Thanks in advance for your help.

ANSWER: Hi James,

The custom in Mexico is to always list the tax value (valor predial) in sales contracts and not the market value. This is done to minimize taxes. The persons who sold you the house and lot saved lots on taxes because the amount of the sale for tax purposes was the "valor predial" and not the actual amount you paid (market value).

I would suggest that you do not buck tradition. I would not try to elevate the tax value of your properties. When you sell, you should also have the Notario pay taxes based on the increase of the "valor predial" and not based on the actual sales price.

Hope this helps...

Lic. John Lee Ward
Córdoba, Veracruz

---------- FOLLOW-UP ----------

QUESTION: Thank you for your response.  It is my understanding that it is becoming more difficult to find both a Notary and a buyer willing to use the "valor predial."  I am trying to weigh all my options so I would still like answers to my questions:  a.  Is this true?  b.  Can I do the same thing with the house?

Answer
Hi James,

In my experience, the custom of using the "valor catastral" (same es predial) is still the norm. However, what is changing is that there is a trend towards making the "valor catastral" reflect actual market value and many local governments are starting to do re-assesments every few years. In the past, a property could go decades without being re-appraised.

John

Mexican Law

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John Lee Ward

Expertise

I can respond to any question related to Mexican Law and common business practices in Mexico. I can also compare and contrast between the American and Mexican legal systems.

Experience

Licenciatura en Derecho from the Universidad del Golfo en Cordoba, Veracruz. (Cedula Profesional No. 5713238) Maestria en Derecho from the Universidad de Cristobal Colon en Veracruz, Veracruz. (Cedula Professional No. 6358321) Currently a Candidate for a Doctorado en Derecho from the Universidad de Cristobal Colon. 5 years of litigation experience in Mexico.

Education/Credentials
Bachelors in Electronic Engineering, California Polytechnic State Univ. Juris Doctor, Concord University in Los Angeles Licenciatura en Derecho, Universidad del Golfo, Mexico Maestria en Derecho, Universidad de Cristobal Colon, Mexico Doctorado en Derecho (In Progress), Universidad de Cristobal Colon, Mexico

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