Capital Gains and The Fideicomiso

Getting Started with a Listing

When you receive a new listing, your first priority (beyond pricing) is to:

• Verify the original deed (Escritura Pública): This can be a fideicomiso, donación, or compraventa.

• If the deed is lost, you must request a Segundo Testimonio or get a certified copy from the notarial archives.

• Verify seller status: If married, check if both spouses must sign. If the seller is deceased, check inheritance and obtain a power of attorney (POA) if needed.

Essential Documents to Collect

• Original deed (not a copy)

• Valid passport scan (color, not a photo)

• Social Security Number (SSN) with a physical document showing the number

• Recent utility bill with the seller’s name and property address (water, electricity, landline)

• RFC (Tax ID): Needed for capital gains and exemption analysis

Understanding Exemptions

• Not all sellers qualify. To qualify:

  • Must be a fiscal resident of Mexico (declaring worldwide income here)

  • Must have an RFC with tax obligations listed

  • Provide six months of utility bills with their name and RFC on the address

  • Cannot have used an exemption in the last 3 years

• Exemption limit: ~700,000 UDIs (≈ MXN 5M) per person

Strategy for Capital Gains Tax

• Default tax for foreigners: 35% of the gain in pesos

• Strategies involve:

  • Proving improvements (mejoras) through facturas (not furniture or appliances)

  • In some cases, using avaluos de mejoras (appraisal of improvements) when there are no invoices

  • Adjusted gain = [Sales price] – [Adjusted acquisition cost] – [Deductions]

  • A few notaries may offer a strategy with 50% of the gain treated as a “coverage fund”

Construction, Manifestation & Public Registry

• If the construction is not manifested, seller must pay a 0.5% Inmatriculación Tax

• A complete construction record includes:

  • Manifestación de Obra: Declares value and completion

  • Terminación de Obra: Confirms the build is finished and declares the same value

• Add clauses to contracts making the seller responsible for manifestation and taxes

Legal Entities (LLC, Mexican Corp, Trusts)

• All shareholders must be identified

• For U.S. LLCs:

  • Submit Articles of Incorporation, Operating Agreement, Good Standing Certificate

  • POAs notarized and apostilled

• Mexican corporations: Require monthly/annual filings — not always recommended for individuals

• Trusts: Generally beneficial for foreigners; make inheritance simple and tax-free for beneficiaries

Payments & Anti-Money Laundering Rules

• Source of funds must match the entity on the contract

  • Individuals must pay from their personal accounts

  • LLCs/trusts must pay from the official entity’s account

• No third-party payments without full identification and documentation

CFDIs (Digital Tax Receipts)

• Required since 2014 for any property purchase

• No CFDI = no purchase basis = default basis = 10% of sales price (big tax hit)

• For pre-2014 purchases, contracts and payment records may be accepted

Trusts, Beneficiaries & Inheritance

• Trusts simplify inheritance — no probate, no inheritance tax

• Clients should:

  • Name substitute beneficiaries

  • Provide proper names and documents for substitutes

  • Understand that substitutes can update their own successors later

• If a substitute dies, their share may require probate unless “percentage increases to the survivor” is specified

Tips for Working with Clients

• Never promise full exemptions — always say it’s subject to notary/legal review

• Ask for:

  • Utility bills

  • Records of improvements

  • When they acquired the property

• Run capital gains worst-case scenarios upfront

• Prepare the seller early to avoid surprises at closing