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May 8, 2003, 9:44 PM

Post #1 of 1 (3258 views)


Taxes on sale of rental property

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Hello, Everyone.

We currently have a residential fideisicomiso because, when we built our home, we didn't intend to rent. Now we want to rent out the property part of the year and are exploring ways we can do this legally. (It is apparently illegal to use residential fideisicomiso property for commercial uses such as rentals.) So far what we've found out is that our alternatives appear to be as follows:

#1 Form a Mexican corporation and sell the trust to the corporation. This process dissolves the trust so you're no longer paying yearly fees. However, as we understand it, if you decided to pull up stakes and sell the property at a later date, there would be a massive capital gains tax to be paid because we are foreigners realizing a profit on the sale of a commercial property.

#2 Choice #2 --Amend the residential trust to include both residential and commercial use. This also requires an RFD number, evidentally, but the property doesn't belong to a corporation.

My questions are these:

#1. What would the capital gains tax be if we, as foreigners, sold our Mexican corporation-owned rental property? I've heard 20% of the gross or 35% of the net but perhaps this has changed. And it won't have gone down, that's for sure. Anyone know about this?

#2. Also what would the capital gains tax be on the sale of a commercial trust property? The same as for a corporation-owned asset? Less? Anyone have an inkling?

I know we need to talk to a good financial advisor who understands foreign tax issues. However, I thought perhaps someone on this forum might have already gone through this process and could save us a few steps. Or, at least, help us make a list of the right questions to ask when we start meeting with the experts.

Any input would be much appreciated and we'll pay everybody back by coming back and posting a report once we've solved our problems.

Thanks in advance


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