Aug 7, 2014, 11:07 AM
Real Estate Appraisals in Mexico.
Here in Mexico we have three types of real estate appraisals. They are Tax (Catastral), Bank (Bancaria) and Commercial (Comercial). All appraisers must be licensed and most are engineers or architects who have postgraduate courses and state licenses and are also “peritos” or experts.
TAX OR CATASTRAL APPRAISAL
The Tax or Catastral appraisal is used to calculate transfer taxes and fees as well as notary fees. In years past they used to only use this value as the sales price on the deed instead of the real sales price that the buyer paid to the seller.
This had certain consequences such as the value being low the buyer paid less in closing costs and less in property taxes but with changes in the tax laws in 2010 people could only exempt capital gains once every 5 years.
Furthermore notarios became stricter and required foreigners to have an FM2 immigration document and later a residente permanente (now one can have either a temporary resident or permanent resident to qualify for the capital gains exemption 8/2014). Some people could not qualify for the new documents. This meant paying capital gains on the gain. Many people did not have a real gain but had a “phantom” gain due to upon sale they would use the lowball catastral tax appraisal value and for sale use the new real value. In many cases people actually had a loss, i.e. paid $2,500,000 pesos for a home in 2006 and in 2014 sold that same home for $2,000,000 pesos while the original deed shows they paid $800,000 pesos or the amount of the catastro tax appraisal. While technically selling at a loss, they would have a paper gain of $1,200,000 pesos and pay tax on that gain amount of 20-30%.
The catastral appraisal is based upon tax tables published by the municipality where each city block is assigned a value per square meter for the land. Then there are tables to value the square meters of construction depending on age of the property, style and condition.
THE BANK APPRAISAL OR AVALUO BANCARIO
The bank appraisal or avalo bancario is used when someone is buying a piece of property with a bank loan. It is similar to the US with comparable sales and a justification for the sales price.
THE COMMERCIAL APPRAISAL OR AVALUO COMERCIAL
The commercial appraisal or avaluo comercial is not widely known about but has many tax advantages when used properly.
One objective of this type of appraisal (Avaluo Comercial I.V.A) is to attack and modify the value of commercial construction on a property to save on the IVA sales tax.
Another objective of this type of appraisal (Avaluo Comercial I.S.R. Adquisicion) is to justify that the property has a lower market value than that obtained in the catastral or tax appraisal. This is usually necessary for properties being sold under value. If someone purchase a property for more than 10% under its value then the purchaser pays the I.S.R. income tax as they are receiving a benefit. This is the one exception to the rule where the seller always pays income tax in a sales transaction. Typical cases where this may arise are foreclosed properties, fire sales, vandalized properties or properties being constructed and not finished where some tax offices consider a property with a roof finished while there are no walls or anything else inside.
Here the appraiser tries to justify the lower value showing that the value really is lower due to the aforementioned circumstances thereby reducing or eliminating the I.S.R. income tax that a buyer may have to pay.
The last type of commercial appraisal is the Avaluo Comercial, con Mejoras I.S.R. Enajenacion. This appraisal is underutilized and can be a great way to lower your capital gains liability. Many people have done remodels to their properties but do not have official tax facturas to justify the work. This type of appraisal can be used to justify the work done on the property to raise your tax basis and lower or eliminate your I.S.R. tax liabilities. You will only get benefits from remodeling and improvements done to your property, not simple repairs because something broke. They will take 80% of the value of the improvements for purposes of calculating the I.S.R. (capital gains) tax liability.
Items your appraisal will need
1) Copies of your property deed with registration receipt
2) Copy of most recent property tax bill / receipt
3) Copy of most recent water bill / receipt
Mexican licensed attorney (Cédula #7928026) and official court translator (Perito Traductor). Mx 376-765-7553, USA 805-683-4848