Capital Gains Has Now Become A Significant Problem For Gringos Selling Baja Real Estate

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Gringos in Baja are happy about the huge appreciation in property along the East Cape and many parts of Southern Baja. They are not happy about the capital gains consequence when cashing in on their gain.

Many American’s who purchased property prior to the boom along the East Cape of Baja have now decided to cash in on their appreciation which in most cases has more than doubled in the last two years.

Jeff Niemi, Real Estate Broker, for Baja Beach Investments in Los Barriles , has dealt with a number of sellers that can’t afford to sell their homes due to the Mexican Capital Gains Tax which is 29%. The problem has not been the percentage of the tax, but how it is calculated. Going back as little as three years ago nearly all sales for Baja real estate were recorded at appraised value. In Mexico the transfer value is your cost basis which is recorded and establishes the cost basis for your property taxes.

The transfer value can be based on the appraised value, the selling price, or any amount in-between. Appraised values on real estate along the East Cape of Baja are typically less than 1/3 the amount of the selling prices. When people purchased property in Baja prior to 2004 they were typically transferring the cost basis on appraised value. Recently a beach lot in Los Barriles was selling for $265,000, however the appraised value was under $35,000. The seller’s 29% Capital gains is based on the difference in the transfer value from when he bought and the transfer value used when he sells. Most buyers today are insisting that the transfers be done at real value or the selling price.

In this example the seller did get an offer for full price if he would transfer at the selling price but found out his capital gains of 29% would be over $100,000 if he transferred at the selling price even though he originally bought the property for $115,000. In this case the gain was based on the appraised value of less than $35,000 and the selling transfer value of $265,000. As you can imagine, he did not take this offer, but did eventually sell for $235,000 to someone who would agree to transfer the value at the new appraised value which was only a few thousand dollars more than the original transfer value. The owner in this case only had to pay less than $1,000 in capital gains.

The problem is now with the new buyer as he will have the huge tax liability when he chooses to sell if he can’t find a buyer that will transfer at the appraised value. It is always preferred when buying property in Mexico to make sure you are transferring the value based on the selling price. There are ways to limit your capital gains significantly if you are going to build on your property. For more information on buying and selling property in Baja contact Jeff Niemi at Baja Beach Investments 760 494 7381, or visit http://www.bajabeachinvestments.com

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Jeff Niemi