How Capital Gains Really Work in Loreto — From My Own Experience

Q: How bad can capital gains tax get when selling property in Mexico?

A: If you don’t plan ahead, it can be brutal. By law, you may owe up to 35% of the difference in pesos between what you paid and what you sold for. I’ve seen sellers buy when the exchange rate was 11:1 and sell when it was 22:1. On paper, that looks like a huge profit in pesos — even if they sold for the same U.S. dollar price. One client ended up paying almost half of their sales price in taxes.

Q: What can sellers do to reduce their capital gains tax in Loreto?

A: If you haven’t had a tax appraisal in five years or more, get one. A new appraisal reestablishes the value of your property at today’s exchange rate and can dramatically reduce your tax burden. I always guide my sellers through this process, then my attorney finalizes it at closing.

Q: What mistake do buyers make that creates future capital gains problems?

A: Sometimes the Fideicomiso (bank trust) doesn’t show the full price the buyer paid, especially if a crooked seller or developer underreports it to save on taxes. Years later, when the buyer sells, they get hit with capital gains on that missing amount. I always check the Fideicomiso against the actual purchase price to protect my clients. Also, many buyers are surprised when their Fideicomiso only states the value of the land and not both the land and the construction. This happens when the property never underwent a tax appraisal or the issuance of a Terminación de Obras (completion of works certificate). Without that, the recorded value remains incomplete — creating a tax problem later when it’s time to sell.

Q: What mistake do buyers make that creates future capital gains problems?

A: Here’s something most people don’t know — in Mexico, there’s also what I call reverse capital gains. If a property sells for less than the tax-assessed value, the Buyer can actually become liable for capital gains tax on the difference. This happens because the Mexican tax authorities assume that no one would sell below the appraised value unless part of the payment was “off the books.” So the buyer ends up paying the tax on the imagined gain.

It’s rare, but it happens — and it’s one more reason I always advise both buyers and sellers to have their Notario and Attorney review all declared values carefully before signing anything. That one oversight can become a very expensive surprise at closing.

Q: Do you handle the legal side of capital gains?

A: No — I’m not an attorney, and I don’t pretend to be. What I do is make sure my clients avoid costly mistakes, then I bring in one of the attorneys I trust to handle the legal work with the Notario.