The Income Tax Law provides obligations for the payment of the income tax when conveying property, as well as exemptions thereof.
Notaries Public and Certifying Public Officers have the obligation to calculate, withhold and file returns for the income tax regarding conveyances carried out by individuals (except for those who pay taxes under a business activity with evidence thereof).
Also, it is important to explain that for tax purposes, the creation of irrevocable trusts covering property transfers, assignment of beneficial rights and transfers of property performed under a trust, are considered conveyances.
Up to the year two thousand and six the Income Tax Law established that the conveyance of a home was not subject to the payment of the income tax, therefore, only by proving that it was your home, such conveyance was exempt, no matter how long the transferor had been living in the home for.
Nowadays, our law is amended and it provides that a home is exempt, provided that the amount of the consideration does not exceed the equivalent to one million five hundred investment units (UDIS).
The value of UDIS varies daily, but as of this date their value is approximately 3.824791, which means that a home would be fully exempt if the conveyance price does not exceed $737,186.50 pesos (approx.).
Such law provides that if there were any excess, the profit thereof would be determined for such excess and the annual income tax and provisional tax payment would be calculated in the same manner as it had been calculated before, but taking into consideration deductions in the proportion resulting from dividing the excess by the amount of the consideration obtained.
And the Income Tax Law specifies that the exemption will not be applicable if it is the second or further conveyance carried out within a calendar year, i.e. we may only be exempt for such concept once a calendar year, and the notary public may take this as a true fact with the declaration under affirmation of the transferor.
Such law also provides that the restrictions above-mentioned would not apply if the transferor proves that he has been living in the house during five years or more immediately prior to the date of conveyance, and the regulations to such law provide what documents are needed to prove this.
This exemption is not provided in title V of such law, which refers to the residents of another country with income coming from sources of income located in national territory, therefore, it is only applied to those people residing in Mexico.
When analyzing our law, we can clearly see that it doesn't make any difference between Mexicans and foreigners, but the difference is made between people residing abroad and people residing in our country.
So, if a foreigner proves that he resides in Mexico, he could get such exemption, and if a Mexican does not reside in national territory, he would not.
It would be interesting to analyze when a foreigner deems himself as a Mexican resident for tax purposes and when he doesn't deem himself so, since the tax regulations are not very clear with this regard and sometimes we are subject to the interpretation of the notary public, who construes such concept in light of other laws, such as the General Immigration Law, and sometimes per recommendations made by the Department of Treasury and Public Credit, which could be another issue to talk about in a future edition.
