US LLC to buy condo??

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oatylcc

Guest
Hello!
I am in the process of buying a condo in RP and am hoping for guidance regarding whether I should create a US LLC to complete the purchase or just go through the traditional fideicomiso process.

I'm primarily interested in the tax implications of both options as it relates to taxes on rental income, and also potentially selling the condo in the future and the tax implications of that. I have read posts all over the internet (including this forum) but still haven't seen a clear answer regarding taxes. I'll list the basic details of the purchase below incase it helps.

Buying condo at 40% down and financing the rest (20 years).

Purchasers are just myself and my wife with no plans to ever sell split share of condo.

Will be putting condo in rental pool but also using for our own leisure when possible.

We currently have no plans to buy additional condos in Mexico down the road.

I appreciate any input provided or any owners sharing how they handled their previous purchases!

Thanks!!
Ryan
 
J

joanC

Guest
Keep in mind: using a LLC still requires a trust. The LLC is a legal "person" which can own property through a trust. Traditionally, the benefit of having a LLC as the trustor was that the LLC could transfer ownership to the next owner by simply transferring it's shares to the buyer. This avoided many costs for both parties: 2 % transfer tax, new trust or transfer of trust fees, capital gains tax, many legal and notary fees, etc, etc. A year or so ago Mexico came up with new rules designed to make it harder to hold property in a LLC, for goals of ensuring the payment of maximum tax and fees and making true beneficial ownership more transparent to discourage money laundering. I don't know how far they got.
 
Old55

Old55

Guest
Here you go oaty !
Much depends if your Notario believes you are first and formost his client and not the Mexican government employees whose goodwill greases his wheels.
I have found the Mexican office to be pretty ok in my dealings but my properties are not high dollar.
www.mexperience.com

Costs and Taxes When Selling Property in Mexico

When you sell your Mexican residential property, there are some selling costs, and taxes and tax allowances you need to account for as part of the transaction
www.mexperience.com
 
O

oatylcc

Guest
Old55 said:
Here you go oaty !
Much depends if your Notario believes you are first and formost his client and not the Mexican government employees whose goodwill greases his wheels.
I have found the Mexican office to be pretty ok in my dealings but my properties are not high dollar.
www.mexperience.com

Costs and Taxes When Selling Property in Mexico

When you sell your Mexican residential property, there are some selling costs, and taxes and tax allowances you need to account for as part of the transaction
www.mexperience.com
Click to expand...
This is very helpful thank you @Old55 !!
Any idea how taxes work on rental income?
 
O

oatylcc

Guest
joanC said:
Keep in mind: using a LLC still requires a trust. The LLC is a legal "person" which can own property through a trust. Traditionally, the benefit of having a LLC as the trustor was that the LLC could transfer ownership to the next owner by simply transferring it's shares to the buyer. This avoided many costs for both parties: 2 % transfer tax, new trust or transfer of trust fees, capital gains tax, many legal and notary fees, etc, etc. A year or so ago Mexico came up with new rules designed to make it harder to hold property in a LLC, for goals of ensuring the payment of maximum tax and fees and making true beneficial ownership more transparent to discourage money laundering. I don't know how far they got.
Click to expand...
Thanks @joanC ! I did read the prior thread regarding the transfer tax but as you pointed out the end result still seems unclear.
 
C

corndog

Guest
https://www.topmexicorealestate.com/blog/2019/01/tax-obligations-vacation-rentals-mexico/ --- https://beachpleasemexico.com/taxes-in-mexico/ Then if that isn't enough, if you are a U.S. citizen get ready there at tax time also. I'm sure you will also need to put an accountant here in Mexico on the payroll. My personal recommedation, would be: Don't work where you like to vacation.. Can you say more about how you plan to finance the purchase ? It will make a difference as to how you will and especially when you will take title to the property..
 
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O

oatylcc

Guest
corndog said:
https://www.topmexicorealestate.com/blog/2019/01/tax-obligations-vacation-rentals-mexico/ --- https://beachpleasemexico.com/taxes-in-mexico/ Then if that isn't enough, if you are a U.S. citizen get ready there at tax time also. I'm sure you will also need to put an accountant here in Mexico on the payroll. My personal recommedation, would be: Don't work where you like to vacation.. Can you say more about how you plan to finance the purchase ? It will make a difference as to how you will and especially when you will take title to the property..
Click to expand...
@corndog Thank you that article is helpful! The financing is developer financing. I'm still unsure if it would be better to buy through a US LLC.
 
C

corndog

Guest
Here is a great reason to purchase with an LLC. Condo cost $450,000 it will be recorded at current peso value to the dollar (17.42) 7,839,000 pesos today.. as time goes by the peso goes 30 to 1.. but the condo stays the same value dollar wise 450,000.00 dllrs... the condo is recorded in peso's so now the condo is worth 13,500,000.00 pesos and you are showing a huge gain..5,661,000.00 pesos or a 188,000.00 dllr gain.. this sounds wacky and unbeleivable. but it happens..confirm what I have written with a tax attorney or accountant...
 
O

oatylcc

Guest
J

joanC

Guest
As for taxes on rental income, if you use the rental pool the LLC, or you personally ( no difference) will pay MX tax on the income, less expenses. This is the same as in USA and CA.

All funds must be deposited to your Mx bank account, and taxes calculated and paid monthly by your accountant. If the LLC files a tax return in US or Canada and reports the income, the tax is paid where it's the highest. If USA or Canada wants $1000 for the tax on the annual income, and you paid $900 (equivalent) in Mx, you will pay US/CDN tax on $100.00. That's due to tax treaties to avoid double taxation. If the USA/CDN tax is $800.00, you won't owe anything more.

What corndog said at 812 this morning should be clarified: Mx capital gains tax is calculated in Pesos, so if you sell for more Pesos than you paid, you will owe taxes if you are personally the owner, BUT MAY avoid the taxes if your LLC is the trustor (owner) simply and secretely transfers shares to transfer ownership. (Sometimes the gain is due to Peso devaluation, and other times it's because of an appreciation of the value...no difference.) These secret sales have been done for years, and it beats MX IRS, notaries, lawyers, closing companies, cities, etc, etc, out of the juice they enjoy on all sales. Like I said Thursday at 355 PM, a year ago Mx was working on new rules for LLC's to prevent these secret sales. On a secret sale for USD 450,000 where there is actually a 1,000,000 P profit, the city loses 2 % (USD 9000), the IRS likely about 250,000 P, the trustee bank USD 2000, the notary and lawyer USD 3000, the appraiser USD 500, etc. Mx got away with restricting foreign buyers ( a Mxcn has no restrictions on buying in USA or CA) when the last free trade agreement was signed, and the juice they get from foreign buyers and sellers is a sizeable portion of their revenue.

If the seller holds the title until it's paid out, you have what's known as an Agreement For Sale. In USA and CA it's as good as actually taking title IF the seller is still liquid and honorable the day you pay out the loan and you ask for a title transfer. The income tax you pay while title is held by the seller will be the same as if you held title in your own personal or LLC trust.

Just to ensure this is all clear, you need to know that Mxcn capital gains tax rate drops yearly as you own the property. If you sell at the same time as you pay out the developer loan, Mx considers it a flip because you are deemed to have just bought the property, and immediately sold it. I saw a deal like this in 2022 and the capital gains tax were onerous. If you own for multiple years, the rate of tax is less. Maybe Mx has changed this...check this with your developer seller.

Finally, subject to any recent changes by MX, on the deal I saw in 2022 the first buyer under an Agreement For Sale (who had no trust) paid out the loan concurrenty with selling to a new buyer (C) at a small profit. Mx DOES NOT allow the title owner to pass ownership directly to the new buyer, skipping over the first buyer. A sold to B and kept title until B paid out. B found a cash buyer, C, and was able to pay out A. Both B and C were required to set up normal bank trusts.
 
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joanC

Guest
O55's generalizes, and believing everything from MND is not wise. If the seller on an owner carry/time sale contract is a reputable American, if he fails to sign off the title when final payment is made, US courts can be accessed. I've seen a dozen over the years and never saw one go sideways.
 
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corndog

Guest
I know of one recent U.S. citizen to U.S.citizen fiasco .. The condo was paid for with payments, before it closed the owner died.. The kids have said they won't come here and have mentioned they have no money to pay the capital gains tax.. The buyer may get the condo, but it could be expensive and take a while...
 
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