How the gain on the sale of real estate is calculated is based on the “declared value” stated in the `Escritura` or deeded title. Historically, the declared value has been significantly lower than the fair market value. While a common practice, the habit of declaring a value that is less than the fair market has come basically to an end, people who declared lower values in their deeds may need to pay more in capital gains than they would have otherwise if they had used the real transaction value.
Mexican authorities are losing significant amounts of tax revenue and have now begun to scrutinize these transactions more closely, Notarios are much more careful about the declared value they are willing to accept in the deeds that they prepare.
Notarios are public officials who have given up private practice to become agents of record. They are appointed by State governors to legally consummate any property conveyance, including wills, business contracts, and real estate transactions. Notarios authenticate documents for legitimacy and form, and act as official recorders. The Notario is equally responsible to both parties in a transaction. For personal representation, you must hire a private attorney. In a typical real estate transaction, the Notario will prepare a deed of conveyance based on the purchase agreement. Under Mexican law, Notarios are jointly liable with the seller for all taxes due on the sale of real property, therefore they are known to take a conservative approach.
The homestead tax exemption is still available to resident taxpayers in Mexico, and it is the Notario who decides who meets the requirements of tax residence.
I recommend that each potential seller or buyer of Mexican real estate ask his/ her broker and Notario for an estimate on closing for his own review and due diligence before entering any purchase or sales agrement.