ISAI appraisal - Taxes on property acquisition

What are taxes?

A tax is a part of the transactions we do every day , when buying anything, from an item at the mall to going to the gas station or paying for a service, it is a contribution to keeping our country running, no matter how incredible it may seem, this extra charge helps different nations carry out activities economic.

In Mexico, the Ministry of Finance and Public Credit (SHCP) It is the authority in charge of administering and collecting federal taxes. The SHCP is responsible for establishing fiscal policies, as well as supervising and regulating tax collection at the federal level.

At the state level, each federal entity has its own Finance Secretary or equivalent, responsible for administering and collecting local taxes, such as payroll tax and property tax.

Therefore, in Mexico, tax collection is a shared responsibility between the federal government and state governments.

What are direct and indirect taxes?

Indirect taxes: These are charged when some other item is purchased, as an additional amount to the original in general, that is, for everyone who purchases said product.
VAT
Direct taxes: These taxes are proportional to what each person earns and the assets they possess, in this case the real ability to pay is taken into account, calculating an amount according to what their assets are.

In Mexico there are taxes:

feds: Which are the most common taxes, what each taxpayer pays, both citizens and foreigners who carry out an economic activity in Mexico, such as; ISR, VAT, IDE, etc.

State: They change according to the state where we live or we are, it can be the tenure, civil registry, the notary or the payroll tax.
municipal: These taxes collected by governments locally, according to the municipality will be the tax as; the property tax, that of public shows, tax acquisition and patrimony.

Taxes on property acquisition in Mexico

Taxes on the acquisition of real estate in Mexico may vary depending on the state where the transaction takes place, but at the federal level, the following taxes generally apply:

Property acquisition tax (ISAI): It is a state tax that taxes the purchase of real estate. The rate can vary by state, but usually ranges between 2% and 4% of the property value.
Value Added Tax (VAT): In certain cases, VAT can also be applied to the purchase of real estate, especially if it is a transaction between a legal entity (company) and a natural person.
Income tax (ISR): If the property is sold for profit, that is, as an investment, it may be subject to income tax, the rate may vary depending on various factors, such as the length of time the property has been held and the type of property. profit obtained.

Regulations may change and may vary depending on location and individual circumstances.

ISAI appraisal

The appraisal ISAI refers to the appraisal carried out for the purposes of the Tax on the Acquisition of Real Estate (ISAI) in Mexico.

The ISAI is a tax that taxes the acquisition of real estate in several states of Mexico. This tax is calculated on the value of the property, and this value is determined through an appraisal carried out by an authorized appraiser.

The ISAI appraisal is, therefore, the process by which the value of the property for tax purposes is determined, in order to calculate the amount of tax to pay, said appraisal must be carried out by a expert appraiser registered and authorized by the tax authorities of the corresponding state, the result of the ISAI appraisal will serve as a basis for calculating the tax to pay when acquiring the property.

How to calculate the ISAI?

The calculation of the Tax on the Acquisition of Real Estate (ISAI) in Mexico may vary depending on the state in which the property is located, since each state may have its own tax rates and specific regulations, however, in general, the ISAI calculation follows these basic steps:

Determine the value of the property: This value is established through an appraisal carried out by a expert appraiser authorized, the appraisal may be requested by the buyer or required by the tax authorities.

Check the ISAI rate: The ISAI rate varies by state and can be expressed as a percentage of the value of the property, for example, if the rate is 3%, and the value of the property is $1,000,000 MXN, the tax base to calculate the tax would be of $30,000 MXN.

Calculate the tax: Once you have the tax base (value of the property multiplied by the ISAI rate), the tax is calculated, following the previous example, if the tax base is $30,000 MXN and the ISAI rate is 3%, the tax to pay would be $30,000 MXN * 0.03 = $900 MXN.

It is important to check the specific tax laws and regulations of the state where the property is located, as rates and procedures may vary, and in some cases, there may be exemptions or discounts available for certain types of buyers or particular situations.

Therefore, it is always advisable to obtain advice from a tax professional or public accountant to ensure you comply with all applicable tax obligations.

What is the tax appraisal?

The tax appraisal is a non-commercial evaluation carried out by the federal authority (SHF) or the corresponding municipality on a land or real property, its purpose is to assign a tax lien, such as the ISR (Income Tax) or the ISAI (Real Estate Acquisition Tax). This valuation is carried out mainly when the acquisition of a property is made official through a change in the deed and, therefore, in the ownership of the owner, whether by purchase, award or other legal resource that implies a change in ownership.

The value determined by the fiscal appraisal is used to calculate fiscal taxes, such as the ISR, but is not related to the commercial value of the property, since it focuses exclusively on tax issues, it seeks to establish a territorial tax, known as contributions in Mexico, and these values are established by public entities for tax purposes, such as the SHF.

Tax appraisals are divided into three main categories: appraisals for the tax deduction for improvements (ISR), appraisal for the acquisition of real estate and cadastral appraisal.

How does the improvement deduction work?

The improvement deduction refers to the possibility of fiscally deducting the cost of certain improvements made to a property for Income Tax (ISR) purposes in Mexico, this means that owners can subtract the cost of these improvements from their total income. , which reduces the amount of taxes they must pay.

The improvement deduction process generally follows these steps:

Identification of eligible improvements: Improvements eligible for deduction typically include expenses on renovations, repairs, additions, and other improvements that increase the value of the property or extend its useful life.

Registration and documentation: It is important to keep a detailed record of the costs of the improvements made, including invoices, receipts and any other documentation that supports the expenses.

Determination of the value of improvements: The total cost of the improvements made to the property must be calculated.

Tax return: During your annual tax return, you can include the cost of the improvements as a deduction, thereby reducing your taxable income.

5. Compliance with tax requirements: It is important to ensure that you comply with all tax and regulatory requirements related to the improvement deduction, including deduction limits and any other criteria established by tax authorities.