Facturas and Capital Gains in Cabo Real Estate

Why Facturas Matter When Selling Real Estate in Mexico

I recently sat down with a homeowner who was thinking about selling their property. The home had gone up significantly in value, but a major part of that increase came from improvements they had made over the years.

They had added a pool, completed renovations, painted the property, and made several upgrades to get it ready for sale. On paper, they had invested a substantial amount of money into the home.

So I asked one important question:

Do you have facturas?

In Mexico, a factura is an official barcoded tax invoice. It is not the same as a regular receipt, estimate, bank transfer, or handwritten invoice. For capital gains purposes, this distinction can be extremely important.

The sellers showed me all the documentation they had saved over the past eight years. Unfortunately, not one of those documents was a proper factura.

Because of that, they may not be able to deduct close to a million dollars’ worth of improvements from their capital gains calculation. In other words, the tax authorities may not recognize what they actually invested into the property.

That is a painful lesson.

If you are doing minor work, like a quick paint touch-up, the impact may not be huge. But if you are adding a pool, remodeling a kitchen, expanding the home, building a palapa, upgrading bathrooms, or doing major renovations, you need to ask for facturas at the time the work is done.

Many contractors do not want to issue facturas because it means they have to properly report the income and charge IVA. Sometimes they will offer a lower price without one. That may seem like a savings upfront, but it can cost you much more when you eventually sell.

The takeaway is simple:

If you are renovating or improving real estate in Mexico, always ask for facturas.

Without them, those improvements may become a sunk cost. With them, you have documentation that may help reduce your taxable capital gains when it comes time to sell.

Before starting any major construction or renovation project, speak with your accountant, notary, and real estate advisor so you understand what documentation you need. A little planning today can save you a lot of money later.

Fletcher Wheaton - fletcher@remexico.com