Hefty tax on property sale!

[CarverFan]

My accountant looked at his certificate and said the tax is on the difference in peso value between the purchase and sale. That means if you bought for US$50,000 when the peso was 3:1 to the dollar and sell for US$50,000 when the peso is 4.35:1 to the dollar, on paper you have made big gains in pesos and will pay on that. He cited a case in the late 90's where a client bought a million dollar property when the peso was 1:1 at parity with the dollar and sold when it was 4:1. On paper it looked like the value had quadrupled and he was taxed to the hilt.

 

[CarverFan]

BlackHand, you must be right as the accountant mentioned it looked like one year of tax so that fits in with the 2010 new law. Probs was 35% but just for one year....

 

[steveinbsas]

Well then, it's really too bad your friend "lost" his residency and didn't realize the consequences of selling as a non-resident.

Nonetheless, he might be "lucky" to get out now.

Only time will tell.

I'm here (in Argentina) to stay, but I'm not in (or even near) Capital Federal.

 

[alpac]

HUH? What capital gain tax are you refering to? It simply does not exist. There is a transfer/stamp tax (aka sello), and it is usuallty split between the buyer and the seller...either 50/50 or 60/40.
The local taxes (ABL) are small and on a property worth less than 305,00 pesos (as of 2007) the bienes personales are zero...and don't apply here.
I don't think you know what you are talking about. What you assert "should be" (taxwise) does not mean the tax exists.
If I am wrong please correct me.

No, you are not wrong, but I didnt express myself clearly so let me try a second time to make my point. I am not commenting on how the owner-seller fared with respect to local law. I am just observing that a tax totalling 14% on the sale of an apt purchased in 2007 may not be as oppressive as it may seem at first blush if considered in the grand scheme of things, i.e. with a non-parochial mindset. For example:
(1) If the apt were purchased in the US or Europe in 2007 the sale price in 2012 probably would not be as much as the original purchase price. Chances are the sale price exceeded the purchase price here.
(2) If the apt were purchsed in the US or Europe there would have been annual real estate taxes to pay dwardfing the ABL bite. ABL is miniscule compared to most real estate taxes.
(3) If the property were purchased elsewhere there would be cap gains taxes and there is none here.

I understand that it is unfair to presume the apt generated income for the owner (when in fact it didn't) and for him to be taxed as if it did. I understand that according to local law (in the absence of the unfair,
tough-to-rebut erroneous presumptions concerning non-residents) the sale should not really be subject to a 14 % tax bite. However, in the big picture view, it may not be so bad taking into account the above mentioned factors. That is what I meant. I was trying to view the seller's plight with a wider lens.
p.s. The new 2010 law creating a tax based upon increase in peso-expressed value will be very troublesome for non-resident sellers who have owned long term. I had not heard of that.

 

[steveinbsas]

Even if your three points are true (which they are) they have nothing to do with charging a non resident a 14% tax on the sale and they are not considered by AFIP when assessing the tax.

The tax has nothing to do with property purchased anywhere else in the world (aka "the above mentioned factors").

It really is just a way of "sticking it" to non-residents (i.e. charging them higher taxes than residents).

That's just the way it works here.

The fact that your friend would have paid higher taxes anywhere else in the world is irrelevant, though, if he thinks like you he may indeed feel better about paying the non resident tax rate here, but that's just rationalization: something I do almost every day in one way or another (too bad it isn't as much fun as sex).

I don't know how or why he lost his residency, but I know I would also feel bad if I had to pay the 14% tax when I sold my property, too...depending on both my profit margin and my reason to sell.

When I thought I might lose my residency (when migraciones stopped granting the change to permanent residency on the third renewal) I was prepared to apply for citizenship. Fortunatley I was granted permanent residency on the third renewal in 2009 and I am now applying for citizenship.

If your friend wanted to stay in Argentina as a citizen he probably could have done so, too. In my opinion, the loss of temporary residency should not have been the reason to sell out.

 

[arlean]

I appreciate all this information. Sure isn't encouraging when it comes to the idea of buying real estate in Argentina. I am rethinking! I was involved in a real estate sale about 4 years ago and none of these problems. I did know that if taxes have not been paid on it for years, that can all come due with a sale. But none of the above. Thanks for all the details.

 

[CarverFan]

Steve, my friend was earning a peso wage here and didn't have any additional income. In other words, he was below the poverty line.
He needed residency to get a better job with a fairer wage. Even then, he would have struggled to make ends meet. He used all his savings to buy a property here, and instead of making a modest profit, he is going to make a loss...he regrets ever coming here.

 

[Davidglen77]

Steve, my friend was earning a peso wage here and didn't have any additional income. In other words, he was below the poverty line.
He needed residency to get a better job with a fairer wage. Even then, he would have struggled to make ends meet. He used all his savings to buy a property here, and instead of making a modest profit, he is going to make a loss...he regrets ever coming here.

First I am sorry to hear what happened to your friend and his financial loss. Many of us have experienced problems here, me being one of those people understand how frustrating life can be here. However ANY investment in ANY country is a risk some being more of a risk than others. Nobody anywhere is guaranteed a profit on real estate or any other investments. I know PLENTY of people in New York where I come from, who bought houses and apartments in the years of 2004-2006 when prices were at their peak and now are "upside down" on their property. In other words their outstanding mortgages are a higher amount than the current value of the property. And those who have to sell take a substantial (20-30%) loss on the sale and end up having to pay the bank out of pocket even when they sell the property. When I sold my property in New York I had to pay transfer tax, plus 6% comission to the realtor, plus legal fees, which came to a total of about 9% of the sale price, luckily I bought the place in 2001 right after 9/11 so prices were low and sold in 2007 near the height of the market, so I made a nice profit in spite of the 9% cost of selling. With real estate investments the 2 most important things are location and timing, so just the fact that your friend didn't sell at a loss, lived there for several years, and was able to sell - he / she came out ahead in my opinion. I wouldn't blame Argentina for this one.

 

[CarverFan]

Well, he's making a loss. He will be several thousand dollars out of pocket at the end. 35% tax for non-residents is pretty high!

 

[alpac]

Thinking out loud. Necessity is the mother of invention. Is there a way to avoid such high taxes.
During the 15%+ prime rate;mortgage rate days in the US (1980s), I recall the legal gamesmanship California sellers and buyers engaged in to avoid bank lenders from exercising the due-on-sale clause contained in all home loans-mortgages. Because market interest rates for home loans approached absurdly high levels home sales became paralyzed. Then a way around the problem was invented. Homes sales morphed into loan sales.
If a property were subject to a below-market rate home mortgage loan, the owner could facilitate a sale if he were able to pass along the right to inherit that loan as part of the sale. If the seller could do this, then the buyer would be spared having to pay higher market interest rates on that part of the purchase price to be financed. Buyer would seek a second mortgage loan only for the difference between (a) sale price and (b) the pre-existing loan balance (minus the downpayment).
The buyer benefitted because his total monthly mortgage payment (sum of the monthly payment on the pre-existing first loan plus the monthly payment on the new loan) was significantly lower than if he had obtained all new financing at the high market rates.

There was a hurdle to overcome to accomplish this loan inheritance. The original loan had a clause that it would all be due and payable immediately upon transfer of the title of the property to a new owner. Buyers and sellers (their lawyers) invented a way around the passage of title. The instrument employed was a bill of sale with actual title to the property not passing to the buyer until the first mortgage was paid in full. Utilizing this type of document to accomplish the sale avoided triggering the due on sale clause from taking effect.

Here in Ar, what would be the feasability of creating such a bill of sale postponing passage of actual title but allowing buyer to full possession with all rights associated with ownership. Or perhaps some other type of document such as an irrevocable trust in which the "buyer" would be the beneficiary with immediate right of possession (life estate). Upon death of seller-trustor or some other mutually agreed far-off event, full legal title would pass to buyer. Would this work to postpone or eliminate taxes for non-residents....