New Capital Gains Tax
Costa Rica’s Sweeping New Tax Law Hits Home in the Real Estate Industry. In December 2018 a seismic change in Costa Rican tax law came to pass. The “Leyes Numero 9635 Fortalecimiento de las Finanzas Publicas” became law with far-reaching ramifications.
In addition to real estate, the new law touched on areas which include: global income, capitalization rules, distribution of dividends, loss carry-forward rules, donation deductibility, new tax brackets, profits distributed by employees’ associations and fees paid abroad to related parties.
Please check with your tax attorney to see how this far-reaching law affects your interests in the variety of arenas upon which the new law impacts.
Since July 1, 2019, a 15% capital gains tax is applied to real estate transactions. Clients who purchased property after this date must much more closely account for their basis cost and basis additions in order to minimize their tax exposure upon sale of their property. The capital gain is the difference between the purchase price and the cost basis and will is taxed at 15%.
One exception carved out is for someone’s primary residence. The law allows for a full exemption from the capital gain tax in this case.
Another special case is for property purchased prior to July 1, 2019. Owners of such property may apply one time for a special rate and pay 2.25% of the total purchase price. In the case of highly appreciated properties, this option may be more advantageous. In the case of properties with more moderate or little appreciation or loss, the 15% route may result in a lower tax liability.
Peninsula Realty had been advising its clients to purchase prior to July 1, 2019 in order to be grandfathered into the special aforementioned scenario. Now that the time has passed, the best course of action is to maintain careful records as to acquisition costs and basis additions in order to minimize tax exposure upon sale. If you have any questions, please feel free to contact us and we would be happy to help you work through your particular situation.