Decoding Real Estate taxes
Paul Tiffer started a discussion about the new real estate tax law in a thread at http://www.nicaliving.com/node/20992 which continues to be a hot topic. The more I read/follow the thread the more complicated it seems and the less I really understand. What I want to do here is start a for example thread and see if we can pin down some answers that Joe Average can understand. Do do this, I am going to start with a specific example (which I am making up).
- Joe Average, a US Citizen with Nicaraguan Pensionado residency buys a house in Tola for $100,000.
- The paperwork in the public registry says he paid $20,000 for the house.
- Joe invests $15,000 in improvements into the house.
- Joe sells the house to Newbie Buyer for $200,000.
- The paperwork in the public registry says that Mr. Buyer paid $40,000 for the house.
To do some of the arithmetic:
- The real capital gains on the house is $85,000 ($200,000 sales price minus $100,000 purchase price and $15,000 of improvements). Note that I am ignoring expenses of sale including the (yet to be determined) taxes as they will just make this more complicated.
- The publically declared capital gains are $20,000 ($40,000 declared sales price minus $20,000 declared purchase price).
- Joe will need to declare $85,000 of capital gains on his US tax return.
So, who pays what, where in Nicaraguan taxes? Specifically
- Will all calculations be one on the numbers recorded in the public registry or will the government make some adjustment?
- Which taxes are on the amount of the sale vs. capital gains?
- When calculating capital gains, can the improvements be added to he original cost to reach the net gain?
- What if there is a loss rather than a cain (which is likely if the public registry numbers and way low but there are real receipts for the improvements?
- What records, when and to whom must be submitted in order to show the cost of improvements and cost of sale?
- Does any of this change if Joe Average is not a legal Nicaraguan resident?
- Does any of this change if Newbie Buyer is or is not a legal Nicaraguan resident?
- Is there any interaction between the Nicaraguan and US taxes beyond the obvious case that US capital gains will be reduced by the expenses of sale which will include the Nicaraguan taxes Mr. Average must pay?
- Is having an S.A. (corporation) be the owner of real property and selling the shares in the corporation to transfer real property a legal and effective way to avoid any or all of these taxes?) I ask this because this is typically what is done in Costa Rica.
I am guessing the answers here will result in a new set of questions but at least this is a starting point. I expect this is going to be important to anyone who has purchased or will purchase real estate in Nicaragua.