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Can anyone comment on how to establish the “declared value” on a real estate transaction? Specifically a lot and house bought for $102,000USD. The real estate attorney wants a 1% fee and a 2.87% transfer fee to be split with the seller so the declared value is the base for the fees and the cost basis for any future capital gains tax.
In a real estate transactions, normally, there are three different values involved: the fiscal value which is the one stated at the Registro de la Propiedad and that is the one used as basis for the property quarterly taxes and is the lower price. The price on the deed which is the one that is used as basis for the calculation of the transfer taxes, and the market value which is the real priced paid for the property and is the one used by the realtors to calculate their commission, and usually the highest. Normally the declared value is a price accorded between the parts (as low as possible)so the transfer taxes are not too high, but can’t be lower than the fiscal value or highest than the market value
Note from Scott – Randall Zamora is a Costa Rican tax specialist and the WeLoveCostaRica.com Preferred Professional for Costa Rica Taxes – you can see many of his article on this site by search for ‘Zamora’
This is an interesting question. I know what people do but I would like to hear (from Randall?) why the fiscal value, or the declared value should be lower than the purchase price. Obviously it “saves” the purchaser money by not paying so much in property tax or transfer tax. What is the basis in law for how these amounts should be calculated? Is this tax evasion or tax avoidance?
Be careful, everybody may thing that to lower the declared value is generally accepted, but be aware that is purely tax evasion and in most of the case that tool is used by those realtors that overcharge buyers and then they say I am going to help you saving on taxes. Truth is there is no rule or law about how to calculated the declared value, but think about this: how are you going to prove,here or back in your country for tax purposes, that you paid X amount of money for a property, if you do not have any documentation that backs up the transaction?. I know about properties with fiscal value of ¢1!!!!, but that doesn’t means that you are going to declare a value of ¢2; ask yourselves these questions: Am I paying what is fair for this property? Am I going to need to write off or deduct my investment in the future (e.g. if tax bills is approved in CR when you buy a property for $150,000 and declare a value of $75,000 when you sell it, say for $200,000; your Capital Gain Tax is going to be calculated over a profit of $125,000 (200000-75000))?, bottom line, balance first the purpose of your investments, business or pleasure, and then ask to your accountant what could be better to save on transfer taxes or to acquire a future liability on income taxes.
I now have a clarification from my attorney. He will set the ‘declared’ value and handle the transfer.
The ‘market’ value is what I paid to the seller and it is documented in the sales contract.
The ‘fiscal’ value has yet to be set but I intend to set it at the ‘market’ value and pay property taxes accordingly.
My ‘cost basis’ for any future capital gain is well documented by the sales contract and supported by bank records (wire xfers to the seller).
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