So, I get this great e-mail from some super in-the-know real estate guys the other day that answers a number of my questions regarding the new Luxury Tax law. After this “clarification” I post to my Facebook page and Tweet the news where I stated “I have determined that the new Luxury Tax in Costa Rica is for construction only and does not include the value of the dirt under the house.”. This is wrong.
Today I wake up to find out that I had posted incorrectly and in the process cost thousands of people their homes and livelihood – OK, well it wasn’t quite that dire, but still…
I read an article in AM Costa Rica that says:
The biggest issue appears to be if land should be included in the valuation to determine the amount on which tax is to be assessed. Some say yes and some say no.
Well, the law says yes, but that appears to be a late change by the legislative staff without the knowledge of some of the key legislative players.
Consequently the title: “Tico and expat confusion reigns on new luxury tax” In it the author explains how the law is poorly written, and the “Hacienda de Tributacion” (Costa Rica IRS) has not communicated the law well through press releases (there have been none to date) nor through their website where it is mentioned in a cryptic and hard to find form. So, even for those well meaning, law abiding tax payers who want to comply, they aren’t really sure what to comply with. (more…)
Everything that I know about it (which ain’t much).
There is a new law that has now quietly come into force in Costa Rica. It is being called the “Luxury House Tax” or a facsimile thereof.
I now have it on good authority that there is mass confusion about this law by the few that have even heard of it. I am one amongst the throng of the confused, but I will here report what I know and will continue to post as I get new information.
There appear to be many that have not heard of the law, but whether a person doesn’t know about the law or simply chooses to do nothing about the law, word is that there will be some rather harsh consequences. How ‘bout them apples?
This is a new tax and it is only for constructed properties – houses, not for raw land. Houses built on both titled and maritime zone property are affected.
House owners must declare the value of their house, and then pay the tax between January 1 and January 15th. The law went into affect October 1, 2009 so the amount in this first time slot will be from October 1, 2009 to January 1, 2010.
If the value of your house is below $170,000 (give or take – this amount will vary depending on the exchange rate), you are exempt.
I have included a table of the current tax-to-value table. At the writing the colon is hovering right around 580 per dollar but you can take the figures below and use the conversion thing by clicking here.
| Colon Value From |
Colon Value To |
Tax |
| From 1 |
to 100,000,000 |
0.0% |
| From 100,000,000 |
to 250,000,000 |
0.25% |
| From 250,000,000 |
to 500,000,000 |
0.30% |
| From 500,000,000 |
to 750,000,000 |
0.35% |
| From 750,000,000 |
to 1,000,000,000 |
0.40% |
| From 1,000,000,000 |
to 1,250,000,000 |
0.45% |
| From 1,250,000,000 |
to 1,500,000,000 |
0.50% |
| From 1,500,000,000 |
to 1,750,000,000 |
0.55% |
There is an example pdf form on the Costa Rica government’s web site. If you’d like to see it for who knows what reason: click here. It’ll open in a new window and load a pdf document that is an example of what the final version will look like shortly.
I’m going to go out on a limb here and define some specific points that we at Guys In The Zone use to evaluate a property. At the moment, this practice tends towards the black arts since the basis for land values in the zone went right off the cliff with the rest of the world’s economy.
Jesse over at Green Leaf Real Estate has come up with a rather interesting formula for property evaluation: take what was paid for the land and add 25% annually, and then reduce that number by 40% to get today’s market price. I find this technique to be ingenious, not so much for it’s accuracy, (that would be a subject of much debate), but due to the fact that Jesse actually came up with a method for evaluating land that sounds like it’ll put you somewhere in the ballpark.
The problem is, we’re not sure where the ballpark is these days.
Rod & I have been working more with the other real estate agencies in The Zone as we move towards a more cooperative real estate profession. John Wieland of Coldwell Banker invited us out to look at a couple of houses in Ojochal and we got to listen to how he addressed the question “what’s my house worth?”. He answered: “you can follow the market, be right at the market, or lead the market”. To “follow the market” would be to realize that others have dropped their price and so you follow suit. “Be at the market” would be to stay in the trajectory, up or down, that you feel the market is in. Now, to “lead the market” means that you anticipate the market and blaze a trail with new prices that are compelling to the type of buyers that we now are seeing here in the zone. In today’s “down” market, this means doing extraordinarily low pricing to get a timely sale. (more…)
We’ve had a week full of working with buyer-type clients, but they definitely fit into what the “Man Says There’s No
Market here” article says below. I’ll call them the Schmuggerdoos. They are intent on buying some land, they came here to buy land, they found land that will suit their needs and budget, but that extra spark of “I think I’ll buy this property now” is lacking. They are going back home so that they can return in a few months, maybe, and buy something then. It’s been a great week though. Rod & I enjoyed getting to know the Schmuggerdoos quite a bit and hope they realize their dream of moving to Costa Rica. We also are enjoying the ever expanding cooperation between the real estate agencies here. It is proving to be a real value-add for both buyers & sellers, and it’s improving the quality of life among us real estate professionals. Prior to the Schmuggerdoo’s arrival I had sent their criteria to the other agencies in the area, who responded by sending links to listings on their websites that fit the criteria. Here is their criteria: (more…)
