Costa Rica Capital Gains Tax: Deductible Expenses and Property Improvements Explained

When preparing to sell your property in Costa Rica, understanding the nuances of capital gains tax can significantly impact your net profits. While the 15% capital gains tax introduced in 2019 might initially seem steep, strategic deductions can minimize its effect. By documenting and leveraging specific property-related expenses and improvements, you can effectively lower your taxable gain. Below, we outline key deductible expenses—including capitalizable improvements, operational costs, and indirect administrative expenses—that optimize your investment returns and reduce your tax burden.
 

1. Physical Improvements (Capitalizable in Property Value)

These improvements directly increase your property’s market value and can be deducted to reduce your taxable capital gain:

• Interior renovations (bathrooms, kitchens, bedrooms)
• Upgrades to electrical or plumbing systems
• Roof replacement or structural reinforcements
• Flooring upgrades (porcelain, hardwood)
• Pool construction or remodeling
• Installation of solar panels or energy-efficient systems
• Landscaping improvements (fences, gates, gardens)
• Construction of storage spaces or accessory structures
• Installation of security systems (cameras, alarms, electric fences)

 

2. Operational Costs Essential to Investment Maintenance

Though these expenses don’t directly increase your property’s value, they are essential for maintaining functionality and appeal. Proper documentation can make some of these deductible:

• Property and municipal tax payments
• Utility bills (water, electricity, internet), especially during active use or maintenance periods
• Insurance premiums (fire, liability)
• Staff salaries (security, gardening, maintenance)
• Escrow or fiduciary service fees (if applicable)
• Pest control and fumigation services

 

3. Indirect or Administrative Expenses Related to Investment Oversight

These expenses may be justified with appropriate documentation and case-by-case assessment:

• Airfare for property visits and inspections (when necessary and used by owners)
• Temporary lodging during property-related visits (when necessary and used by owners)
• Legal or accounting fees associated with property management or improvement planning
• Local transportation expenses during inspection trips (when necessary and used by owners)

Additional Information: Costa Rica’s Capital Gains Tax Law

Since July 1, 2019, Costa Rica enforces a 15% capital gains tax on real estate sale profits, under Law 9635. The tax is calculated based on the difference between the property’s sale price and original purchase price, including documented improvements.
It’s essential to have valid legal invoices to support improvement expenses for tax deductions. Property owners may also request an official property revaluation to update values in transfer documents, effectively reducing the taxable base.

Note that this tax specifically applies to properties acquired after the law came into effect. In these cases, the full 15% rate applies unless documented deductions or exemptions are available.

Prepared by Yorlenny, AFCP, Tax Advisor