Property Sale Tax in Mexico

How capital gains ISR is calculated, what you can deduct, and strategies to reduce your tax at closing.

ISR on Property Sales

When you sell real estate in Mexico, you may owe ISR (income tax) on the capital gain. The tax is calculated by the notary at closing, withheld from proceeds, and remitted directly to SAT. You do not pay it separately — it comes out at the table.

How Capital Gains Are Calculated

Your taxable gain is calculated as:

Gain = Sale Price − Adjusted Cost Basis − Authorized Deductions

The cost basis (original purchase price) is adjusted upward for inflation using Mexico's official INPC (consumer price index). A higher adjusted basis means a lower taxable gain — which is why proper documentation from purchase is critical.

Deductible Costs

• Original purchase price (as recorded in the escritura)
• Notary fees paid on the original purchase
• Improvements and renovations (must have CFDI invoices)
• Real estate agent commission on the sale
• Acquisition taxes paid (ISABI — Impuesto sobre Adquisición de Bienes Inmuebles)
• Closing costs with CFDI invoices

Critical: Improvements without CFDI invoices cannot be deducted. A cash renovation without invoices is invisible to the SAT — it does not reduce your gain. Always get invoices for every improvement.

Tax Resident Exemption

If you are a Mexican tax resident and the property has been your primary residence for at least 2 years, you may exclude up to 700,000 UDIs (approximately MXN 4.7 million) of the gain from ISR. Conditions:

• You must have had the property as your primary residence
• You must demonstrate tax residency in Mexico
• The exemption is available once every 3 years
• Gains above the exemption threshold are taxable at progressive ISR rates

Non-Resident Tax Rates

Non-residents do not qualify for the primary residence exemption. The notary calculates tax under two options and applies the lower:

• Option A: 25% ISR on the gross sale price (no deductions required, simple calculation)
• Option B: 35% ISR on the net gain (after all deductions and inflation adjustment)

US citizens may also owe US capital gains tax on the same sale, but taxes paid in Mexico can generally be credited against the US liability under the bilateral tax treaty.

Planning Strategies

• Gather all CFDI invoices for improvements before listing the property — they directly reduce your taxable gain.
• Establish Mexican tax residency before selling if you plan to use the primary residence exemption.
• Plan which tax year the sale closes in — progressive ISR brackets mean high-income years increase the rate.
• Consider splitting a large sale across two calendar years if the property can be transferred in stages.
• Work with an accountant before signing the promissory agreement (promesa de compraventa), not after.

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