What you owe when you sell Mexican real estate as a foreigner: how Mexico calculates capital gains, the primary residence exemption, notary withholding, and how to plan a tax-efficient sale.
Capital Gains Tax When Selling Property in Mexico
Mexico taxes the gain on property sales. The seller pays this tax — not the buyer — and the notary withholds and remits it at closing. For foreign sellers, the rules are specific and the amounts can be significant on highly appreciated property. This guide explains what you’ll owe and how to minimize it legally.
Who Pays and How
When you sell Mexican real estate, the notary is legally required to calculate and withhold income tax (ISR) from the proceeds before giving you the net amount. The notary remits this to SAT directly. You don’t pay SAT separately — it comes out of the sale price at closing.
The Two Calculation Methods
Mexico offers two ways to calculate the taxable gain on a property sale. The notary uses whichever results in a lower tax for the seller — you don’t choose; it’s automatic.
Method 1: 25% of Gross Sale Price
Tax = 25% × total sale price (no deductions, no gain calculation)
Example: Sell for $5,000,000 MXN → Tax = $1,250,000 MXN
Simple but can be harsh if the gain is small relative to the price.
Method 2: 35% of Net Gain
Tax = 35% × (sale price minus deductible costs)
Deductible costs include:
- Original purchase price (adjusted for inflation using INPC index)
- Notary fees at time of purchase
- ISAI paid at purchase
- Documented improvements made to the property (with official receipts/CFDIs)
- Real estate agent commission on the sale
- Capital improvement costs (with CFDI receipts)
Example:
- Sale price: $5,000,000 MXN
- Inflation-adjusted purchase price: $2,500,000 MXN
- Improvements documented: $400,000 MXN
- Agent commission: $175,000 MXN
- Net gain: $1,925,000 MXN
- Tax at 35%: $673,750 MXN
In this example, Method 2 ($673,750) is lower than Method 1 ($1,250,000), so the notary uses Method 2.
The Primary Residence Exemption
This is the most valuable tax break for property sellers in Mexico, and many foreign owners don’t know it exists.
If the property was your primary residence (casa habitación), you may exclude up to 700,000 UDIs (~$5.4M MXN / ~$270,000 USD at current rates) of capital gain from taxation.
Requirements for the Exemption
- The property must have been your primary residence — not a rental, not a vacation home, not an investment property
- You must have lived there for at least 2 years (some interpretations require 5 years — consult a tax advisor for your specific situation)
- You must demonstrate residency — utility bills in your name, voter ID or residency card with that address, bank statements
- You can only use this exemption once every 3 years
How It Works in Practice
The notary will ask you to provide documentation of residency. If you qualify, they calculate the gain, apply the 700,000 UDI exemption, and tax only the remaining amount (if any) at 35%.
For many mid-range property sales, the exemption eliminates the capital gains tax entirely.
Foreign Non-Residents: Additional Withholding Option
If you are a non-resident of Mexico (no Mexican tax residency) and do not qualify for the primary residence exemption, the notary will withhold tax using whichever of the two methods gives the lower result.
Non-residents can also elect to file a Mexican income tax return for the year of the sale and potentially recover excess withholding — but this requires an RFC and filing in Mexico. Not all foreign sellers find this worthwhile for a one-time sale.
Documents to Prepare Before Selling
To maximize deductions and minimize your tax bill:
| Document | Why It Matters |
|---|---|
| Original deed (escritura) with purchase price | Establishes cost basis |
| ISAI receipt from original purchase | Deductible closing cost |
| CFDIs for all improvements | Only officially documented improvements are deductible |
| Notary fee receipts from purchase | Deductible |
| Proof of residency (if claiming exemption) | Required for primary home exemption |
| RFC (tax ID) | Required if filing a return to recover excess withholding |
Important: Improvements without official CFDI receipts are NOT deductible. Cash payments for construction or remodeling that weren’t invoiced cannot be used. Keep all receipts.
Inflation Adjustment (INPC)
Mexico allows you to adjust your original purchase price for inflation using the National Consumer Price Index (INPC). This increases your cost basis and reduces your taxable gain. The notary applies this automatically if you provide the original purchase date and price.
Example impact: A property bought 10 years ago at $1,500,000 MXN might have an inflation-adjusted basis of $2,200,000 MXN today — significantly reducing the taxable gain.
Home-Country Tax Implications
For Americans
When you sell Mexican property and owe capital gains tax in Mexico:
- Report the sale on your US tax return (Schedule D for individuals, or appropriate business return)
- Claim a Foreign Tax Credit (Form 1116) for Mexican taxes paid on the gain
- Long-term capital gains rates in the US (0%, 15%, or 20%) may apply
- Net Investment Income Tax (3.8% surtax) may also apply depending on total income
- FIRPTA (Foreign Investment in Real Property Tax Act) does NOT apply — FIRPTA is for foreign sellers of US property, not Americans selling foreign property
For Canadians
- Report on Canadian T1 under foreign income rules
- Foreign Tax Credit available under Canada-Mexico treaty
- Principal residence exemption in Canada applies to Canadian properties, not Mexican ones
Planning Your Sale Tax-Efficiently
- Document all improvements now — if you renovate, always get CFDIs; cash improvements without receipts are worth nothing at sale
- Time the sale if you’re close to the 2-year residency threshold for the exemption
- Consult a Mexican accountant before listing — know your estimated tax before you set your asking price
- Check if you qualify for the primary home exemption — this can be worth hundreds of thousands of pesos in tax savings
Property taxes (predial) → Rental income taxes → Can foreigners own property in Mexico? → Closing costs when buying → Talk to an advisor →
Tax rules described reflect Mexican law as of mid-2026. UDI values, INPC indices, and tax rates change annually. This is informational — not tax advice. Work with a licensed Mexican accountant for your specific transaction.