Understanding Capital Gains Tax When Selling Property in Mexico: 2026 Guide

Mexico charges capital gains tax (ISR) of up to 35% on property sale profits, but deductions for improvements, inflation adjustments, and primary residence exemptions can reduce this significantly. The notario collects the tax at closing. Foreign sellers typically pay the flat 35% rate, while Mexican residents may qualify for lower rates. Here's how to minimize your tax burden legally.

How Capital Gains Tax Works in Mexico

Mexico applies ISR to the profit you make when selling property. The tax is calculated on the difference between your purchase price and sale price, minus eligible deductions. The notario publico handling your closing collects this tax at the time of sale and remits it to the tax authority (SAT).

Two Calculation Methods

Mexican law allows two methods for calculating your capital gains tax, and you are entitled to pay whichever results in a lower amount:

Method 1: Flat 35% Rate

This straightforward calculation applies a flat 35% tax rate to your net profit:

• Sale Price - Purchase Price - Allowable Deductions = Gain
• Gain x 35% = Tax Owed

This method is typically used for foreign sellers who are not Mexican tax residents.

Method 2: Sliding Scale Method

This method is available primarily for Mexican tax residents whose property qualifies as a primary residence. It can potentially reduce your tax to nearly zero with proper documentation. The sliding scale applies progressive rates based on income levels.

Deductible Expenses

You can reduce your taxable gain by deducting certain qualified expenses:

Property Improvements

• Renovations, additions, and upgrades to the property
• Must have CFDI tax invoices (facturas) from Mexican contractors
• Work must be properly documented at the time it was done

Original Acquisition Costs

• Closing costs from when you purchased the property
• Notary fees, acquisition taxes, and legal fees
• Trust setup fees if applicable

Sales-Related Expenses

• Real estate commissions (with valid invoices)
• Advertising and marketing costs
• Legal fees related to the sale

Inflationary Adjustments

Mexico allows you to adjust your original purchase price for inflation, which can significantly reduce your taxable gain, especially if you have held the property for many years.

Considerations for Foreign Sellers

Foreigners selling property in Mexico typically pay the flat 35% rate unless they meet specific criteria:

To Access Lower Rates, You Must:

• Obtain Mexican tax residency and an RFC (tax ID number)
• Prove the property was your primary residence
• Provide utility bills in your name showing consistent residence
• Hold the property in your personal name (not a corporate structure)

Mexican residents with proper documentation may access exemptions up to approximately 5 million MXN in profit when selling a primary residence.

Common Mistakes That Increase Your Tax

Failing to Collect CFDI Invoices

Many sellers lose significant deductions because they paid for improvements with cash and never obtained proper tax invoices. Without CFDIs, these expenses cannot be deducted from your gain.

Selling Too Soon

The inflationary adjustment benefits property owners who hold longer. Selling after just a year or two limits the inflation adjustment you can apply to your purchase price.

Not Requesting Both Calculations

Some notaries automatically apply only one calculation method. Always request that your notario run both methods and apply the one that results in lower tax.

Poor Record Keeping

Keep all purchase documents, improvement invoices, and expense records organized. You will need these at closing to maximize your deductions.

Planning Strategies

• Obtain CFDIs for all property improvements at the time work is completed
• Consider establishing tax residency if you plan to live in Mexico long-term
• Hold properties longer to maximize inflation adjustments
• Work with a Mexican accountant before selling to understand your options
• Request written estimates of your tax liability before accepting an offer

Working with Professionals

Given the complexity of Mexican capital gains tax, consider consulting with:

• A Mexican contador (accountant) familiar with real estate transactions
• A notario publico experienced with foreign sellers
• A tax attorney if your situation is complex

Professional guidance can help you structure your sale to minimize taxes legally while ensuring full compliance with Mexican tax law.

Related Mexico Property Guides

• Living in Cancun - Expat destination guide
• Legal & Financial Services Cancun - Tax and real estate attorneys
• Housing in Cancun - Property options

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