Planning to sell your property in Mexico? Understanding how capital gains tax in Mexico works is essential.
How Is Capital Gains Tax Calculated in Mexico?
(ISR – Impuesto Sobre la Renta) is likely going to apply to your transaction. The tax owed on your sale depends on several factors that determine how your gain is calculated and taxed.
When selling a property in Mexico, there are two primary ways the capital gains tax may be calculated. It’s not as simple as applying option A or B. Always consult a Mexico tax attorney before making any tax planning decisions.
1. Gross Sales Method
In this approach, the tax is calculated as 25% of the total gross sale price, with no deductions allowed. This is often the default method applied to most foreign sellers who do not hold an RFC (Mexican tax ID).
2. Net Gain Method
For those who meet specific fiscal requirements, the tax may be assessed as up to 35% of the net gain—that is, the difference between the original recorded purchase price and the final sale price, both converted into Mexican pesos.
The net method allows for deductions, including:
- Property improvements (must be backed by official facturas/invoices)
- Real estate sales commissions
- Other allowable expenses tied to the transaction
To qualify for the net gain calculation, the seller must have permanent residency in Mexico, a valid RFC, submit appropriate documentation and meet other fiscal requirements. In many cases, this method can result in tax savings when applied appropriately.
Why Exchange Rates Matter
Even if your real estate purchase and sale are conducted in U.S. dollars, Mexico’s tax authority requires that capital gains be calculated in Mexican pesos, based on the published by the Bank of Mexico at the time of purchase and sale. This means fluctuations in currency value over time can directly impact your taxable gain—either increasing or reducing your tax liability.
Work with the Right Experts
I collaborate with trusted tax advisors and attorneys who specialize in real estate transactions in Mexico. They can help assess your unique tax exposure and apply the most favorable—yet compliant—strategy for your situation.
Keep in mind that Mexico’s tax rules differ from those in your home country, and any profit made from the sale of Mexican property may also need to be reported in Canada or the U.S. It’s crucial to check with your accountant or tax advisor at home to understand the full scope of your tax obligations.
The information provided in this article is for general informational purposes only and does not constitute legal, financial, or tax advice. Capital gains tax calculations and requirements in Mexico may vary depending on individual circumstances and are subject to change. Readers are strongly encouraged to consult with a qualified Mexican tax advisor or real estate attorney before making any decisions related to property sales or tax planning.
I am happy to connect you with a reputable local tax attorney to help guide you through the process and have an efficient capital gains tax strategy before you list your property for sale.
Book your free consultation today.