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. Remember…It’s not as simple as applying option A or B. Always consult a Mexico tax professional before making any tax planning decisions. I can help you connect with reputable tax professionals in Los Cabos. This will help you determine the best tax strategy for your situation.
1. Gross Sales Method
In this approach, the tax is at 25% of the total gross sale price, with no deductions allowed. This default method applies 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 can be up to 35% of the net gain. This is from any of your sold properties. The difference between the original recorded purchase price and the final sale price is that both are converted into Mexican pesos.
Eligible deductions under the net gain method may include:
- Property improvements (backed by official facturas/invoices)
- Real estate sales commissions
- Other allowable expenses tied to the transaction
To qualify for the net tax calculation, the seller must have permanent residency in Mexico. You must also have a valid RFC, submit appropriate documentation and meet other important fiscal requirements. In some cases, this method can lead to tax savings when applied correctly and compliantly.
Why Exchange Rates Matter in Capital Gains Tax
Though purchase and sale are in U.S. dollars, the Mexican tax authority requires capital gains to be in Mexican pesos. This is based on the exchange rate 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.
Reduce Your Capital Gains Tax
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.
Nonetheless, keep in mind that Mexico’s tax rules differ from those in your home country. 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 tax advisor at home to understand the full scope of your tax obligations.
The information 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. You are strongly encouraged to consult with a qualified Mexican tax advisor or real estate attorney.
I am happy to connect you with a reputable local tax attorney to guide you through the process. This way, you’ll have an efficient capital gains tax strategy before you list your property for sale.
Book your free consultation today.