13. Capital Gains Tax in Mexico

[Ciro Antonio Martínez Morales]

What You’ll Owe When You Sell and How to Reduce It

Let’s talk about what happens after the sale — because that’s when the tax man knocks.

In Mexico, capital gains tax is called the ISR (Impuesto Sobre la Renta). And yes — even if you’re a foreigner, you’re subject to it when selling property. But here’s the good news:
There are legal strategies to reduce or even eliminate it.

💸 How Is Capital Gains Tax Calculated in Mexico?

There are two main methods, and the seller must choose one (whichever is more favorable):

Option 1: 25% of the Gross Sale Price

This is simple:

• No deductions, no calculations

• Pay 25% flat on the total sale value

• Common for foreigners without an RFC or residency

✅ Pros: Straightforward
❌ Cons: No credit for improvements, taxes, or purchase price

Option 2: 35% on Net Gain (after deductions)

If you have the right documentation, you can deduct:

• Original purchase price (from notarized deed)

• Notary and closing fees

• Official improvements (with SAT-registered invoices)

• Acquisition tax

• Capital improvements (not repairs)

• Inflation adjustment (based on years of ownership)

✅ Pros: You can drastically reduce your taxable amount
❌ Cons: You must have RFC, residency, and detailed receipts

💡 Pro tip: This is where your notary and accountant work together to calculate the best scenario.

🧠 Legal Ways to Reduce Capital Gains Tax

1. 🏡 Primary Residence Exemption

If the property is your principal residence and you have Mexican residency + RFC + utility bills in your name, you may be exempt on gains up to ~700,000 USD (subject to exchange rate and rules).
Only one exemption per person every 3 years.

2. 🔄 Reinvesting in Mexican Property

There’s a limited provision for deferring capital gains tax if the proceeds are reinvested in another property in Mexico, but it requires professional tax guidance.

3. 🧾 Documenting Improvements

If you remodel, expand, or modernize the property, you can deduct those expenses — but only if the invoices are:

• In your name

• Include your RFC

• Issued by a registered contractor or architect

• Paid through traceable methods (bank transfer, no cash)

📊 Example:

Let’s say you bought a condo in Playa del Carmen in 2020 for $200,000 USD. You sell it in 2025 for $300,000 USD.

• With Option 1: Pay 25% of $300,000 = $75,000 USD in tax

• With Option 2: You deduct $200K + $20K in improvements + fees + inflation = tax on ~$50K
  → Pay ~35% of $50K = $17,500 USD

Big difference.

💬 Final Word:
Capital gains in Mexico can hurt your ROI — or barely touch it, depending on how you plan.
Talk to your notary, get an accountant who understands foreign investment rules, and document everything from day one.

Next post: Let’s look at how short-term rental regulations (Airbnb, VRBO) are evolving — and how to stay compliant while renting your Mexican property.