BUYING IN MEXICO, SIMPLIFIED
Chendy Mendoza is a Real Estate Agent with Coldwell Banker La Costa, the number one Coldwell Banker office in Mexico since 2021, guiding U.S. and Canadian buyers and sellers through transactions across Puerto Vallarta and Riviera Nayarit.
How much is capital gains tax when you sell property in Mexico?
Mexico does not have a separate "capital gains tax." The gain on a real estate sale is taxed as ordinary income under the Impuesto Sobre la Renta (ISR), and the notario public who handles your closing calculates and withholds it before your sale proceeds are released. Depending on which of two calculation methods applies to you, the amount withheld can range from roughly 25 percent of your entire sale price down to a much smaller figure based only on your actual profit.
The two ways ISR gets calculated
According to the framework notarios apply under Mexican tax law, every seller's ISR is calculated one of two ways, and the notario will use whichever applies to your situation and documentation:
| Method | How it works | Who typically uses it |
|---|---|---|
| Flat withholding on gross sale price | 25 percent of the total sale price, with no deductions applied | Sellers without a Mexican RFC or without documentation of their original purchase cost |
| Net gain calculation | Roughly 30 to 35 percent applied only to the calculated profit, after subtracting the inflation-adjusted purchase price, documented improvements, and eligible closing costs | Sellers with a Mexican RFC who can document their acquisition cost and capital improvements |
Because the net gain method taxes only your profit rather than your entire sale price, it is almost always the cheaper option for anyone who has owned the property for more than a couple of years or made meaningful improvements. The flat method exists mainly as a fallback when the notario has no way to verify your original cost basis.
What counts as a deduction under the net gain method
If you qualify for the net gain calculation, your notario can typically apply these deductions against your sale price:
- Your original purchase price, adjusted for inflation using Mexico's national consumer price index (INPC) between your purchase date and your sale date
- Notario fees and acquisition taxes you paid when you originally bought the property
- Documented capital improvements, such as a remodel, a pool, or a structural addition, supported by invoices (facturas)
- The real estate commission and closing costs on this sale
Routine maintenance and undocumented cash improvements generally do not qualify. Keep every factura from the day you buy a property in Mexico through the day you sell it, because it directly reduces what you owe.
Why a Mexican RFC matters for foreign sellers
An RFC (Registro Federal de Contribuyentes) is Mexico's tax identification number. Many foreign owners never register for one because they are not working or earning rental income in Mexico, but not having an RFC at the time of sale is the most common reason sellers get stuck with the flat 25 percent withholding instead of the lower net gain calculation. If you are planning to sell, getting an RFC well before you list the property, and keeping your purchase documentation organized, is one of the most effective ways to reduce your tax bill.
The primary-residence exemption, and why it rarely applies to foreign owners
Mexican tax law allows an exemption from ISR on the sale of a primary residence, up to an inflation-adjusted limit, for sellers who can prove the property was their principal home. In practice this exemption is built for Mexican tax residents and requires proof such as a voter ID, utility bills, or a formal residency registration showing the address as the seller's primary home. Foreign owners who use their Puerto Vallarta or Riviera Nayarit property as a vacation home, and who file taxes as residents of the United States or Canada, generally do not qualify. Sellers who have obtained Mexican permanent or temporary residency and who genuinely live in the property full time should ask their notario whether they can document eligibility.
Fideicomiso and trust-held property
Foreign buyers in Mexico's restricted zone, which includes all of Banderas Bay, hold coastal property through a fideicomiso, a bank trust where the buyer is the beneficiary. Selling a fideicomiso-held property does not change how ISR is calculated. The tax is owed by the beneficial owner (you) on the gain from the sale, exactly as it would be on directly titled property elsewhere in Mexico. Your notario coordinates the trust bank, the ISR withholding, and the transfer of beneficiary rights to your buyer as one closing process.
How the notario handles ISR at closing
You do not file or pay this tax yourself. At closing, the notario public calculates the ISR owed using whichever method applies to your documentation, withholds that amount from your sale proceeds, and remits it directly to the SAT (Mexico's tax authority) as part of finalizing the escritura (deed). This happens in the same closing appointment where your buyer's acquisition tax, registration fees, and other closing costs are settled. Bringing your original purchase contract, prior closing statement, and any improvement invoices to your first meeting with the notario is the fastest way to make sure you get the more favorable calculation.
Frequently asked questions
Do foreign sellers pay capital gains tax in Mexico?
Yes. Mexico taxes the gain on any property sale through ISR, regardless of the seller's nationality or residency status. The notario public withholds the tax at closing before releasing your proceeds.
Can I avoid capital gains tax by selling through my fideicomiso trust?
No. The fideicomiso is a legal ownership structure for foreign buyers in the restricted zone, not a tax shelter. ISR is still owed on the gain by the beneficiary, calculated the same way as any other property sale in Mexico.
How do I qualify for the lower net gain calculation instead of the flat 25 percent?
You generally need a Mexican RFC and documentation of your original purchase price, notario fees, and any capital improvements. Without that documentation, the notario typically defaults to withholding 25 percent of the gross sale price.
Does the primary-residence exemption apply to my vacation home in Puerto Vallarta?
Usually not, if you file taxes as a resident of the United States or Canada and use the property as a vacation home. The exemption is intended for Mexican tax residents who can document the property as their principal home.
Who actually calculates and pays the tax at closing?
The notario public calculates the ISR, withholds it from your sale proceeds, and remits it to the SAT as part of closing. You do not file a separate return for this tax.
This article is general information for buyers and sellers, not tax or legal advice. Capital gains (ISR) calculations depend on your specific documentation, residency status, and the notario public handling your closing. Consult a Mexican notario public or a qualified fiscal advisor (contador) about your own transaction before making any decisions. Coldwell Banker La Costa. Each office is independently owned and operated. Equal Housing Opportunity.