Capital Gains Tax When You Sell Property in Mexico

Almost nobody asks about this before they buy, and almost everybody wishes they had. The tax you pay when you sell in Mexico can be the difference between a good outcome and a disappointing one, and much of what determines it is decided at the moment you purchase, years earlier.

This article covers the mechanics for a foreign owner. It is general information rather than tax advice, and the numbers move, so treat it as the map rather than the territory and have an accountant run your specific case.

The two ways a non-resident can be taxed

If you are not a Mexican tax resident, and most foreign owners of a second home are not, you have a choice between two methods.

Twenty five percent of the gross sale price. No deductions, no calculations, no receipts. If you sell for four hundred thousand dollars, the tax is one hundred thousand dollars regardless of what you paid.

Roughly thirty five percent of the net gain. Sale price minus your documented acquisition cost, minus qualifying improvements, minus commissions and acquisition expenses. This requires a Mexican tax ID, a representative in Mexico, and documentation the notary can certify.

The arithmetic decides which is better, and the crossover is not intuitive. The gross method wins when your gain is large relative to the sale price, which is to say when you bought cheaply and held a long time. The net method wins when your gain is modest, which is the more common case over a shorter hold, and it is dramatically better when you have significant documented improvements.

A property bought at three hundred thousand and sold at four hundred thousand illustrates it. The gross method takes one hundred thousand. The net method applies its rate to a gain closer to sixty or seventy thousand after deductions, producing a materially smaller bill. The difference here is not small, and it turns entirely on paperwork you either kept or did not.

What you can deduct, and what you cannot

Under the net method, the following generally reduce the taxable gain:

• The documented purchase price from your original deed.
• Improvements and construction, only with valid Mexican tax invoices, the facturas.
• Real estate commissions on the sale.
• Notary fees and the acquisition tax you paid when buying.

What does not count is the part that hurts. Work paid in cash to a contractor who did not invoice you does not exist for tax purposes, however beautiful the result. The new kitchen, the pool, the roof terrace, all of it is invisible unless there is a factura with your name on it.

This is the single most useful thing to take from this article. From the day you buy, keep every factura. Insist on them even when the cash price is tempting, because the discount you take today is frequently smaller than the tax you pay later.

The undervaluation trap

For years it was common practice in parts of Mexico to record a purchase price on the deed below what was actually paid, reducing the acquisition tax at closing. Buyers were sometimes encouraged to do this, and some still are.

It is a bad trade for two reasons.

The first is that it inflates your future gain. If your deed says two hundred thousand and you actually paid three hundred thousand, you have handed the tax authority an extra hundred thousand of taxable gain when you sell. The saving at purchase is a fraction of the cost at exit.

The second reason is newer and sharper. Where an official appraisal exceeds the price stated in the deed by more than ten percent, the difference can be treated as taxable income, and it is the buyer who can be assessed on it. Mexico's Supreme Court upheld this treatment in a ruling reported in March 2026. The practice that used to look like a clever saving now carries a defined and enforceable risk.

If you are buying, record the real price. If you own a property that was undervalued at purchase, raise it with your accountant before you list it rather than at the closing table.

The exemption most foreign owners cannot use

Mexican tax law exempts gain on the sale of a primary residence up to a ceiling of seven hundred thousand UDIs, an inflation-linked unit, which translates into several million pesos depending on the day. The exemption can be used once every few years, and requires proof that you actually lived there, typically utility bills in your name across a defined period.

The catch is that it is available to Mexican tax residents. A foreign owner whose home is a second residence used a few weeks a year does not qualify, no matter how long they have owned it.

This matters strategically. Buyers who intend to relocate full time to Mérida or the coast, and who become tax residents, occupy a different position at exit than buyers who keep a vacation property. It is worth knowing which one you are before you buy, not after. The exact ceiling and the frequency rules should be confirmed with an accountant at the time, since the UDI value changes daily and the rules are periodically adjusted.

How the tax actually gets paid

You do not file and pay separately. The notary calculates, withholds and remits the tax as part of the closing, and issues the corresponding documentation. In Mexico a notary is a licensed attorney with real legal responsibility, and this is one of the functions they perform.

The practical implication is that the money is taken at the table. Sellers who have not planned for it are unpleasantly surprised by the size of the wire that does not arrive.

Credit against your taxes at home

Both the United States and Canada have tax treaties with Mexico. The gain on Mexican real property is taxable in Mexico as the source country, and you then generally claim a credit for the Mexican tax against your home country liability rather than an exemption.

For American sellers this runs through the foreign tax credit machinery, and the credit is limited to the portion of your home tax attributable to that foreign income. For Canadian sellers the treaty provides equivalent relief on the same principle. In both cases you are unlikely to pay twice, but you are also unlikely to end up better off than if the gain had arisen at home. Get a cross-border accountant involved before you sell, not in April afterwards.

The costs on the way in, for context

Closing costs when buying generally run four to eight percent of the value, weighted toward the higher end inside the restricted coastal zone where a bank trust is involved. The buyer typically covers the acquisition tax, notary fees, appraisal, registry and, on the coast, the setup of the fideicomiso. The seller typically covers their own income tax and the agency commission.

Worth noting that the acquisition tax is a state tax and the rate varies, so confirm the current figure for Quintana Roo or Yucatán specifically rather than working from a national average.

Four things to do now, whatever stage you are at

• Record the true purchase price on the deed. Always.
• Collect and file every factura for work done on the property, from day one.
• Decide early whether you are heading toward Mexican tax residency, because it changes your exit position.
• Model both calculation methods before you list, not after you have an offer.

If you are still choosing where to buy, the tax treatment is identical across our markets, so it should not drive the location decision. Price, use and how long you plan to hold should, and those are conversations our advisors have every week.

This article is general information and not tax or legal advice. Rates, thresholds and rules change, and your situation is specific. Engage a Mexican accountant and, if you are American or Canadian, a cross-border specialist.