How to Save Capital Gains Tax When Selling Your Home in Mexico

Did you know that when selling a property in Mexico, you could avoid paying the Capital Gains Tax? For many homeowners, this tax can significantly reduce the profit from selling their home. The good news is that there are legal ways to save the payment of this tax, provided you meet certain requirements established by law. If you’re planning to sell your home and want to maximize your earnings, this guide will help you understand how this tax works and what you need to do to avoid it.

 

In this article, we’ll break down everything you need to know about Capital Gains Tax in a clear and simple way: what it is, why it applies, and most importantly, how you can legally avoid it. Discover the requirements, necessary documents, and exceptions that will help you protect your assets. If you want to take advantage of this opportunity and sell your home without unexpected tax surprises, keep reading to learn how to do it smartly and effectively!

What is Capital Gains Tax and Why Is It Applied in Mexico?

 

Capital Gains Tax is a federal tax in Mexico that individuals and companies must pay on the income they generate. This tax is designed to fund public expenses in the country and applies to various economic activities, such as salaries, rentals, commercial activities, and property sales.

 

When you sell a property, the Capital Gains Tax is calculated on the profit made, which is the difference between the selling price and the original purchase price. For example, if you bought a house for $1,000,000 pesos and sold it for $1,500,000, the tax would be applied to the $500,000 profit.

Requirements and Documents to Save Capital Gains Tax

 

Mexican law allows homeowners to save the payment of Capital Gains Tax under certain conditions, particularly when selling their primary residence. Here are the key requirements:

 

• Primary Residence: The property must have been your main place of residence.

 

• No previous exemption in the past three years.

 

• Property Value: The maximum save amount is 700,000 UDIs (approximately $4.5 million pesos, depending on the UDI value at the time of sale).

 

Necessary Documents

 

To prove that the property was your residence, you need to present the following documents to the notary:

 

• Utility bills: Electricity, water, gas, or landline phone bills.

 

• Voter ID (INE): Must include the address of the property.

 

• Bank or store statements: These should indicate the property’s address.

 

• Tax receipts: For services contracted at the property.

 

It’s important that these documents are between 2 and 6 months old and are in the name of the owner or their immediate family members.

What Happens If You Don’t Meet the Requirements?

 

If you don’t qualify for the exemption, you can still reduce the amount of Capital Gains Tax through legal deductions, such as:

 

• Verified purchase price: The original price you paid for the property.

 

• Notarial fees: Costs for deed processing and certifications.

 

• Improvements or extensions: Backed by valid invoices.

 

• Real estate agent commissions: Must be invoiced at the time of sale.

 

Having the correct documents not only simplifies the process but also ensures you can take full advantage of the available tax benefits.

 

 

Value Limit to Save Capital Gains Tax: How Much Is It in 2025?

 

One of the key factors to save the Capital Gains Tax when selling your primary residence in Mexico is understanding the value limit established by law. This limit is regulated at 700,000 Investment Units (UDIs), and for 2025, it’s crucial to know how this value affects your eligibility for exemption.

 

Explanation of the 700,000 UDI Limit

 

Investment Units (UDIs) are an economic measure regulated by the Bank of Mexico. Their value fluctuates daily based on inflation, ensuring that tax benefits, like the exemption for Capital Gains Tax, remain adjusted to current economic conditions.

 

• In 2025, 700,000 UDIs are approximately equivalent to 4.8 million Mexican pesos, though this amount may vary depending on the exact date of the sale.

 

• If your property’s sale value does not exceed this limit and you meet the legal requirements, you can qualify for a full tax exemption.

 

What Happens If the Property Exceeds This Value?

 

If the property you intend to sell exceeds the 700,000 UDI limit, you won’t be able to save the tax entirely. However, there are strategies to minimize your tax liability:

 

1. Deductible expenses related to the property:
   • Acquisition cost: Submit the original deed or invoice of the property purchase to deduct its initial value.
   • Improvements or expansions: Deductions can be made for renovations or expansions, provided you have invoices in your name.
   • Notary fees: Legal fees related to the transaction, such as deed processing, are deductible.
   • Real estate agent commissions: If you hired a real estate agent, their commission is deductible, as long as you have the corresponding invoice.
2. Consult with a notary or tax advisor: A professional can help calculate the applicable Capital Gains Tax and guide you on maximizing allowable deductions.
3. Pay tax only on the net profit: The tax is not applied to the total sale value but rather to the net profit, calculated as the difference between the sale price and the acquisition cost after subtracting deductible expenses.

 

Practical Example:

 

If you sell a property for 5 million pesos, but the original purchase cost was 3 million pesos, and you made verified renovations worth 500,000 pesos, the Capital Gains Tax will be calculated on the difference: 5,000,000 – 3,000,000 – 500,000 = 1,500,000 pesos.

 

In this case, you will only pay Capital Gains Tax on the remaining amount.

 

How Many Times Can You Exempt Capital Gains Tax?

 

One of the most common questions when selling a property in Mexico is: How often can I exempt Capital Gains Tax? Mexican law imposes a restriction that allows this tax exemption only once every three years. This means you cannot take advantage of this fiscal benefit indefinitely. Below, we explain how this rule works and strategies to make the most of it.

 

One Exemption Every Three Years

 

According to Article 93 of the ISR Law (Income Tax Law) in Mexico, property owners have the right to save Capital Gains Tax on the sale of a primary residence if they meet the legal requirements. However, this exemption can only be applied once every three years. In other words:

 

• If you’ve already sold a property and used the exemption, you will need to wait three years before you can apply the exemption again on another sale.
• This period begins on the date the deeds of the exempted sale were signed.

 

For example, if you sold a house in January 2022 and applied the exemption, you will not be eligible to save Capital Gains Tax on another property sale until January 2025.

 

What Happens If You Sell Another Property Before the Three-Year Period Ends?

 

If you decide to sell another property before the three-year waiting period, you won’t be able to save Capital Gains Tax. However, you can still reduce the tax amount owed by deducting certain expenses related to the property’s purchase and upkeep, such as:

 

• Original purchase price: The amount you originally paid for the property.
• Investments in construction or renovations: Costs of upgrades, expansions, or major repairs, as long as you have valid invoices to prove them.
• Notary and deed costs: Fees for notarial services and property registration.
• Real estate agent commissions: Payments made to real estate agents or brokers during the sale, provided you have an official invoice.

 

Plan Ahead to Maximize Benefits

 

The three-year restriction doesn’t have to be a roadblock if you plan your sales carefully. Take full advantage of this exemption to reduce your tax burden and consult with a tax expert or notary to ensure you’re making the best financial decisions. A well-thought-out strategy can make a significant difference in your profits!

 

 

Benefits of Exempting Capital Gains Tax

 

Exempting the Capital Gains Tax when selling your home not only provides significant tax relief but also has a substantial impact on the final profit from the sale. Here are the main benefits of this exemption and how it can improve your financial outcomes.

 

How Much Can You Save by Exempting Capital Gains Tax on a Home Sale?

 

The Capital Gains Tax applied when selling a property can be as high as 35% of the profit, depending on your tax situation and the property’s value. Exempting this tax means you can save a substantial amount of money.

 

For example:

• If you sell a property with a profit of $3,000,000 MXN, the Capital Gains Tax could amount to approximately $1,050,000 MXN (35%). By exempting the tax, you get to keep this amount.
• For properties valued at up to 700,000 UDIs (approximately $4,900,000 MXN in 2024), the exemption fully covers the profit, representing a significant saving.

 

In summary, exempting the Capital Gains Tax can make a significant difference to your finances, especially if the property meets the legal requirements.

 

Impact on the Net Profit from Selling Your Property

 

The primary benefit of exempting Capital Gains Tax is that it increases the net profit from the sale. Without this tax, you can allocate the money saved toward other projects, investments, or personal goals.

 

Here’s a practical example of the impact:

 

• Without exempting the tax:
  Sale price: $4,000,000 MXN
  Acquisition cost and other deductible expenses: $2,500,000 MXN
  Taxable profit: $1,500,000 MXN
  Capital Gains Tax (35%): $525,000 MXN
  Net profit: $975,000 MXN

 

• With tax exemption:
  Sale price: $4,000,000 MXN
  Acquisition cost and other deductible expenses: $2,500,000 MXN
  Taxable profit: $0 (exempted)
  Net profit: $1,500,000 MXN

 

In this case, the exemption results in a direct saving of $525,000 MXN, significantly increasing your final profit.

 

Exempting Capital Gains Tax not only helps you maximize your earnings, but also gives you the peace of mind of maintaining a stable tax situation. This benefit is a powerful tool for optimizing your finances when selling a property, making it essential to meet the requirements and plan your sale effectively.

 

 

Steps to Follow to Save Capital Gains Tax When Selling Your Home

 

If you’re planning to sell your house and want to take advantage of the Capital Gains Tax exemption, it’s crucial to follow a clear and organized process to ensure everything is handled correctly. Below are the essential steps you need to take to apply for this exemption.

 

1. Notify the Notary of Your Intention to Save the Tax

 

The first step is to inform the notary public handling the sale that you intend to apply for the tax exemption. The notary will calculate the applicable tax and verify whether you meet the requirements for exemption. It’s essential to notify them early in the process to avoid misunderstandings or delays.

 

Pro Tip:

Choose a notary with experience in these types of tax processes and familiarity with the SAT regulations.

 

2. Gather the Required Documents

 

Collect all the documents needed to prove that the property is your primary residence and that you meet the legal requirements. Key documents include:

 

• Utility bills (electricity, water, or telephone registered under your name).
• INE ID card with the property’s address.
• Bank or department store account statements showing the property’s address.
• Property deed.

 

Important: These documents should be between 2 and 6 months old, as required by the notary.

 

3. Verify Property Eligibility

 

To qualify for the tax exemption, the property must:

 

• Be your primary residence.
• Have a residential zoning use.
• Not have been sold within the last three years under the Capital Gains Tax exemption.
• Not exceed the limit of 700,000 UDIs (approximately $4.9 million MXN in 2024).

 

If these criteria are met, you can proceed with the exemption process.

 

4. Request the Exemption from the Notary

 

The notary will review your documents and determine if you qualify for the tax exemption. If approved, the notary will include this information in the public deed, ensuring the tax is not applied to the transaction.

 

Note: This process must be completed before signing the sales deed, as it cannot be requested retroactively once the sale is finalized.

 

5. Final Review and Document Submission

 

The notary will thoroughly review all the information and perform the necessary tax calculations. If everything is in order, they will prepare the public deed, confirming that the Capital Gains Tax has been exempted.

 

6. Sign the Deed and Transfer the Property

 

Once the process is completed, you’ll sign the sales deed and hand over the property to the buyer. The notary will provide you with a copy of the deed, which will confirm the exemption of the Capital Gains Tax.

 

7. Keep Your Documents in Order

 

Even if you’ve exempted the Capital Gains Tax, it’s essential to retain all documents related to the transaction. The SAT may request a review in the future. Keep copies of the deed, utility bills, and any other relevant documents for your records.

What to Do If You Can’t Save Capital Gains Tax

If you don’t meet the requirements to save Capital Gains Tax (ISR) when selling your home in Mexico, don’t worry. There are legal alternatives that allow you to reduce the amount you owe by leveraging deductions permitted by law. Here’s how you can calculate the ISR and apply deductions to minimize its impact on your profits.

 

1. Deduct Expenses and Improvements

 

Even if you can’t fully save the ISR, you are entitled to deduct certain expenses related to the acquisition, maintenance, and improvement of the property. This can significantly reduce the taxable amount.

 

Common Deductible Expenses:

 

• Original purchase price: The amount you initially paid for the property.
• Improvements and renovations: Costs for expansions, remodeling, or significant maintenance work, provided they are backed by valid invoices (facturas).
• Notary fees: Fees for notary services and closing costs paid at the time of purchase.
• Real estate commissions: Fees paid to agents or brokers for selling the property.

 

Pro Tip: Keep all invoices and fiscal receipts related to these expenses. Without proper documentation, you won’t be able to claim these deductions.

 

2. How to Calculate the ISR (Capital Gains Tax) You’ll Owe

 

The ISR is calculated based on the profit (gain) you made from selling the property. Follow these basic steps to estimate the amount:

 

1. Determine your net profit:
   Subtract the original purchase price and deductible expenses from the sale price of the property.
   Formula:
   Profit = Sale Price – (Original Purchase Price + Deductible Expenses)
2. Apply the applicable tax rate:
   The profit is taxed at a rate that can go up to 35%, depending on the amount earned and your tax situation. The notary will calculate the exact amount for you.
3. Include additional deductions:
   Any approved expenses such as improvements, commissions, or notary fees can further reduce the taxable base.

 

3. Examples of Deductible Notary Fees, Improvements, and Commissions

 

Here are a few scenarios where deductions can save you money:

 

• Improvements and renovations:
  If you added a new room or remodeled the kitchen, you can deduct the cost, provided you have valid invoices that document the work.
• Notary fees:
  Payments made to the notary, such as registration fees or certificates, are deductible if you retain the invoices.
• Real estate commissions:
  The percentage paid to a real estate agent for selling the property is also deductible when supported by an official invoice.

 

4. Consult a Professional

 

If you cannot save the ISR, it’s strongly recommended to seek advice from a real estate tax advisor or the notary handling the transaction. These professionals can help you accurately calculate the tax and make the most of the deductions available.

 

Even if you’re unable to save the ISR, you can significantly reduce the amount you owe by taking full advantage of the legal deductions. Keep your documents in order, request invoices for every expense related to the property, and collaborate with a tax expert to ensure you’re only paying what’s necessary. Proper planning will help protect your finances and maximize your profits from the sale!

 

 

Exempting ISR for Foreigners: What Changes?

 

When a foreigner sells a property in Mexico, the process for exempting or reducing the Capital Gains Tax may differ. Mexican law has specific provisions for non-resident sellers. Below, we clarify how ISR works for foreigners and strategies to minimize this tax.

 

1. Does the ISR Exemption Apply to Foreigners?

 

Yes, foreigners can benefit from ISR exemptions under certain conditions. To qualify, foreigners must meet the same requirements as Mexican residents:

 

• The property must have been used as a primary residence.
• No other property must have been sold in Mexico within the past three years.
• Submit the necessary documents proving residency in the property (e.g., utility bills or bank statements in their name).
• The property value must not exceed the 700,000 UDI limit (approximately 4.5 million pesos).

 

Important: While foreigners are eligible for the ISR exemption, the transaction must be conducted through a Mexican notary public who verifies compliance with all requirements.

 

2. Taxes for Non-Residents

 

If a foreigner does not meet the requirements for ISR exemption, a different tax framework applies, known as the Non-Resident Income Tax (IRNR). Key features include:

 

• 35% tax rate on net profit: This is calculated on the difference between the sale price and the documented acquisition cost.
• 25% withholding on the total sale value: If the foreigner cannot demonstrate acquisition costs, the notary will apply a 25% withholding on the property’s total sale price instead of the net profit.

 

Note: The withholding is performed during the signing of the public deed and is the notary’s responsibility.

 

3. Strategies for Foreigners to Reduce Taxes

 

Even if ISR exemption is not an option, foreigners can use the following strategies to lower their tax burden:

• Document deductible expenses:
  Provide invoices for property improvements, notarial fees, real estate commissions, and other related costs.
• Work with a specialized accountant:
  A tax expert can help prepare the required documentation and ensure all possible deductions are utilized.
• Review international tax treaties:
  Mexico has tax treaties with many countries to avoid double taxation. Residents of treaty countries may benefit from additional tax reductions. Consult an expert for more details.

 

4. Recommendations for Foreigners

 

• Consult a notary public early:
  The notary not only oversees the transaction but also calculates applicable taxes and verifies exemption eligibility.
• Keep documents organized:
  Ensure you have deeds, invoices, and any other required evidence to meet legal requirements.
• Consider changing your tax status:
  In some cases, foreigners with temporary or permanent residency in Mexico may benefit from the same provisions as Mexican residents.

 

While the process for exempting or reducing ISR may be more complex for foreigners, significant savings are possible if you meet legal requirements or apply the appropriate strategies. Working with experienced professionals, such as notaries and tax advisors, is essential to optimize your finances and avoid issues when selling property in Mexico.

 

 

FAQs

 

1. How Can I Save ISR If the Property Is Shared with My Partner?

 

If the property is co-owned, each owner can apply for ISR exemption individually. This means both parties have the right to save the tax as long as they meet the legal requirements, such as not having sold another property within the past three years and proving the property was their primary residence. Each owner must provide their respective documentation, such as IDs, proof of residence, and other necessary paperwork.

 

2. Can ISR Be Exempted on Land Sales?

 

No, ISR exemption applies exclusively to properties used as a primary residence under Mexican law. Non-residential land does not qualify for this benefit. However, if the land includes a habitable structure, that portion may qualify for exemption if the necessary requirements are met.

 

3. What Happens If the Documents Are Not in My Name?

 

To save ISR, documents proving the property was your primary residence must be in your name or that of direct family members (such as a spouse, children, or parents). If you lack documents in your name, the notary may not be able to apply the exemption. Therefore, it’s crucial to ensure utility bills, bank statements, or other proof of residence are updated and registered with your name.

 

4. What Taxes Does the Buyer Have to Pay?

 

The buyer is responsible for covering the following costs associated with the transaction:

 

1. Real Estate Acquisition Tax (ISAI): This tax ranges from 2% to 4.5% of the property’s value, depending on the state where it is located.
2. Notarial fees: Includes notary fees, registration costs, and certifications.
3. Property appraisal: If required, the buyer will also bear the appraisal cost.
4. Value-Added Tax (VAT): If the buyer acquires a commercial or new property, VAT will apply to the construction value.

It’s essential for buyers to request a detailed breakdown of these costs from the notary to avoid surprises during the transaction.

 

 

Conclusion

 

Exempting ISR when selling your home represents significant tax savings and a smart way to protect your assets. Understanding the rules, gathering the necessary documents, and communicating effectively with the notary are crucial steps to ensuring a smooth process. Proper planning and compliance with legal requirements can mean the difference between paying unnecessary taxes and maximizing your net profit.

 

Leveraging this tax benefit not only positively impacts your short-term finances but also optimizes your long-term real estate investment strategy. Whether selling for the first time or planning future sales, staying informed and organized is the key to making strategic decisions and securing your financial well-being.

 

 

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