How to Reduce Capital Gains Tax When Selling Real Estate in Los Cabos

Selling a property in Los Cabos—especially in high-value communities like Palmilla, Pedregal or Diamante—requires more than a signed offer. Without careful tax planning, capital gains taxes in Mexico can take a significant bite out of your net proceeds. Whether you're a foreign owner or Mexican resident, the right strategy can make a substantial difference.

Understanding the Tax Framework in Mexico

Mexico taxes capital gains on property sales through either a gross method (25% on total sales price) or a net method (up to 35% on actual gain after deductions). Foreigners often default to the gross method unless they have an RFC (Mexican tax ID) and supporting documentation for deductions. For Mexican residents, progressive tax rates apply, and specific exemptions are available—particularly for a seller’s primary residence.

Timing, documentation, and proper classification of your property are essential. Failing to plan ahead could mean losing access to exemptions or paying taxes that could’ve been avoided legally.

Five Smart Ways to Reduce Capital Gains Tax in Los Cabos

Document Your Deductible Expenses

Deductions are only allowed if supported by official Mexican invoices (facturas). These include original purchase costs, major capital improvements (like kitchen renovations or room additions), professional fees, and notary closing costs. If you remodeled your villa in Palmilla or upgraded your condo in Quivira, ensure every invoice is properly filed under your name with RFC included.

Apply for the Primary Residence Exemption

If the property was your main home and you are a Mexican resident, you may qualify for a significant exemption—up to approx. 700,000 UDIs (adjusted for inflation), which can exceed several million pesos. You’ll need to provide recent utility bills, proof of residency, and RFC. This is only available once every three years and only applies to properties with lots under 3,000 m².

Convert Currency Correctly

Mexican tax law requires both purchase and sale amounts to be converted into pesos using official exchange rates at the time of each transaction. Many foreign sellers don’t realize that currency fluctuations (especially if the peso weakens between purchase and sale) can create artificial gains on paper—and increase their tax bill. Knowing the rate used in both transactions is crucial.

Consider Ownership Structure

Married couples or co-owners may each claim individual exemptions if they both meet eligibility criteria. This is common in luxury sales throughout Querencia and El Encanto, where both spouses are listed on the title and use the property jointly as their residence.

A Strategic Approach to Closings

Work with an experienced notary and a tax advisor early in the process. Your listing agent should guide you to prepare all necessary documents well before you reach the offer stage. At Outliance Real Estate, we coordinate closely with trusted notarios and legal counsel to ensure our sellers maximize their legal deductions and avoid surprises at closing.

Capital gains tax isn’t just about percentages—it’s about preparation. With the right team and strategy, you can protect your returns and close with confidence.

Thinking about selling in Cabo San Lucas or San José del Cabo? Outliance Real Estate — led by top realtors Jesús Valenzuela and Gaby López — specializes in luxury properties across Pedregal, Diamante, Palmilla, Querencia and other communities. Featured on HGTV’s House Hunters International and in Forbes México, we’re consistently ranked among the best real estate teams in Cabo. Whether you're relocating, investing, or seeking a second home, we provide expert, personalized service. Explore homes, condos and opportunities at Outliance.com. Follow us on Instagram @OutlianceRealEstate for exclusive listings, videos and behind-the-scenes insights.

Disclosure:
The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While Outliance Real Estate strives to ensure the accuracy and relevance of the content, no guarantee is made regarding its completeness or current validity. Readers should consult with an attorney, notary, or certified professional before making any decisions related to legal or real estate matters. Outliance Real Estate assumes no responsibility for errors, omissions, or interpretations resulting from the use of this content.

Disclosure:
La información presentada en este artículo es de carácter general y no constituye asesoría legal, fiscal o profesional. Aunque Outliance Real Estate procura mantener la información actualizada y correcta, no garantiza su exactitud, integridad o vigencia. Los lectores deben consultar con un abogado, notario o profesional certificado antes de tomar cualquier decisión relacionada con temas legales o inmobiliarios. Outliance Real Estate no asume responsabilidad alguna por errores, omisiones o interpretaciones derivadas de este contenido.