The Complete Guide to Taxes When Owning Property in Mexico

Key Taxes Every Property Owner in Mexico Should Understand

Owning property in Mexico whether for personal use, vacation, or investment comes with a clear set of tax obligations. This guide outlines the most critical taxes you’ll encounter, including ISR (capital gains), IVA (when applicable), registration with the Registro Público de la Propiedad, the annual Predial (property tax), and rental income taxes especially for foreign owners. Every section is presented with clarity and factual accuracy.

ISR: Capital Gains Tax

When It Applies and How It’s Calculated

The ISR (Impuesto Sobre la Renta) applies to profits generated from the sale of a property in Mexico. It is calculated as the difference between the selling price and the original acquisition cost, adjusted for allowable deductions such as documented improvements, notary fees, and commissions.

For individuals, the maximum applicable rate is up to 35% on the net profit.

Exemptions and Special Conditions

• If the property sold was your primary residence, you may qualify for a full exemption under conditions like not having claimed a previous exemption within the last three years and remaining within a capped UDI value which as date of this article November is $5,946,559 pesos 
• If the property does not qualify for exemption, deductions can significantly reduce the taxable base, especially if upgrades and associated costs are properly documented with CFDI Facturas and valid RFC.
  
  

IVA: When Value-Added Tax Applies

Generally, the sale of residential property in Mexico is exempt from IVA (Value-Added Tax).

However, if the property is classified for commercial use or the land is undeveloped and not intended for residential purposes, IVA at the standard 16% rate may apply. Correctly classifying the property's use is essential when buying or selling to avoid surprises.

One important point to note is that real estate commissions do generate IVA. If you are paying an agency commission typically 8% for properties under $1,000,000 USD and 6% for properties above $1,000,000 USD then a 16% IVA tax applies on top of the commission fee, as it is considered a professional service. Sellers should factor this into their final closing costs to avoid surprises.

Registro Público de la Propiedad and Associated Fees

To legally formalize property ownership, the deed must be signed before a Mexican notary and registered with the Registro Público de la Propiedad. During this process, certain taxes apply—most notably the Acquisition Tax (ISABI) which currently in the municipality of Los Cabos is 3% of your registered sales price. 

These costs, along with notary fees, appraisals, certificates, and government rights, form part of your closing costs.

Predial: Annual Property Tax

The Predial is a municipal property tax assessed annually based on the cadastral (assessed) value of the property. While values vary by municipality, Predial in Mexico is considerably lower than in the U.S. or Canada, often amounting to a few hundred dollars per year for high-value homes.

Staying current on Predial is critical to avoid fines, interest, or issues in future sales.

Rental Taxes: What Foreign Owners Must Know

Renting your property in Mexico, whether long-term or short-term (vacation rentals), triggers additional tax obligations.

ISR on Rental Income

All rental income is subject to ISR. Property owners can choose between two methods:

• Deducting actual expenses (utilities, maintenance, property tax)
  
  
• Opting for a flat 35% presumed deduction, then paying tax on the remaining 65%
  
  

Monthly tax payments are due by the 17th of the following month. Proper invoicing and registration with SAT (Mexican tax authority) are required.

IVA and Withholding Rules

If the rental includes services or is short-term in nature (like vacation rentals), IVA at 16% may apply. This is charged to the tenant and must be declared by the owner.

Foreign owners renting to Mexican entities may face mandatory withholding, where the Mexican payer withholds 25% of the rent and remits it to the tax authority on your behalf.

Key Considerations for Foreign Buyers and Investors

• Classify the property use (residential vs. commercial) at the outset to determine VAT and income tax implications.
  
  
• Keep detailed records of improvements, legal fees, and other deductible costs to lower your capital gains liability.
  
  
• Choose between real expense deduction or flat-rate deduction for rental income based on your financial profile.
  
  
• Retain a notary and qualified tax advisor for all transactions, especially if you are a non-resident.
  
  
• Stay up-to-date on Predial and other local taxes to maintain legal standing.
  
  

Understanding Mexico’s real estate tax framework is essential for maximizing profitability and avoiding legal pitfalls. From ISR and IVA to registration, Predial, and rental income taxes, every phase of property ownership demands planning.

Whether you’re acquiring a vacation home, making a long-term investment, or navigating a rental strategy, working with professionals who know both the legal and fiscal terrain is key.

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.

Can foreigners buy property in Mexico? Absolutely—and Outliance Real Estate has helped dozens safely purchase in top communities like Quivira, Pedregal, Diamante, Palmilla, and Querencia. As top real estate advisors, founders Jesus Valenzuela and Gaby López are experts in fideicomisos, title processes, and investment strategies. Featured on HGTV’s House Hunters International and in Forbes México, we are among the best teams guiding international buyers in Baja California Sur. Start your search at Outliance.com and follow us on Instagram @OutlianceRealEstate for exclusive listings, videos, and behind-the-scenes insights.