Tax Law

ISR in Real Estate Sales: Exemptions, Deductions and Obligations

March 15, 2026 — Enrique Benet-Gregg

Applicable Regulatory Framework

The disposal of real property generates cumulative income subject to Income Tax under the regime provided for in Title IV, Chapter IV of the Income Tax Law (LISR), published in the DOF on December 11, 2013 and with amendments in force as of January 1, 2026. Article 119 LISR establishes the general procedure for determining gain from disposal of real property for individuals, while Article 18, Section I LISR regulates the accumulation of income from disposal in the case of legal entities. The distinction between both regimes has substantial consequences on effective tax burden and possibilities for lawful optimization.

Cumulative Gain: Determination and Structural Deductions

For individuals, cumulative gain is obtained by subtracting from the disposal price the proven cost of acquisition duly adjusted in accordance with the National Consumer Price Index factor (INPC), as provided in Article 121 LISR. Authorized deductions include:

The original acquisition cost updated (Article 121, Section I LISR).
Investments made in construction, improvements and expansions, provided they are verifiable and are adjusted in accordance with the adjustment procedure provided in Article 122 LISR, with the deduction of such investments being part of the authorized deductions listed in Article 121, Section II LISR.
Notarial expenses, taxes and rights for title execution, as well as brokerage fees, in the terms of Article 121, Section III LISR.
Tax losses from prior fiscal years arising from disposal of real property, with the limitations established in Article 121 LISR as to their exclusive application against gains of the same nature.

The adjustment of acquisition cost through INPC factors is determinant in transactions with real property acquired more than five years ago, given that it can significantly reduce the taxable base. Precise calculation of these factors and correct documentation of original cost are frequently the subject of controversies before the Tax Administration Service.

Exemption for Principal Residence

Article 93, Section XIX, subsection a) LISR exempts from ISR the gain obtained from the disposal of the taxpayer’s principal residence, with a limit of 700,000 UDIS. The equivalent in Mexican pesos of said amount varies in accordance with the value of the UDI published daily by Banco de México; to ascertain the amount applicable on the date of the transaction, it is recommended to consult the UDIS calculator available at banxico.org.mx. This exemption is conditioned on the transferor not having applied the same exemption during the five immediately preceding years, which must be evidenced before the public notary involved. The Regulations of the Income Tax Law (RLISR), published in the DOF on October 8, 2015, specifies the documents with which to evidence the status of principal residence, including proof of tax domicile and utility bills; for identification of the specific applicable article, it is recommended to consult the current text of the RLISR or the normative criteria of the SAT available at sat.gob.mx, inasmuch as the regulatory numbering may vary with amendments published after 2015.

When the gain exceeds the threshold of 700,000 UDIS, only the excess is taxable, with the notary required to withhold the corresponding tax in accordance with Article 126, third paragraph LISR. Inadequate transactional planning regarding the timing of disposal may result in total loss of the exemption if the required five years have not elapsed since its prior application.

Notarial Withholding Regime and Provisional Payment

Article 126 LISR imposes on the public notary the obligation to calculate and withhold provisional tax on the gain determined at the time of executing the transaction. This withholding is not the final tax: the taxpayer must file an annual return accumulating the income with his other income for the fiscal year, and additional tax may be due or a refund balance may result. The applicable rate for individuals is determined in accordance with the rate schedule in Article 152 LISR, with a maximum rate of 35%.

For legal entities, disposal of real property is incorporated into the fiscal result of the fiscal year without special withholding regime, with the corporate rate of 30% in accordance with Article 9 LISR being applicable to the corresponding fiscal profit.

Relevant Jurisdictional Criteria

The Collegiate Courts in Administrative Matters have consistently held that the burden of proof regarding the verified cost of acquisition rests with the taxpayer, and that the absence of original deed documentation cannot be remedied solely by declarations of the acquirer. This criterion has a direct impact on repurchase operations or on inherited real property where the original deed was not properly preserved. The relevant criteria in this matter can be found in the Federal Judicial Gazette through the thesis search engine available at sjf.scjn.gob.mx; search is recommended under the concepts “verified cost of acquisition”, “burden of proof” and “real property”, filtering by Collegiate Courts in Administrative Matters. Given that the theses in this matter are numerous and their precise identification depends on the circuit and fiscal year relevant to each specific operation, IBG Legal can provide the thesis identifiers and jurisprudence applicable to the specific case as part of its preventive litigation analysis.

Similarly, the Second Chamber of the Supreme Court of Justice of the Nation has established that fiscal authorities cannot disregard the value stipulated in a public deed as the alienation price without following the market value verification procedure provided for in the Federal Tax Code, particularly when the public notary has certified the act and the operation was conducted between independent parties. This criterion delimits the scope of SAT’s audit powers in real estate operations and represents a solid argument in review proceedings. The specific thesis or jurisprudence of the Second Chamber applicable to each matter can be identified in the Federal Judicial Gazette under the concepts “alienation value”, “public deed” and “audit powers”; IBG Legal facilitates the identification of the pertinent weekly registry record as an integral part of the tax defense strategy in each proceeding.

Tax Regime for Foreign Residents

Foreign buyers who are tax residents in Mexico are subject to the same regime as nationals, in accordance with the provisions of Title IV LISR already described. Those who maintain tax residence abroad and alienate real property located in national territory are taxed in accordance with Title V LISR, particularly in articles 160, 161 and 162, which regulate income from the alienation of real property with a source of wealth in Mexico obtained by foreign residents. Article 160 LISR establishes a rate of 25% on the total gross income from the operation; article 161 LISR allows, under certain conditions, the option to apply a rate of 35% on the net gain determined in accordance with the rules of Title IV, when the alienator has a representative in Mexico who assumes joint and several responsibility for the tax. The public notary who executes the deed is jointly and severally liable for the corresponding withholding in accordance with article 162 LISR.

Foreign residents who are nationals of countries with which Mexico has entered into a convention to avoid double taxation, such as the Convention between Mexico and the United States of America, the Convention between Mexico and Canada, or the Convention between Mexico and Spain, may be entitled to reduced withholding rates or a different characterization of real property gain in accordance with the applicable article of the convention for real property. For example, article 13 of the Mexico-United States Convention establishes specific rules for gains derived from the alienation of real property situated in the other contracting state. However, the applicability of the convention and the quantification of the benefit depend on a prior determination of the alienator’s tax residence and an analysis of the specific conventional text; therefore, any calculation under Title V must be preceded by an analysis of residence and applicability of the corresponding treaty before effecting any withholding.

Tax Regime for Real Property Trusts

The trust is the dominant structure of ownership for foreign buyers in the restricted Mexican zone (50-kilometer strip from the coastline), including all of the Riviera Maya, in accordance with the provisions of the Foreign Investment Law and its regulations. The distinction among the various types of real property trusts has substantial tax consequences that must be evaluated before structuring any alienation.

For real estate trusts not subject to the Real Estate Investment Fund (FIBRA) regime, the LISR applies a fiscal transparency treatment: the trust is not an autonomous taxable subject, and the gain from the disposal of the trust property is attributed directly to the beneficiary or to the assignee of the trust rights as applicable, who are taxed under their own regime (Title IV for resident individuals, Title V for non-residents). Consequently, the disposition of trust rights over real property in the restricted zone receives the same tax treatment as the direct disposal of the underlying real estate, and the provisions of articles 119 through 128 LISR are equally applicable.

The FIBRA regime, regulated in articles 187 and 188 LISR, establishes a different treatment oriented toward collective investment trusts that meet the distribution and placement requirements provided in such articles. Under the FIBRA regime, participation certificates are the taxable instruments and distributions to the beneficiary may receive treatment as dividends or return of capital depending on their nature. The disposition of FIBRA certificates on a stock exchange may be subject to the exemption provided in article 109 LISR for gains from stock exchange transactions, subject to compliance with the corresponding requirements. The choice between a FIBRA structure and a non-FIBRA real estate trust must be evaluated based on the investor’s profile, the number of participants, divestment plans, and the tax residence of the beneficiaries, among other factors.

Real Property Acquisition Tax and Closing Costs

Although this analysis focuses on the seller’s tax burden, a comprehensive modeling of transaction costs requires consideration that the disposal of real property in Quintana Roo also generates for the buyer the obligation to pay the Real Property Acquisition Tax (ISAI), a state tax regulated by the Tax Law of the State of Quintana Roo. The ISAI is technically the buyer’s responsibility; however, its rate and taxable base directly impact the negotiation of closing conditions and the cost allocation between the parties. In high-value operations, the quantification of ISAI must be integrated into the total transaction cost model from the structuring phase, and its impact must be considered when negotiating the sale price and closing terms.

Practical Implications for Investors and Developers

Investors with real estate portfolios in the Riviera Maya must consider that the structuring of the holding vehicle (individual, legal entity, guarantee trust, or transfer trust) determines the tax regime applicable to future disposition. A corporate restructuring undertaken with insufficient advance planning may trigger article 14 of the Federal Tax Code, which equates certain transfers to taxable dispositions even absent direct consideration.

Foreign buyers who are tax residents in Mexico are subject to the same regime as nationals. Those who maintain tax residence abroad and dispose of real property located in national territory are taxed under Title V LISR, with the rates and options described in the corresponding section, with the notary public being jointly liable for withholding. In all cases, the determination of the seller’s tax residence must precede any withholding calculation or tax planning of the transaction.

Operational Conclusion

A pre-disposal tax due diligence, which includes verification of updated tax cost, eligibility for the primary residence exemption, the structure of real property ownership, the seller’s tax residence, and the applicability of conventions to avoid double taxation, can represent differences of several percentage points in the effective tax burden of the operation. The lack of planning in this area is not a minor risk: in high-value operations, it may result in material tax contingencies and joint liability of the notary public involved.

IBG Legal is a boutique firm specialized in tax litigation and real estate transaction structuring, headquartered in Cancún with offices in Mexico City and Querétaro. Our practice combines defense in proceedings before the SAT and administrative courts with transactional planning for domestic and international investors with operations in Quintana Roo and the Riviera Maya. IBG Legal offers an updated tax cost analysis and an eligibility review for exemption at no initial cost for real estate operations in Quintana Roo. To schedule your initial consultation or request a preliminary evaluation of your transaction, contact us directly through the contact form on our website or reach our Cancún office for an initial meeting without obligation.

Sources and References

Legislation

Income Tax Law (LISR), published in the DOF on December 11, 2013, with amendments in force as of January 1, 2026. Articles 9, 14, 18 section I, 93 section XIX subsection a), 119, 121 (sections I, II and III), 122, 126, 152, 160, 161, 162, 187 and 188.
Regulations of the Income Tax Law (RLISR), published in the DOF on October 8, 2015, with amendments in force. Provisions relating to the accreditation of principal residence; for the identification of the specific article in the current text, consult the DOF at dof.gob.mx or the normative criteria of the SAT at sat.gob.mx.
Federal Tax Code (CFF), published in the DOF on December 31, 1981, with amendments in force as of January 1, 2026. Article 14 (deemed disposition) and provisions on audit powers and verification of fair market value.
Income Tax Law, Title V (Non-Residents Abroad with Source of Income in National Territory). Articles 160, 161 and 162 (disposition of real property by non-residents abroad).
Foreign Investment Law and its Regulations: provisions relating to the acquisition of real property in the restricted zone through a trust.
Tax Law of the State of Quintana Roo: provisions relating to the Tax on Real Property Acquisition (ISAI).
Convention between the Government of the United Mexican States and the Government of the United States of America to Avoid Double Taxation and Prevent Tax Evasion in Matters of Income Taxes, published in the DOF on February 3, 1994. Article 13 (capital gains, including real property).

Jurisdictional Criteria

Second Chamber of the Supreme Court of Justice of the Nation: criterion to the effect that tax authorities cannot disregard the disposition price set forth in a public deed without exhausting the fair market value verification procedure provided for in the CFF, in the case of transactions between independent parties. For the location of the thesis or applicable case law, consult the Federal Judicial Gazette at sjf.scjn.gob.mx under the terms “disposition value”, “public deed” and “audit powers”.
Collegiate Administrative Courts: criterion to the effect that the burden of proof of the documented acquisition cost rests with the taxpayer, and it is not admissible to establish such cost through unilateral declarations in the absence of primary acquisition documentation. For the location of relevant theses, consult the Federal Judicial Gazette at sjf.scjn.gob.mx under the terms “documented acquisition cost”, “burden of proof” and “real property”.

Doctrine

Arrioja Vizcaíno, Adolfo. Tax Law. 23rd edition. Themis Editorial, Mexico City, 2013.
De la Garza, Sergio Francisco. Mexican Financial Law. 28th edition. Porrúa Editorial, Mexico City, 2008.

Official Sources

Federal Official Gazette (DOF): publications of the LISR and its annual amendments, available at dof.gob.mx.
Tax Administration Service (SAT): normative criteria and technical sheets on notarial withholding in real property disposition, as well as criteria on accreditation of principal residence, available at sat.gob.mx.
Bank of Mexico: UDI tables and INPC factors for updating acquisition costs and conversion of the 700,000 UDI exemption limit to pesos at current value, available at banxico.org.mx.
Federal Judicial Gazette: search engine for theses and case law of the Supreme Court of Justice of the Nation and Collegiate Courts, available at sjf.scjn.gob.mx.