ISR on Mexican Property Sales

Tax of the deal, not a line item at the table

Every Mexican real-estate transfer carries a tax mosaic. The seller faces ISR on the gain. The buyer faces ISAI. The notario público withholds, calculates, and authenticates, but represents neither party and does not replace planning before the deed is signed. This page is the IBG Legal service: determine the lawful burden of the transaction, document deductions and exemptions, and coordinate notarial withholding before closing.

Statutory detail (LISR articles, Second Chamber criteria, SAT guidance) lives in ISR in real estate sales: exemptions, deductions and obligations. This page turns that framework into a closing file.

Who this is for

Individual sellers who intend to use the principal-residence exemption, or who bought years ago and need the acquisition cost restated with INPC. Mexican companies disposing of inventory or fixed assets. Non-residents selling Mexican real estate or fideicomiso rights under Title V. Buyers who need ISAI and total closing cost modelled, not only the headline price.

The work covers Cancún, Tulum, Playa del Carmen and the rest of the Riviera Maya, plus Mexico City, Querétaro and San Miguel de Allende. ISR is federal; ISAI and predial vary by state. The seller’s tax residence is fixed before any withholding calculation.

How an engagement proceeds

First, a complimentary initial fit assessment, subject to scope and matter-profile review: the property, the holding structure (individual, company, or fideicomiso), tax residence, and the target closing date. Second, reconstruction of updated tax cost and documented improvements. Third, testing eligibility for the principal-residence exemption (700,000 UDIS cap and five-year rule) or, where relevant, a double-tax treaty. Fourth, a withholding memorandum for the notary under Title IV or Title V. Fifth, attendance at closing and, if the provisional payment does not close the position, follow-through on the annual return.

If the SAT later challenges the deeded value or the acquisition cost, the matter can move to tax litigation before the TFJA. That path is not assembled on signing day.

What must be settled before the deed

Three issues produce most of the exposure. One: proven cost. Without the acquisition deed and improvement invoices, the taxable base inflates and the taxpayer carries the proof. Two: the principal-residence exemption. Using it out of time, or without proving the dwelling character, forfeits it. Three: residence. A seller who assumes non-resident status without analysis can land on 25% of gross proceeds when Title IV, or a treaty, would have supported a different determination.

In the restricted zone, the disposal is often of fideicomiso rights. In non-FIBRA trusts that assignment is taxed like a sale of the underlying property. Choosing the holding vehicle years before an exit is not cosmetic: a late restructure can trigger Article 14 of the Federal Tax Code (deemed disposal).

Frequently asked questions

Who pays ISR when Mexican real estate is sold?

Income tax on the gain is the seller’s obligation. The notary calculates and withholds a provisional payment at closing under Article 126 of the Income Tax Law (LISR). That withholding is not the final tax: the seller reports the gain on the annual return.

How is the taxable gain calculated?

For individuals, the proven acquisition cost, restated with the National Consumer Price Index (INPC), is subtracted from the sale price, together with the deductions in Article 121 LISR: documented improvements, notarial and brokerage costs, and certain prior-year losses of the same nature.

What is the principal-residence exemption?

Article 93, section XIX, subsection a) LISR exempts gain on the taxpayer’s principal residence up to 700,000 UDIS, provided the same exemption was not used in the prior five years. The peso equivalent follows Banco de México’s daily UDI value. Gain above the cap remains taxable.

Does the notary withhold the final tax?

No. Notarial withholding is a provisional payment. The annual return may produce additional tax due or a refund. For individuals, the top bracket of Article 152 LISR is 35%.

How are Mexican companies taxed on a property sale?

The disposal flows into the company’s fiscal result for the year. There is no special notarial withholding regime equivalent to the one for individuals. The corporate rate is Article 9 LISR (30% on taxable profit).

What if the seller is a tax resident abroad?

Non-residents disposing of Mexican-situs real estate fall under Title V LISR (Articles 160–162). Article 160 provides 25% on gross proceeds; Article 161 allows, on conditions, 35% on net gain with a Mexican representative. The notary is jointly liable for the withholding.

Can a tax treaty reduce that withholding?

It can. Mexico has treaties with, among others, the United States, Canada, and Spain. Article 13 of the Mexico–United States convention addresses real-estate gains. Treaty relief depends on the seller’s tax residence and the treaty text; it is not assumed without that analysis.

Is a sale of fideicomiso rights taxed differently?

In non-FIBRA real-estate trusts, the LISR treats the trust as transparent: gain is attributed to the beneficiary or the assignor of trust rights, on the same basis as a direct sale of the underlying property. The FIBRA regime (Articles 187 and 188 LISR) is a different vehicle and is not the usual structure for a vacation home.

Does the buyer also pay tax at closing?

Yes. Acquisition tax (ISAI) is the buyer’s obligation and is calculated by the notary. In Quintana Roo it is set by the state tax statute. ISR and ISAI settle at the same closing, but each is a different party’s liability.

What documents prove acquisition cost?

The original purchase deed and improvement invoices. Collegiate administrative courts have held that the taxpayer bears the burden of proving documented cost; unilateral statements do not replace primary documents. Missing original deeds (inheritances, buybacks) need to be reconstructed before closing.

Next step

IBG Legal offers a complimentary initial fit assessment, subject to scope and matter-profile review, to examine updated tax cost and expected withholding on a concrete deal. The long-form analysis is in the article linked above; the service is the closing file. Schedule from the button on this page, or write through the contact form.