Understanding Real Estate Taxation in Mexico: A Guide for Buyers and Investors

Mexico has become a hot spot for international buyers, thanks to its beautiful coastlines, vibrant culture, and relatively affordable property prices. However, understanding real estate taxes in Mexico is essential to making smart investment decisions and avoiding unexpected costs.

Whether you’re buying a vacation home, rental property, or planning to relocate, here’s what you need to know about taxes related to real estate in Mexico.

1. Property Acquisition Tax (ISAI)

When purchasing real estate in Mexico, buyers are required to pay a Property Acquisition Tax, known as ISAI (Impuesto Sobre Adquisición de Inmuebles).

• Rate: Typically 2% to 4.5% of the assessed property value, depending on the municipality.

• Who pays: The buyer

• When: Paid at the time of closing, along with other closing costs.

Your notary public (notario) will calculate and collect this tax as part of the closing process.

2. Annual Property Tax (Predial)

This is a yearly property tax owed by all property owners in Mexico.

• Rate: Usually 0.05% to 0.2% of the cadastral (government-assessed) value — much lower than in countries like the U.S. or Canada.

• Due date: Typically in January or February each year.

• Discounts: Many municipalities offer early payment discounts.

Predial is usually paid at local municipal offices or online, and owners are encouraged to keep up-to-date receipts.

3. Capital Gains Tax (ISR) When Selling

If you sell a property in Mexico, you may be subject to capital gains tax (Impuesto Sobre la Renta – ISR).

• Rate: Up to 35% for foreigners, based on the net gain.

• Calculation: The gain is determined by subtracting the original purchase price (plus allowable deductions such as capital improvements and notary fees) from the sale price.

• Exemptions: If the property was your primary residence, and you’re a Mexican tax resident, you may qualify for a partial or full exemption (every 3 years).

• Important: It’s vital to keep all official receipts (facturas) for renovations and expenses to reduce your tax liability.

Your notary will calculate this tax at the time of sale.

4. Rental Income Tax

If you’re renting out your property—short-term or long-term—you are required to report rental income and pay tax in Mexico.

• Who must file: Foreigners and residents earning rental income in Mexico.

• Rates:

  • Individual owners: Income tax is on a progressive scale, up to 30–35%.

  • Withholding for foreigners: Typically 25% flat on gross income if no deductions are claimed.

• IVA (Value-Added Tax):

  • 16% IVA may apply to short-term rentals (less than 28 days), especially in tourist zones.

Tip: Many foreign owners hire a Mexican accountant to handle rental income reporting and optimize deductions.

5. Other Fees and Taxes to Consider

• Fideicomiso Fees: If you own property in the restricted zone (within 50 km of the coast or 100 km of borders), you’ll likely hold it through a bank trust (fideicomiso) with an annual maintenance fee (usually $400–$700 USD).

• HOA or Condo Fees: Common in gated communities or condo developments and should be budgeted for separately.

How to Stay Compliant

• Work with a bilingual notary and real estate attorney during your transaction.

• Keep all official documents and receipts.

• File taxes annually and report rental income if applicable.

• Consider hiring a Mexican accountant if you earn income or plan to sell.

Final Thoughts

Mexico offers incredible real estate opportunities, but it’s crucial to understand the tax implications before buying, selling, or renting. With proper planning, you can minimize your tax burden and make the most of your investment.

Need help navigating property taxes in Mexico?
While Renanza Real Estate Services specializes in helping you find and purchase the right property, we always recommend discussing your specific tax situation with a certified Mexican tax and accounting expert. They can guide you on compliance, deductions, and how to structure your investment wisely.

Contact us using the form below to speak with a trusted real estate advisor and take the first step toward owning property in Mexico.