How to reduce Capital Gains Tax (ISR) when selling property in Mexico

How to Reduce Capital Gains Tax (ISR) When Selling Property in Mexico

Thinking of selling your home or investment property in Los Cabos or elsewhere in Mexico? Before signing the deal, make sure you understand how ISR (Impuesto Sobre la Renta), Mexico’s capital gains tax works, and how to reduce it legally and strategically.

Whether you're a foreigner or a Mexican national, this guide will help you maximize your net profits and avoid costly mistakes.

What Is ISR and when is it applied?

In Mexico, when you sell real estate, the government may charge up to 35% tax on your capital gains, the difference between your declared sale price and your fiscal acquisition cost. The notary is legally responsible for calculating and withholding this tax at closing.

But here’s the key: with proper planning and documentation, you can significantly reduce, or even eliminate the amount you owe.

Legal deductions that reduce ISR

You may be eligible to deduct the following with valid tax invoices (CFDIs) and supporting documents:

• Original purchase price

• Closing costs and notary fees paid at acquisition

• Broker/agent commissions

• Improvements and renovations (e.g., kitchen remodels, expansions)

Pro Tip: Always keep “before and after” photos of any upgrades and ensure your contractor provides CFDI invoices with your name and property details.

Can I be exempt from ISR?

Yes, under Mexican tax law, you may qualify for a full exemption if the property is:

• Your primary residence (you must prove at least 3 years of residence with official documentation)

• The value is under $315,000 USD (approx. 5.9 million pesos) as of 2025

• The exemption hasn’t been used in the past 3 years

Do foreigners pay Capital Gains Tax in Mexico?

Yes, foreigners are subject to ISR. However, with a knowledgeable legal advisor:

• Your cost basis can be updated

• You may qualify for treaty benefits

• A strategy can be designed to optimize deductions

• Your sale can be structured in your best interest

Work with a legal profesional, not just a Notary

Notaries handle the calculation and retention of ISR, but they don't represent your financial interests. That’s where we come in.

At Cabo Closing Services, we act as your legal representative, ensuring:

• Accurate ISR calculations

• All possible deductions and exemptions are applied

• You receive personalized legal and tax planning

• Compliance with both Mexican and international tax law

📞 Selling Property in Mexico? Let’s Talk.

If you're a property owner, especially a foreigner, selling in Los Cabos, San José del Cabo, or anywhere in Mexico, let us help you maximize your profit and avoid unpleasant surprises at closing.

Contact us today for a personalized consultation.