Selling a home in Mexico: the seller's costs and taxes

The federal tax on the gain

The rules are in the federal Ley del Impuesto sobre la Renta (LISR), chapter on income from the sale of assets (arts. 119-126). For an individual selling real estate:

• Gain = sale price minus the deductions of article 121. The text lists: the documented acquisition cost, updated for inflation and treated as at least 10 % of the sale amount; construction, improvements and extensions; the notary costs, taxes and rights paid on the purchase and on the sale, plus the local tax on the sale; the appraisal cost; and the commissions and brokerage fees paid by the seller on the purchase or the sale.
• Building cost falls over time. Article 124 lets you subtract only the building’s share of the cost, reduced by 3 % per year held, with a floor of 20 % of the initial cost, then updated. If the deed does not separate land from building, the land is treated as 20 % of the total cost.
• Averaging. Under article 120, the gain is divided by the number of years held (up to 20), and that annual part is added to the year’s other income to compute the tax; the remainder is taxed at an average rate.

These are formulas, and I give no example because I would have to invent a price and a purchase cost.

The provisional payment through the notary

For a sale in a public deed, article 126 requires a pago provisional (provisional payment) filed “dentro de los quince días siguientes” to the signing, and the notary “calcularán el impuesto bajo su responsabilidad y lo enterarán”. The tariff used for the payment is built from the monthly income-tax tariff of article 96. Federal income tax on the sale is therefore usually settled at the notary’s office, and the amount appears in the deed.

The 5 % state payment

Article 127 adds, “con independencia” of the federal payment, a 5 % rate on the gain, filed at the authorised offices of the state where the property is located. It is creditable against the federal provisional payment; if it exceeds that payment, only the federal amount is paid to the state. The notary also calculates this one. The state tax itself is also a deduction (art. 121, III) when the seller later computes the gain. See state tax on property gains.

The home-sale exemption

Article 93, section XIX(a), exempts the seller’s casa habitación (main residence) when the consideration does not exceed 700,000 UDIS and the transfer is formalised before a notary. The excess is taxed, with deductions pro-rated to the excess. The exemption applies only if, in the three years before the sale, the seller has not sold another home with the same exemption, and the seller declares so under oath before the notary. The article’s last paragraph mentions five years for the notary’s check against the SAT, which is inconsistent with the three-year condition in the first paragraph; I retain the three-year rule and flag the inconsistency. For the full explanation, see the home-sale exemption.

Non-resident sellers

Article 160 sets 25 % of the total price, with no deduction, withheld by the buyer if the buyer is a Mexican resident; otherwise the seller files within fifteen days. As an option, the seller can apply the top rate of the article 152 table to the gain instead. The law requires a representative in Mexico who meets article 174, but “en las enajenaciones que se consignen en escritura pública no se requerirá representante”; the notary then computes the tax. See selling as a non-resident.

Documents the seller must produce

State and local rules add a paperwork cost. Two examples from texts read:

• Mexico City: article 27 of the Código Fiscal requires certificates of predial and water arrears showing no debt for the last five years before the notary executes the deed, and the registry will not record without them.
• Benito Juárez, Quintana Roo: a purchaser must provide a certificate of no arrears of predial from the municipal treasury, current at the deed date (one of the documents required with the acquisition-tax declaration).
• Condominium sale in Mexico City: the seller must give the buyer the administrator’s no-debt certificate (art. 60), or the buyer shares the debts.

Which professional to consult

• A notary calculates the tax and files it.
• A real estate lawyer can read the listing contract and the arrears position.
• An appraiser prepares an appraisal if the parties or the SAT need one.
• A real estate agent, licensed where the state requires it: see the agent licensing guide.