The 5% state payment on a property sale in Mexico

What article 127 says

The first paragraph of art. 127 applies “independently of” the federal provisional payment of art. 126. Taxpayers who sell land, constructions, or land and constructions make a payment for each transaction, applying a 5% rate to the gain obtained under the same Chapter IV of the Income Tax Law. It is filed with a return before “the authorised offices of the entidad federativa (state) where the property is located”.

Written as a formula:

state payment = 5% x gain

where the gain is the sale price minus the updated cost and the other deductions of art. 121 (see capital gains tax).

How it is credited

The second paragraph makes two points:

1. The 5% paid is creditable against the federal provisional payment made for the same sale under art. 126.
2. If the 5% exceeds the provisional payment calculated under art. 126, only the amount of the art. 126 provisional payment is paid to the state. In the words of the law, then “only the tax that results under article 126” is paid to the state.

So the sale generates, at the signing, either a state payment of 5% of the gain with the remaining federal provisional tax, or, when the federal provisional amount is smaller, a state payment capped at that amount. Whether the seller pays in the end more or less depends on the annual return, where “the payment made under this article is creditable against the tax for the year” (final paragraph).

Who calculates and files it

For sales recorded in a public deed, the third paragraph says that notaries, brokers, judges and other officials with notarial functions calculate the payment under their responsibility and pay it at the authorised offices, in the same period as the art. 126 payment: within fifteen days after the deed or its draft is signed. They also issue a tax receipt showing the amount of the transaction and the tax paid. See how the notary calculates and pays.

The fourth paragraph covers sellers who use the instalment option of art. 120 (price paid over more than 18 months): they apply the 5% rate to the gain determined under that option and file with the state on the dates set by art. 150 for the annual return.

State, not federal, administration

The tax base and rate come from federal law; the collecting office, the filing platform, the forms and the bank channels are the state’s. Each state’s tax authority publishes its own procedure. This guide does not describe any state’s portal, because those pages differ and were not part of the sources read. In a deed signed before a notary, the notary handles the filing.

Is it also due on exempt or non-resident sales?

• Main-home exemption. Art. 93-XIX-a exempts the income from federal income tax up to the ceiling; art. 127 does not mention that exemption. Ask the notary how the state payment is handled for an exempt sale (home sale exemption).
• Non-residents. Art. 127 refers to the gain determined under Chapter IV, the resident chapter. Art. 160, which governs non-residents, is silent on a state payment. The text read does not settle how a non-resident’s sale is treated: ask the notary (selling as a non-resident).

Local taxes are separate

Article 121-III allows a seller to deduct, among deed costs, “the local tax on income from the sale of real estate” that the seller paid. States and municipalities set their own taxes and fees on transfers, and these differ widely. Acquisition tax (called ISAI or by other local names) is a buyer’s cost, set by state or municipal law.

Which professional to consult

• A notary, who computes and files the payment with the state: notary page.
• A tax accountant, to reconcile the 5% payment with the annual return.