When you buy a property in Mexico, you’ll be presented with a range of ‘closing costs’ that usually add up to between 5% and 10% of the property’s sale price. When you eventually come to sell your Mexican property, the buyer will pay most of the closing costs, but there are also selling costs and taxes you will need to account for.
The three main costs when you’re selling a property in Mexico are:
- Selling fees;
- Professional service fees; and
- Taxes.
Selling fees
It’s possible to market and sell your property without the services of a local realty agent; however, as we explain in our Guide to Realty Agents in Mexico, a good realty agent provides a marketing service, a conduit between the negotiating parties, and someone who will help to work through the paperwork to bring a property sale to successful completion.
Realty agents in Mexico typically charge between 5% and 8% of the sale price in commission—and you need to add Mexican sales tax (IVA) to this (16%), so if the agent’s commission is 5%, the tax-inclusive payment will be 5.80% of the final sales price; and if the agent’s commission is 8%, the tax-inclusive payment will be 9.28% of the final sales price.
Professional fees
In Mexico, the role of the Notary Public is paramount in property transactions. As we explain in our Mexico Real Estate Guide, a Mexican Notary Public is a legal professional with very important statutory roles. The fees for the Notary Public are paid for by the buyer. Some buyers also choose to hire a lawyer, which can add several thousand US dollars to their total fees, but this is not necessary for most transactions. If the property you are selling is held in a Bank Trust (fideicomiso), then you will also need to budget for a ‘trust cancellation fee’ that is levied by the bank; the amount varies, but you should budget for around US$1,000 to cover this.
Professional Assistance Services for Real Estate
Find professional assistance service providers who can provide consulting and support to help you with your property-related transactions in Mexico
Taxes on the sale of residential property in Mexico
Taxation on residential property sales is a complex area of Mexican tax law and every case will be slightly different depending on the circ*mstances. Also, keep in mind that tax laws are subject to reform and because house purchases tend to be long-term investments, the tax laws which apply today might apply entirely, in-part, or not at all when you come to sell your property years from now.
These are the key principles of residential property taxation as of the date of this article, and guidelines here are intended to help you composean estimate of the taxes you will be expected to account for when you sell a residential property in Mexico. (Different tax rules and rates apply when you sell commercial property.)
We recommend that you seek professional advice from a Notary Public, tax accountant, or other professional/legal service firm in Mexico to get a detailed appraisal of your situation.
Note also that if you are not a Mexican national then you might also be liable to taxes in your home country and you should seek advice from a specialist tax accountant in that respect, too.
Tax Calculations
Taxes due on the sale of residential property are calculated by the Notary Public, who also withholds these amounts for direct transfer to the Mexican Treasury. The tax law makes each Notary Public fully liable for taxes due, so they will absolutely ensure that the rules have been followed and certify that sellers qualify for any exemptions and deductions they are claiming for tax relief.
Capital Gains Tax
Mexico applies a capital gains tax on residential property of 25% on the gross sales value of the transaction without any deductions OR between 1.92% and 35% on the value of the gain (purchase costs less allowable exemptions and deductions): the percentage is calculated on a sliding scale in relation to the gain and we recommend you assume 35% as residential property sales with a gain above $250,000 pesos (c.$13,000 US dollars) will be subject to this rate.
One-time tax allowance exemption
A one-time tax allowance exemption is available under Article 92, Fraction XIX a) of Mexican income tax law that reduces the tax liability for many family homes, although you and the property must meet certain criteria to qualify for the exemption:
- you must be resident in Mexico*with a Mexican tax ID (known as a RFC, or Registro Federal de Contribuyentes); and
- the property you’re selling must beyour primary residence in Mexico;and
- the land subject tothe sale must not exceedthree times the size of the construction on that land (measured in square meters);and
- you can only claim this exemption once every three years.
The flat-rate exemption is the peso equivalent of700,000 UDIs; the value of UDIs fluctuates and you can get current UDI exchanges rates on the Bank of Mexico website. At the time of writing, 700,000 UDIs equates to approximately $5.06 million Mexican pesos, and you can deduct this amount from the sale price if you qualify.
Co-titled property
If the same home is properly co-titled with your spouse or other family member and they are resident in Mexico* with a Mexican tax ID,and the house is their primary residence too, you can deduct an additional 700,000 UDIs in their name.
The tax-deductible allowance is not automatic: you must qualify, and you must prove the qualification. Talk to your Notary Public about how to arrange this and what you need to do to presentthe necessary records for proof.
Talk with a licensed accountant or other professional firm who is experienced in property matters about getting a RFC if you hold legal residency in Mexico but don’t currently have a RFC number and want to use this as a means to claim the tax deductible allowance when you sell your residential home.
* Mexican income tax law does not expressly state whether the foreign person selling a property must have temporary or permanent residency status to avail themselves of capital gain tax exemptions; it does, however, expressly state that the seller must be selling his/herprimary residence in order to qualify for tax exemptions on capital gains. The Notary Public dealing with the matter will interpret the law; some will apply the capital gains exemptions only if the seller hasresidente permanente status; some Notary Public offices may apply the exemptions to foreign residents with residente temporal status. You can read about the differences in these two residency statuses on our Mexican visas and immigration page.
Deductions allowed for capital improvements
You can deduct the costs of any capital improvements (e.g. building extensions, new flooring, swimming pools, new rooms) while you owned the property, as well as some closing costs commonly incurred when purchasing a home. You need official receipts —in Mexico, these are known as ‘facturas’— for all services and building work to claim these allowances when you sell, so be sure to take advice from your Notary Public and/or accountant on how to account for these—and follow it.
Any capital improvements made using a firm or builders who didn’t issue you with facturas for the work cannot be deducted. General maintenance and home improvements, like remodeled kitchens or new bathrooms, do not count as capital improvements.
The currency exchange rate effect
In most towns and cities across Mexico, home prices are quoted in Mexican pesos when they are offered for sale. However, a few places and most notably in Los Cabos, Puerto Vallarta, San Miguel de Allende, Ajijic/Chapala, and Cancun/Riviera Maya, home prices are often seen quoted in US dollars.
Even though the home may be marketed in dollars and the transaction amounts may be quoted in dollars, the deed will show the amount in Mexican pesos at the exchange rate prevalent on the date of the closing. Any capital gains are calculated only in Mexican pesos and therefore, shifts in the exchange rate can affect the capital gain calculation as expressed in a foreign currency.
Learn more: Read Exchange Rates and Capital Gains on Your Mexican Home to understand how foreign exchange rates can influence capital gains calculations on property in Mexico,because your tax liabilities when you come to sell are calculated in pesos, not dollars.
Selling your Mexican home as a non-resident
If you are not a resident in Mexico and/or you don’t have a Mexican tax ID, you cannot claim the one-off allowance exemption explained above, although you can claim qualifying deductions, so long as you have the official receipts (facturas) to prove the expenditures which can be deducted.
Your Notary Public is a key contact
The Notary Public (in Spanish, Notario Público) is the most important professional person you will deal with when you buy and sell property in Mexico. Don’t rely on hear-say and instead get the Notary Public to assess your individual situation and the taxes that will likely apply to it.
When you’re buying property, talk with the Notary about what you need to do to plan your estate efficiently, how to structure your arrangements, and how to keep the proper records you need to ensure that when you come to sell your property you (or your heirs) are prepared.
Every property transaction has its own quirks and unique characteristics; cultivating a good relationship with your Notary Public is a crucialaspect of successful property investment in Mexico.
Learn more about property in Mexico
We publish a range of free eBook guides about property and real estate in Mexico:
- View the latest articles about real estate in Mexico
- Free eBook: Comprehensive guide to buying and selling real estate and renting property in Mexico
- Free eBook: Guide to finding and working with a realty agent in Mexico
- More: browse all ourMexico real estate-related eBooks, available for free download.
The information published in this article is provided for general information in good faith and is not intended as personal, legal, financial or investment advice.
Mexico in your inbox
Our free newsletter about Mexico brings you a monthly round-up of recently published stories and opportunities, as well as gems from our archives.
FAQs
Realty agents in Mexico typically charge between 5% and 8% of the sale price in commission—and you need to add Mexican sales tax (IVA) to this (16%), so if the agent's commission is 5%, the tax-inclusive payment will be 5.80% of the final sales price; and if the agent's commission is 8%, the tax-inclusive payment will ...
Can a US citizen sell property in Mexico? ›
You would need to possess an RFC number, which is a taxpayer identification number. In addition, you would need to show income for a least one year by producing a Mexican tax return. It is also important that your taxes, fideicomiso yearly payment, utilities, property management fees are paid and up to date.
How do I avoid paying capital gains tax in Mexico? ›
Live in your property
If you have resident status in Mexico and can provide proof that you've lived in your property as your principal residence, you can eliminate that pesky capital gains tax.
Who pays closing costs in Mexico? ›
The Closing Costs in Mexico consist of various fees and expenses and generally total between 4% to 6% of the actual purchase price (higher if there is a mortgage involved). These costs are always the responsibility of the buyer.
When you sell a house do you have to pay taxes New Mexico? ›
Transfer taxes: Let's start with some good news for your bottom line — unlike many states, there is no real estate transfer tax in New Mexico.
What are the 3 types of taxes in Mexico? ›
The types of taxes in Mexico are basically three: federal taxes, state taxes and municipal taxes. Mexican citizens and taxpayers have rights and obligations.
Do I have to pay US tax on property sold overseas? ›
Reporting the Sale of a Foreign Home
The U.S. taxes you on any income you earn, whether it's earned in the U.S. or another country. So if you owned a home or property in another country, and then sold that home for a profit, you'll need to report the sale just as you would if it were located in the U.S.
Do US citizens pay tax on foreign capital gains? ›
Depending on the details of the sale, an expat may or may not have to pay a capital gains tax. Technically, all capital gains made by a US citizen are taxable. This is true regardless of whether you are selling US property or foreign property.
Do I have to report foreign property to IRS? ›
Yes, you must report foreign properties on your U.S. tax return just like you would report any owned U.S. property. To do that, you first need to know what type of ownership you have because it affects what tax forms you must file.
Do Mexican banks report to IRS? ›
For expats living here, say you move US$100,000 into a certificate of deposit into a bank in Mexico because you are getting a better interest rate down here. Your Mexican bank will have to report the interest on that account to the IRS. It is important to report that interest on your tax return on Schedule B.
The seller must not have sold a home in the last two years and claimed the capital gains tax exclusion. If the capital gains do not exceed the exclusion threshold ($250,000 for single people and $500,000 for married people filing jointly), the seller does not owe taxes on the sale of their house.9.
Can you legally avoid capital gains tax? ›
If you hold a number of different assets, you may be able to offset some of your gains with any applicable losses, allowing you to avoid a portion of your capital gains taxes. For instance, if you have one investment that is down by $3,000 and another that is up by $5,000, selling both will help you reduce your gains.
Do I have to report property in Mexico? ›
Owning Foreign Real Estate as an Individual
United States citizens should note that they must file Form 8938 if they have significant assets outside of the United States, yet foreign real estate is not required to be reported.
How much is capital gains tax in Mexico? ›
Taxable Capital Gains in Mexico
You can pay 25% tax of the gross sales amount without any deductions. 35% on the net gain minus expenses for improvements, commissions, and other allowable deductibles.
How much does it cost to close a house in Mexico? ›
Real estate closing costs in Mexico consist of various fees and expenses. They generally total between 4% to 6% of the purchase price. These costs are always the responsibility of the buyer. The seller, on the other hand, will have to pay other real estate fees and their capital gains taxes.
Is there a gift tax in Mexico? ›
There is no specific inheritance, estate, or gift tax in Mexico. Inheritances and gifts are treated as income under the income tax law, but may be tax exempt as described below. Income received by a Mexican resident through inheritance is exempt from income tax.
Do you have to pay taxes on the money you make from selling your house in Texas? ›
Yes, when you sale property in Texas it is treated just like an investment property. If you sell for profit, then anything on top of what you paid for the property is treated as capital gain. If you have had your home for a year or less then it is treated as short-term capital gain.
What is the capital gains deduction for New Mexico? ›
Capital Gains
Currently, New Mexico allows taxpayers to claim a deduction of up to $1,000 or 40% of the profit of a long-term asset sold.
Do US citizens pay taxes in Mexico? ›
As a US expat living in Mexico, you're subject to tax obligations in both countries. Mexico taxes worldwide income, meaning you must file tax returns and pay taxes in the US and Mexico.
What is the IRS called in Mexico? ›
What is the 'SAT' in Mexico? SAT stands for Servicio de Administracion Tributaria. This is Mexico's tax collection agency, akin to the IRS in the United States. Like the IRS, SAT has offices in every state around the country.
Log on to www.eloscabos.gob.mx click on Impuesto Predial (property taxes in spanish). Enter your Clave Catastral Number (tax ID number). You will find this number on your deed (Escritura if your a national or Fideicomiso if your a foreigner). The amount of tax due will be shown in PESOS.
How can I avoid capital gains tax on foreign property sale? ›
Capital Gains Exclusion
If you sell a foreign property, you may be able to deduct some or all of the capital gains. However, the home must qualify as your primary residence, which requires you to have lived in it for at least two of the past five years.
What is capital gains tax on 200000? ›
= $
| Single Taxpayer | Married Filing Jointly | Capital Gain Tax Rate |
|---|
| $0 – $44,625 | $0 – $89,250 | 0% |
| $44,626 – $200,000 | $89,251 – $250,000 | 15% |
| $200,001 – $492,300 | $250,001 – $553,850 | 15% |
| $492,301+ | $553,851+ | 20% |
Jan 11, 2023
About Form 8938, Statement of Specified Foreign Financial Assets | Internal Revenue Service.
How do I avoid double taxation on foreign capital gains? ›
Foreign Tax Credit
Well, if you qualify for the Foreign Tax Credit, the IRS will give you a tax credit equal to at least part of the taxes you paid to a foreign government. In many cases, they will credit you the entire amount you paid in foreign income taxes, removing any possibility of US double taxation.
How much foreign income is tax free in USA? ›
If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $108,700 or even more if you incurred housing costs in 2021. (Exclusion is adjusted annually for inflation). For your 2022 tax filing, the maximum exclusion is $112,000 of foreign earned income.
How much capital gains is tax free in USA? ›
In 2023, individual filers won't pay any capital gains tax if their total taxable income is $44,625 or less. The rate jumps to 15 percent on capital gains, if their income is $44,626 to $492,300. Above that income level the rate climbs to 20 percent.
What happens if you don't report foreign assets? ›
If you don't disclose your offshore accounts, you may be caught through an IRS audit and your foreign accounts may be frozen. The IRS may also impose penalties for failure to comply with offshore account disclosures.
How do I report a foreign property sale to the IRS? ›
Reporting the sale of foreign property to the IRS and FinCEN
Just like you would with the sale of a U.S. property, you may need to file IRS Form 8949 and a Schedule D (and a Form 4797 for rentals).
Can IRS track my foreign income? ›
Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).
A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The full line item instructions are located at FBAR Line Item Instructions.
Can IRS see your bank account? ›
The Short Answer: Yes. Share: The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
Can I put Mexican money in my bank account? ›
The Takeaway
You'll likely have to exchange those foreign funds to U.S. dollars first, then make the deposit. A local bank or credit union may be willing to convert your foreign currency if you have an account there.
Does an 80 year old have to pay capital gains tax? ›
The Bottom Line. The IRS allows no specific tax exemptions for senior citizens, either when it comes to income or capital gains. The closest you can come is a back-end tax-advantaged retirement account like a Roth IRA which allows you to withdraw money without paying taxes.
At what age can you avoid capital gains tax? ›
The over-55 home sale exemption was a tax law that provided homeowners over age 55 with a one-time capital gains exclusion. Individuals who met the requirements could exclude up to $125,000 of capital gains on the sale of their personal residences. The over-55 home sale exemption has not been in effect since 1997.
What is the 6 year rule for capital gains tax? ›
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they moved out of their PPOR and then rented it out.
Do I have to pay capital gains tax immediately? ›
You do not have to pay capital gains tax until you've sold your investment.
How many times can you avoid capital gains tax? ›
How Often Can You Claim the Capital Gains Exclusion? You can exclude capital gains from the sale of a primary residence once every two years. If you want to claim the capital gains exclusion more than once, you'll have to meet the usage and ownership requirements at a different residence.
How do billionaires avoid capital gains tax? ›
Investments:
In contrast to the lower 99% who earn most of their income from wages and salaries, the top 1% earn most of their income from investments. From work, they may receive deferred compensation, stock or stock options, and other benefits that aren't taxable right away.
Do I have to pay taxes on property sold in Mexico? ›
Mexico applies a capital gains tax on residential property of 25% on the gross sales value of the transaction without any deductions OR between 1.92% and 35% on the value of the gain (purchase costs less allowable exemptions and deductions): the percentage is calculated on a sliding scale in relation to the gain and we ...
If I am living overseas, can the IRS still file a lien against my foreign assets? Yes. Regardless of where you live, the IRS can file a lien against your assets regardless if the assets are located in the US or in a foreign country. Just as long as you own the assets, they are subject to levy.
How much money can I take to Mexico without reporting? ›
If you enter or leave Mexico, you must declare any sum of money equaling US$10,000 or more that you bring in cash, checks, money orders, other cashable documents or a combination of them. Failing to declare carries a fine ranging from 20% to 40% of the exceeding amount.
What is the capital gains tax on $100 000? ›
In this example, you see a capital gain of $100,000 on your home sale. If your income and asset class put you in the 20% capital gains tax bracket, you pay 20% of your profit. That's 20% of $100,000, or $20,000. You don't need to pay 20% of the entire $350,000 sale because you had to spend $250,000 to buy the asset.
How many pesos to buy a nice house in Mexico? ›
The current exchange rate in Mexico is 18 to the US dollar — so with that in mind — the average house in Mexico can range anywhere from 1.3-million pesos to 18-million pesos, depending on its location, size and amenities.
Who pays most closing costs? ›
Sellers typically pay more in closing costs, typically 6 percent and 10 percent of the home's sale price. Buyers generally pay around 2 percent to 5 percent of the home's purchase price. But while seller closing costs are often deducted from the proceeds of the home sale, buyers typically pay these costs out of pocket.
How long can you stay in Mexico if you own property? ›
The “Temporary Resident Visa” is recommended for those who choose to own property in México. After four years it can be converted into a “Permanent Resident Visa”. This visa allows you to stay in Mexico for as long as you like without a restriction on foreign travel.
How do I avoid capital gains tax on foreign property? ›
Capital Gains Exclusion
If you sell a foreign property, you may be able to deduct some or all of the capital gains. However, the home must qualify as your primary residence, which requires you to have lived in it for at least two of the past five years.
Is there a tax treaty between US and Mexico? ›
One primary benefit of the US-Mexico Tax Treaty is the relief from double taxation. In other words, the double taxation relief allows a person to claim a credit for taxes paid in the other country to avoid double-taxation. This helps to avoid and/or minimize having to pay tax in both jurisdictions on the same income.
How do you transfer property ownership in Mexico? ›
To transfer real property in Mexico, a public deed must be prepared by a Notary Public, who will file the document with the proper government office.
Do I have to pay US taxes if I sell a foreign property that I inherited? ›
As with any type of income, even if you don't owe taxes to the IRS, you still have to report the income to the agency. In a tax year in which you sold an inherited foreign property, you must report the sale on Schedule D of IRS Form 1040, U.S. Individual Income Tax Return.
When a business is organized as a pass-through entity, profits flow directly to the owner or owners. In turn, these are not taxed at the corporate level and again at the personal level. Instead, the owners will pay taxes at their personal rate, but double taxation is avoided.
Does Mexico tax dual citizenship? ›
Yes. Mexico tax residents are subject to Mexican income tax on their worldwide income, regardless of their nationality.
Who will inherit your property in Mexico? ›
The court may divide the deceased share equally amongst the surviving spouse and the children, and may even include ex-spouses. The will should be specific, stating that the surviving spouse inherits the other 50% of the property, and if the parent also passes away, the children will then become the beneficiaries.
What happens to property in Mexico when owner dies? ›
In Mexico, real estate transferred on death is exempt from capital gains, but an acquisition tax applies, and is payable by your heirs. The acquisition tax ranges from 1% to 4% of the property's value at time of death, depending on the State in which it is located.
What is a property deed called in Mexico? ›
Land ownership is evidenced by providing the title deed (Escritura Pública) recorded with the Public Registry of Property regarding private property and a Parcel Rights Certificate recorded with the Agrarian Registry regarding Ejido or communal land.
