Real estate transactions in Mexico are subject to taxes and administrative costs for both parties. Amounts may vary depending on the state, property value and status of the parties, but the general logic of calculations remains the same. Buying or selling real estate in Mexico — This is a taxable event. The state requires reporting on every transaction. Regardless of whether the party to the transaction is a Mexican citizen or a foreigner, a resident or not, — everyone is obliged to comply with fiscal rules. Below is a detailed overview of the obligations of the seller and the buyer, as well as the approximate percentage of expenses from the cost of the property and the amount of commissions of real estate agencies.
The seller pays
1. Income tax (capital gains, ISR). This is the main tax paid by the seller. It is levied on the profit from the sale of the property, in other words the difference between the purchase and sale price, less allowable expenses, adjustments and depreciation. Mandatory for all sellers, including foreigners.
Bid:
- from 1.92% to 35% of net profit for resident individuals, according to the general practice of charging ISR for commercial activities,
- 30% — for legal entities,
- 25% of the total transaction amount (of the gross transaction amount excluding profit) — for foreigners without a tax representative in Mexico.
Exemption from income tax is permitted in a number of cases:
- When selling your main residence (residencia habitual).
- If the property has been owned for at least 3 years.
- If the transaction amount does not exceed the equivalent of approximately 4.5 million pesos (in UMA units of account).
Example: Selling a house for 4 million pesos that was purchased for 2.5 million pesos would result in a potential taxable gain of 1.5 million. At a 20% rate, this would be about 300,000 pesos. But if the seller proves that the property was his main place of residence and all conditions are met, the tax can be reduced to zero.
2. Notary services. Paid by both parties by agreement, but more often — buyer. The seller has the right to pay a portion if he requests expedited preparation or additional services. Average rate: 0.5% -1.5% of the cost.
3. Broker or real estate agency commission. Usually the seller pays. The size depends on the region, the type of property and the specifics of the transaction.
Average rate — 3%-5% of the transaction amount + VAT (16%), sometimes — a fixed amount, especially in transactions between relatives.
4. Fee for the services of an appraiser (avalúo fiscal or avalúo comercial), if market revaluation is required.
Average evaluation rate:
- apartments, houses in cities (Mexico City, Merida, Guadalajara, etc.) — from approximately 3,000 to 10,000 pesos for apartments and houses, I rate up to 4-5 million pesos,
- house with a plot, large villa or properties in resort areas (Cancun, Playa del Carmen) — 7,000 — 15,000 pesos and above.
If the object is complex (several buildings, problems with documents), the cost of the assessment may be higher. In some states (for example, Mexico City, Quintana Roo), the notary has the right to request a mandatory official fiscal value for the calculation of ISAI. The services of a private commercial appraiser (avalúo comercial) often cost more than a fiscal appraiser.
General costs for the seller:
- ISR: up to 35% of profits (or 25% of the total amount — for foreigners without a representative).
- Agent commission: 3%-5%.
- Notary (seller's part): 0.5%-1%.
Total: approximately 4%-10% of the transaction amount, if there is a profit and a realtor is involved.
Buyer pays
1. Tax on the acquisition of real estate (ISAI, Impuesto Sobre Adquisición de Inmuebles). This is a property transfer tax and is levied at the municipal level. Paid before registering the property. The calculation base is usually the cadastral price, but in its absence, the price specified in the contract or the market price is used — the largest one is taken.
Rate — from 2% to 5%, depending on the state and the cost of the property.
In the capital of Mexico, a progressive ISAI scale is used, rates vary depending on the value of the purchased property — from 2% to 4.5-5% of the higher value (transaction price, cadastral tariff or tax assessment). In most municipalities in the state of Quintana Roo the rate is fixed — 2% of the cost of the object. However, for guests in government regions (Cancun, Playa del Carmen), the rate is increased to 3%, plus an additional guest government fee is added (approximately 10% of the ISAI amount). The state of Yucatan stands out among the low-stakes regions. In Merida, the rate is about 1.8% of the cost of purchased housing — one of the minimum levels in the country.
Example: if you buy an apartment for 3 million pesos in Mexico City, the ISAI tax will be 4.5% or 135,000 pesos.
2. State duty for registering a property transaction. Paid for entering data about the new owner into the Registro Público de la Propiedad.
Average rate — 0.3% — 0.7% depending on the value of the property.
3. Notary services. Usually remain with the buyer. This is the legal registration of the transaction and control of fiscal procedures.
The cost of a notary for the buyer reaches 0.5% — 1.5% of the cost.
4. Real estate valuation (avaluo fiscal/comercial). Required for fiscal calculations. See above for details.
Cost — from 3,000 to 10,000 pesos, depending on the type and location of the object.
5. Certificates, certificates, inspections. Certificate of absence of debts for taxes and utilities, cadastral extracts, etc. Often included in notary services, but can be paid separately.
Amount — from 1,500 to 6,000 pesos.
6. Bank commission (if mortgage). When applying for a loan: opening fee, property inspection, insurance.
Typically equal to 1% — 2% of the loan amount.
7. Broker services (if involved). Almost always paid by the seller, but in exclusive transactions or complex regulations it may be included in the buyer's expenses.
General costs for the buyer:
- ISAI: 2%-5%.
- Registration: 0.3%-0.7%.
- Notary: 0.5%-1.5%.
- Additional expenses: up to 10,000 pesos (appraisal, certificates, etc.).
Total: approximately 4% -7% of the transaction amount.
Example of total costs for both parties:
Deal for 3,000,000 pesos.
Seller (if the property is not the main one and there is a profit):
- ISR (if 1.5 million profit, rate 20%) = 300,000
- Broker commission 4% = 120,000
- Notary (0.5%) = 15,000
TOTAL for the seller: approximately 435,000 pesos, or 14.5%.
Buyer:
- ISAI (4,5%) = 135 000
- Registration in the register (0.5%) = 15,000
- Notary (1%) = 30,000
- Assessment and certificates = 7,000
TOTAL for the buyer: approximately 187,000 pesos, or 6.2%.
The sale of residential property by individuals is not subject to VAT (IVA), unless it is a new development from a legal entity. However, if commercial real estate is sold, a plot without buildings, or the sale is carried out by a company — A rate of 16% may apply.
All payments are made in pesos, regardless of the actual currency of payment. Deliberately lowering the price in the contract — criminal violation. Non-resident aliens must have a tax representative (representante legal) if they want to avoid the 25% withholding on the full amount. Tax discounts are not provided even for the sale of housing «by friendship». You can't trust schemes with «savings» on taxes by indicating an undervalued value.
The participation of a notary in real estate transactions in Mexico is mandatory; without it, the transaction is not recognized as legal. The notary performs not only a legal, but also a fiscal function:
- withholds and remits capital gains tax (ISR),
- checks the tax status of the parties,
- ensures payment of ISAI,
- submits information to the SAT tax service,
- checks papers, including reports on the presence of encumbrances or debts,
- is responsible for the correctness of assessments and calculations.
Documents important for registration and taxation:
- original of the old and new Escritura pública (public deed of ownership),
- payment documents (check, bank transfer),
- cadastral number and certificate of absence of obligation,
- appraiser's report (avaluo fiscal o comercial),
- CURP and RFC of the parties, if applicable,
- when selling the main residence — confirmation of actual residence and payment of utilities.
Separately, it is worth noting that when inheriting real estate, no transfer tax is charged, but upon subsequent sale, standard taxation is applied, and the cadastral price at the time of death of the previous owner is considered as the base. When donating real estate between first-degree relatives (parents, children, spouses), it is also possible to avoid income tax.
Mexican resident individuals are required to report the purchase or sale of property on their annual tax return. When selling for a profit and paying the ISR at the notary, repeated payment at the end of the year is not required, but the declaration is still required.
If the buyer — a foreigner, he can purchase real estate in a restricted area (coastal and border areas of Mexico) only through a fideicomiso (a trust through a Mexican bank). This structure is completely legal, does not require residence in Mexico and is not tax exempt, but does require additional annual maintenance costs.
We talked about the purchase of real estate by foreigners in restricted areas of Mexico in thispublications.
Buying or selling real estate in Mexico — This is a process with high tax risk, especially for those who are trying to save on registration or act without advice. The legislation in this area is strict, and fiscal authorities are increasingly monitoring transactions, especially those involving foreign citizens.