Capital Gains

Tax Obligations and the Capital Gains Tax Exemption Confusion

Understanding tax implications is crucial when buying a property. Sellers should be aware of the Income Tax (ISR) on profits from property sales. Fortunately, Mexican tax laws offer exemptions under certain conditions to reduce this burden.

To be eligible for the ISR exemption when selling residential property, the following criteria must be satisfied:

• The property must be the seller's main residence, verified by documents such as electricity bills or bank statements. The electric bill must contain a QR code with a tax number or RFC for its initials in Spanish, issued by the Secretary of Tax Administration (SAT).

• It is required that the seller has not sold any other residential property with a tax exemption within the preceding three years.

• Exemption applies up to 4.5 million Mexican pesos. Any amount above this will be taxed with ISR on the excess.

Compliance with these conditions is necessary to benefit from the ISR exemption and to avoid legal or financial issues. Both buyers and sellers should seek professional advice to navigate these regulations and ensure a smooth transaction.

To avoid capital gains tax when selling your primary home, you must be a permanent resident of Mexico.