Capital Gains Tax When a Foreigner Sells Property in Mexico

There is a structural reason this page is hard to find elsewhere. A real estate transaction in San Miguel de Allende pays a commission on the purchase and a commission on the resale, and the people who write the guidance earn on both. Nobody earns anything by explaining, before the purchase, that the exit is taxed on a peso figure fixed by a document the buyer will sign in a language they do not read and then never look at again.

So the exit is written about badly or not at all. Where it is written about, it is usually written as reassurance. This page is the statute, the arithmetic that falls out of it, and an explicit list of the things about selling in San Miguel that are not publicly knowable.

Residency decides everything, and nationality decides nothing

Mexican income tax draws its line at tax residency. A foreign national who is a Mexican tax resident is taxed on a property sale under Title IV of the Ley del Impuesto sobre la Renta, with access to the deductions and to the principal-residence exemption. A foreign national who is not a Mexican tax resident is taxed under Article 160, which is a different regime with different rates and no exemption.

Most foreign owners in San Miguel de Allende sell as non-residents. That is the case this page treats first.

The non-resident has two options and must choose one

Article 160 gives a default and an election.

Two points about that table are worth stating flatly, because they are commonly stated wrongly.

The 35 per cent is not a bracket you fall into. Article 160 directs that the maximum rate of the Article 152 tariff be applied to the gain. A resident selling the same property would run the gain through a progressive tariff and might pay far less at the margin. The non-resident who elects the gain basis pays the top rate on the whole gain. We do not publish the 2026 Article 152 bracket thresholds here, because that tariff table is an embedded image in the official published text and could not be verified against the primary source; the 35 per cent top rate itself is confirmed by the Article 160 cross-reference and is not in dispute.

And no Mexican representative is needed. The fourth paragraph of Article 160 says that in sales recorded in an escritura pública, no representative in the country is required in order to exercise the option. Because every Mexican real estate sale is formalised before a notario, this disapplies the representative requirement in the preceding paragraph. Guidance telling non-residents that they must appoint and pay a Mexican representative to escape the 25 per cent gross withholding is describing a rule that the statute itself switches off.

Where the two methods cross

The comparison is pure arithmetic. Twenty-five per cent of the price equals 35 per cent of the gain when the gain is 25/35 of the price, which is 71.4 per cent. Below that, the gain basis is cheaper. Above it, the flat 25 per cent of gross is cheaper.

The following is arithmetic on the two statutory rates applied to a round hypothetical sale of 10,000,000 pesos. The price is a hypothesis chosen for legibility, not a market figure.

There is a ceiling on that last column, and it is not widely noticed. Article 121 fracción I sets the indexed acquisition cost for real property at no less than 10 per cent of the sale amount. The taxable gain therefore cannot exceed 90 per cent of the price, and 35 per cent of 90 per cent is 31.5 per cent. A non-resident who elects the gain basis can never pay more than 31.5 per cent of the sale price, against 25 per cent under the default. The maximum cost of electing wrongly is 6.5 points of the price.

A gain above 71 per cent of the sale price is not exotic in this market. It is the ordinary consequence of a long hold, a low declared purchase price, and a building written down by mandatory depreciation. All three are discussed below, and all three are decided at purchase.

What is deductible, and what quietly is not

Article 121 sets out the deductions available in computing the gain.

Fracción III is the one buyers overlook and it is worth reading twice. The acquisition tax paid at purchase, the ISAI, is deductible on exit. In San Miguel de Allende that is not a small line: the 2026 municipal tariff runs to a fixed 39,125 pesos plus 4 per cent of value above 1.5 million pesos, an effective rate of roughly 3.6 to 3.9 per cent at the prices foreign buyers actually transact. A seller who cannot produce the acquisition closing statement loses it.

Fracción II is where most foreign owners lose real money. Conservation and maintenance are not deductible. Capitalised improvements are, and they must be proven, which in Mexico means a factura. A renovation carried out over two years with cash payments to a builder produces no facturas, and therefore produces no deduction, and therefore inflates the taxable gain by its entire cost. The house is worth more. The tax base is worse. This is the single most expensive documentation failure available to a foreign owner in this market, and it happens because renovation is a buying-time activity and capital gains is thought of as a selling-time problem.

One related claim we will not repeat. It is asserted across the English-language guidance that a factura must be issued to the owner’s own Mexican tax identification number, the RFC, to be usable, which would mean a buyer without an RFC cannot accumulate deductible basis at all. We could find no statutory or SAT source establishing that, and we could not even establish whether an RFC is required in practice to complete an escritura in San Miguel. It is plausible and it is repeated everywhere. It is not sourced, so we do not state it as fact. Ask your notario, in writing, before the renovation starts rather than after.

The building is depreciated whether or not it has deteriorated

Article 124 requires the construction component of the acquisition cost to be reduced by 3 per cent for each year between acquisition and sale, subject to a floor of 20 per cent of initial cost, with the remainder then indexed for inflation. Where the deed does not separate land from construction, land is deemed to be 20 per cent of the total cost.

Both of those work against the seller, and the second works against the seller particularly hard in San Miguel de Allende.

A building held for twenty years or more is written down to the statutory floor of 20 per cent of its original cost, regardless of condition and regardless of what has been spent maintaining it. And in a market where land is a high share of value, especially in the historic centre, the default assumption that only 20 per cent of the purchase price was land means 80 per cent of it is exposed to depreciation. Separating land and construction values in the acquisition escritura, at purchase, generally produces a materially better position on exit. Almost nobody does this, because at the moment of purchase nobody in the room is thinking about the sale, and the two people advising the buyer are paid on the purchase.

The notario is the withholding agent, and is personally on the hook

Under the third paragraph of Article 126, notaries, brokers, judges and other fedatarios with notarial functions calculate the tax under their own responsibility and remit it to authorised offices, and for operations recorded in public deeds the provisional payment is made by declaration within fifteen days of signing.

Understand what that means structurally. Under Guanajuato’s notarial law the notario is a state-appointed public officer invested with fe pública, not the buyer’s advocate and not the seller’s. On the tax, the notario is not merely neutral; the notario is personally exposed. That is why a notario will not close until the seller’s tax position is resolved, why a notario is conservative about accepting deductions that are not fully documented, and why a notario will want documentary proof of tax residency before applying the residence exemption. The seller who arrives at the closing table with an incomplete file is not negotiating with a service provider. They are asking a public officer to accept personal liability for their paperwork.

Article 127 adds a 5 per cent payment on the gain to the state in which the property sits, which in this case is Guanajuato. It is creditable against the federal provisional payment, and where the state figure exceeds the federal one, only the federal amount is remitted to the state. It is a split of revenue between two levels of government, not an additional 5 per cent of cost. Sellers regularly misread it as an extra Guanajuato tax.

Two further mechanics belong here. No IVA is charged on the price of land or of a building used as a dwelling, under Article 9o of the value added tax law, so the sale price itself is not IVA-bearing. IVA at 16 per cent does apply to the services around the sale, and the largest of those is the agent’s commission. One San Miguel brokerage publishes its own commission as 6 per cent plus tax, paid by the seller, which is an effective 6.96 per cent of the price; that figure comes from a party with a direct interest in it, and no independent or registry-based source for San Miguel commission rates exists. The commission is deductible under Article 121 fracción IV.

The residency-linked exemption, and its exact conditions

Article 93 fracción XIX inciso a) exempts income from the sale of the taxpayer’s home where the consideration obtained does not exceed 700,000 units of investment and the transfer is formalised before a fedatario público.

The critical word is consideration. The 700,000 UDIs cap the exempt sale price, not the exempt gain. This is stated the other way round on a number of well-trafficked pages, and it materially understates tax on any sale above the cap. Where the price exceeds the threshold, the gain on the excess is determined and deductions are taken in the proportion the excess bears to the total consideration.

The UDI is inflation-indexed and republished twice monthly, so the threshold moves continuously.

At the 23 July 2026 European Central Bank reference rate of 17.4601 pesos to the dollar, the July threshold is roughly 353,000 US dollars. Recompute it at the actual date of your sale rather than relying on any figure published in advance, including this one.

The conditions our sourced record supports are these, and only these. The seller must be a Mexican tax resident, because the exemption sits in Title IV. The consideration must not exceed 700,000 UDIs. The transfer must be formalised before a fedatario público. And during the three years immediately preceding the sale the taxpayer must not have sold another home for which this exemption was claimed, and must so declare under oath before the notary.

There is an oddity in the statute itself that is worth knowing about before it surprises you at a closing. The substantive bar is three years, but the following paragraph still requires the notary to query SAT as to whether the taxpayer has claimed the exemption on a sale during the five preceding years. That is an artefact of a 2015 reform that shortened the period without conforming the next paragraph, and both texts remain in the published law. In practice a sale in years four or five may surface in the notary’s SAT query and require explanation, without disqualifying the exemption.

Other conditions circulate widely: a maximum ratio of land area to built area, a minimum period of actual occupancy, a requirement to hold an RFC and a CURP. Competing pages list them inconsistently with each other. We could not source them and we do not publish them.

The tax is computed in pesos, and your gain may not be

The escritura records a peso price. ISAI is assessed in pesos. The gain under Articles 121 and 124 is computed in pesos and indexed by Mexican inflation. Almost every foreign owner in San Miguel de Allende thinks about the property in dollars or Canadian dollars.

Those two accounts can diverge sharply and can even carry opposite signs. The peso appreciated close to 14 per cent during 2025 and closed the year at approximately 18.00 to the dollar; on 23 July 2026 the European Central Bank reference rate was 17.4601. A property that has moved sideways in dollars over that window has, in peso terms, done something else entirely, and it is the peso number that the notario puts in the declaration.

One trap to avoid, because it produces the wrong sign and it is common. Spot rates and annual average rates are different measures and cannot be mixed. The IRS yearly averages for the Mexican peso are 18.330 for 2024 and 19.212 for 2025, which is to say the peso averaged weaker in 2025 than in 2024, the opposite direction to the spot move across the same year. Use spot for a transaction on a given day and an annual average only where a filing specifically calls for one.

The declared price at purchase is the number you inherit

Under-declaring the deed value is still occasionally suggested to buyers in inland Mexican markets as a way to reduce acquisition tax. It does not work on the way in and it is expensive on the way out.

It does not work on the way in because Article 180 of Guanajuato’s municipal finance law assesses ISAI on the highest of the registered fiscal value, the transaction value, or a certified appraisal less than a year old. A low contract price does not lower the base if the appraisal or the cadastral value is higher.

It is expensive on the way out because the declared price is the proven acquisition cost under Article 121 fracción I. Every peso shaved off the deed at purchase is a peso added to the taxable gain at sale, taxed at up to 35 per cent, after having saved at most about 3.9 per cent in ISAI, and only if the ISAI base moved at all. Whether San Miguel notarios in practice assess ISAI on the full purchase price or on a lower certified appraisal is not documented in any source we could reach, so we cannot tell you how often the manoeuvre even achieves the saving it is sold on.

What is not publicly knowable about selling here

That last row deserves a sentence rather than a cell. The interaction between Mexican tax and the seller’s home-country position is the thing readers most want quantified, and it is the thing this publication is least equipped to quantify honestly, because our research record contains no primary United States or Canadian tax material. We therefore publish no home-country rates, no credit mechanics, no exclusion thresholds and no filing obligations. Pages that do publish them are frequently written by parties who earn on the transaction, and at least one San Miguel page in circulation states an exemption figure that is materially wrong.

What we can set out is the structure of the problem, which is where the real risk sits. The Mexican exemption is available only to Mexican tax residents. Becoming a Mexican tax resident in order to reach it has consequences in the country you left, and those consequences are not symmetrical with the Mexican saving. That trade-off has to be modelled by someone who holds both sides of it. Nobody in a San Miguel transaction is that person.

Model the exit at purchase

This is the whole argument of the page, and it is a checklist rather than an insight.

None of that costs anything at the point of purchase. All of it is unavailable afterwards. The reason it is not in the guidance is not that it is complicated. It is that the exit is the one part of a Mexican property transaction on which no participant is paid to be candid, and the buyer is the only person in the room with an interest in the answer.

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This is published research, not legal or tax advice. The income tax provisions cited are the consolidated text in force as last reformed on 1 April 2024, and rates, thresholds and the UDI value change; recompute at your own transaction date. Your notario is the legal authority on your transaction, and your own tax adviser is the authority on your home-country position. Invest In San Miguel is not a brokerage, earns no commission, and has no financial interest in whether your sale or your purchase closes.