A Comprehensive Guide on Taxes for Foreign Buyers in Mexico
For Canadians and Americans looking to buy property in Mexico, the country’s affordable real estate prices, high rental returns, and low cost of living make it a highly attractive investment destination. However, understanding tax obligations is essential to maximizing returns and avoiding unexpected financial burdens.
Many foreign buyers are unaware of the different tax structures that apply when renting out, selling, or owning property in Mexico. Additionally, with the introduction of the new property valuation law, it’s now more crucial than ever to have a solid understanding of taxation.
This guide covers:
✅ Rental income tax for foreign property owners.
✅ Capital gains tax when selling a property.
✅ Why obtaining residency can lower your taxes.
✅ The impact of Mexico’s new property valuation law on real estate.
By the end of this article, you’ll have a clear roadmap to navigating Mexico’s real estate tax system.
1. Rental Income Tax in Mexico for Foreign Buyers
Do Foreigners Pay Taxes on Rental Income in Mexico?
Yes, foreigners must declare and pay taxes on rental income earned in Mexico, whether they reside in Mexico or abroad. Mexican tax laws apply even if the rental income is collected in another country (e.g., Canada or the U.S.).
Rental Tax Structure in Mexico
Foreigners can choose between two taxation methods:
✅ 1. Flat 25% Tax on Gross Rental Income (No Deductions)
- Simple option for non-residents who don’t want to register for tax purposes.
- No deductions for expenses (HOA fees, maintenance, repairs, etc.).
- Example: If you earn $2,000/month in rental income, you owe $500/month in taxes.
✅ 2. Progressive Tax Rate with Deductible Expenses (1.92% to 35%)
- Requires registering with SAT (Mexican Tax Authority).
- Allows you to deduct expenses such as:
🔹 HOA fees
🔹 Maintenance & repairs
🔹 Property management fees
🔹 Utilities & insurance - Tax rate varies from 1.92% to 35% depending on net earnings.
How to Pay Rental Income Tax in Mexico?
- Taxes are paid monthly through SAT.
- Foreigners must register for an RFC (Mexican Tax ID) to be eligible for deductions.
- Non-compliance may result in penalties or rental restrictions.
📢 Need help with rental tax compliance? Take our Free 2-minute Real Estate Investment Quiz and let us connect you with top tax advisors in Mexico!
2. Capital Gains Tax in Mexico for Foreign Sellers
What Is Capital Gains Tax (ISR) in Mexico?
Capital gains tax applies when selling a property, calculated as the difference between the original purchase price and the sale price.
How Much Is Capital Gains Tax for Foreigners?
- Standard rate: 35% on net profit
- Exemptions and deductions can significantly reduce this amount
How to Reduce Capital Gains Tax in Mexico?
✅ Primary Residence Exemption – If you hold Mexican residency and the property is your primary home, you may be fully exempt from capital gains tax.
✅ Official Valuation (Avalúo) – A professional assessment may reduce taxable gains.
✅ Renovation Deductions – Receipts for renovations can be deducted from profit calculations.
✅ Holding Period Exemption – The longer you own the property, the more exemptions you can apply for.
Example: Capital Gains Tax Breakdown
- Original Purchase Price: $250,000
- Sale Price: $400,000
- Capital Gain: $150,000
- Potential Tax at 35%: $52,500
- With Deductions & Residency Benefits: $0 to $15,000
📢 Planning to sell? Work with our experts to optimize your tax strategy before listing your property!
3. Why Get Mexican Residency When Buying Property?
Many foreign investors overlook the benefits of residency, but it can provide huge tax savings and investment advantages.
Benefits of Obtaining Mexican Residency for Property Owners
✅ Lower Taxes on Property Sales – Residency can help avoid capital gains tax when selling.
✅ Easier Property Transactions – Residency allows you to own property without a fideicomiso (trust).
✅ More Financing Options – Some Mexican banks require residency for mortgage approvals.
✅ No Need for Tourist Visas – No more 180-day limit on your stays in Mexico.
Residency Options for Foreign Property Owners
- Temporary Residency (for properties valued at $250,000+ USD).
- Permanent Residency (after 4 years of holding a Temporary Visa).
4. New Property Valuation Law in Mexico (2024 Update)
The new property evaluation law is one of the biggest changes affecting real estate taxes in Mexico.
What Is the New Property Valuation Law?
- Mexican authorities now reassess property values every two years.
- If the declared sale price is too low, the government adjusts the taxable amount.
- Notaries are now required to report realistic property values in transactions.
How Does This Affect Foreign Buyers?
- Higher transparency in transactions – Less risk of undervaluing properties.
- Stricter tax enforcement – Sellers will pay more accurate capital gains tax.
- More predictable tax obligations – Investors can better plan for future costs.
Final Thoughts: Should Foreign Buyers Invest in Mexico?
Mexico remains one of the most tax-friendly destinations for real estate investors from Canada and the U.S.. Lower property taxes, rental income opportunities, and capital gains tax exemptions make it an attractive alternative to Florida, California, or other high-cost U.S. markets.
Who Benefits the Most from Mexican Real Estate?
✅ Investors looking for high appreciation potential.
✅ Retirees seeking a tax-friendly second home.
✅ Canadians and Americans wanting to maximize rental income.
✅ Buyers looking to avoid Florida’s high taxes and insurance costs.
