Capital Gains Tax When You Sell Property in Los Cabos

The two ways a non-resident is taxed

Mexican income tax on the sale of real estate is ISR (Impuesto Sobre la Renta). A non-resident seller has two options, and the notary withholds and remits the tax at closing.

These are not two equal choices. The 25% withholding on gross proceeds, with no deduction, is what the Income Tax Law provides for a seller resident abroad — it is the default, and it requires nothing but the sale. Calculating on the gain instead is an option available where the legal conditions are met, and those conditions are documentary. It usually costs far less. It is also the one you can lose by not having the paperwork.

Why 35% is usually cheaper than 25%

Because they are charged on completely different bases. A worked comparison, using round numbers:

You bought at USD 800,000 and sell at USD 1,000,000.

• Gross method: 25% of 1,000,000 = USD 250,000.
• Net method: 35% of the 200,000 gain = USD 70,000, before the inflation adjustment and documented improvements reduce it further.

The gross method only wins when the gain is very large relative to the price — land held for decades, for example. For most owners the net method is dramatically better, and the entire question is whether you can substantiate it.

What you need to use the net method

This is the operative part of the page.

• An RFC, the Mexican tax ID.
• The original purchase deed (escritura) showing the acquisition value, which is then adjusted for inflation to the sale date.
• Facturas for every improvement you intend to deduct. A factura is a formal CFDI tax invoice issued by a registered contractor against your RFC. A receipt is not a factura. A wire transfer is not a factura. A contractor who works in cash cannot issue one.
• Deductible acquisition costs from the original purchase — the notary fees, the acquisition tax, the appraisal.

This is the expensive lesson: an owner who spent USD 300,000 renovating without facturas deducts nothing for that work. The renovation raises the sale price, and therefore the taxable gain, while contributing zero to the cost basis. Insist on facturas from the first day of the first project, and keep the original purchase deed somewhere you will find it in fifteen years.

The peso trap

The gain is computed in pesos, not in dollars. Your purchase price is fixed in pesos at the historical exchange rate on the day you bought and then adjusted for Mexican inflation; your sale price is in pesos on the day you sell.

If the peso has weakened against the dollar over your holding period, the peso sale price rises even when the dollar value has not moved. You can owe Mexican tax on a peso gain while showing a dollar loss.

This is not a loophole to be argued with the notary. It is how the tax is built, and it is the reason a US or Canadian owner’s mental arithmetic about “what I made” frequently does not match the withholding at closing.

The residency exemption, and why it rarely applies

Mexican tax residents can claim a primary-residence exemption on the sale of a home, currently up to a gain of 700,000 UDIs, where the property was the seller’s principal residence and the exemption has not been used within the preceding three years.

It does not apply automatically to a foreign seller. It turns on tax residency, documentation, the actual use of the property and the other statutory requirements. In practice that means being a Mexican tax resident at the time of sale, holding an RFC, and being able to evidence the property as your principal residence — typically with utility bills and bank statements in your name at that address. Owning a home in Los Cabos and holding a residency card does not, by itself, make you a tax resident.

If this exemption is part of your plan, it needs a Mexican tax professional years before the sale, not weeks.

If you are a US taxpayer

Mexican ISR does not end the matter. A US citizen or green-card holder reports the sale on a US return regardless of where the property sits, and the two systems compute the gain differently — different basis rules, different treatment of currency, no US recognition of the Mexican inflation adjustment.

The foreign tax credit generally prevents outright double taxation, but it is a credit and not a wash, and it turns on the timing and character of the Mexican tax paid. Coordinate the Mexican and US filings with someone who handles both.

This page is general information, current as of August 2026, and it is not tax or legal advice. Rates, thresholds and the UDI value change. Get advice specific to your situation from a Mexican tax professional and, if you are a US taxpayer, from a cross-border accountant before you list.