What every foreign seller needs to know before listing their home or condo in Playa del Carmen.

Selling property in Mexico can be profitable, but many sellers—especially foreigners—are surprised by one key expense at closing: capital gains tax, known in Mexico as ISR (Impuesto Sobre la Renta

This tax applies whether you’re Mexican or foreign, whether the property is in your name or a fideicomiso (bank trust). The difference is how much you pay, and that depends heavily on documentation, residency status, and how you structure the sale.

This guide breaks down how ISR works, how it’s calculated, how to reduce it legally, and what to expect in Playa del Carmen and the rest of Mexico.

🔎 What Is Capital Gains Tax (ISR) in Mexico?

ISR is a tax on the profit you make when selling real estate.
It is paid at closing, handled by the notario público (a special type of real-estate attorney—not like a U.S. notary).

ISR is based on:

Your purchase price
Your declared sale price
Eligible deductions
Your tax residency
Whether the property qualifies as your primary residence

💡 The Two Ways ISR Is Calculated

Mexican law allows the notary to calculate the tax using two different formulas and apply whichever results in a lower tax.

1️⃣ Flat 35% Tax on Net Profit

This applies to most foreign sellers.

Formula:
Sale price – Purchase price – allowable deductions = Gain × 35%

2️⃣ Sliding Scale Based on Mexico’s Income Table

This option is usually used by Mexican tax residents with proper documentation showing the home was their primary residence.

Sometimes, this method can reduce the tax to nearly zero—but only if requirements are met.

📄 What Counts as “Deductions”?

You can legally reduce your capital gains tax with the following:

✔ Improvements to the Property

Must be documented with:

CFDI tax invoices (Mexico digital invoices)
Improvements paid through Mexican contractors or companies

New kitchens, AC units, pools, roofing, structural upgrades, etc. may qualify.

✔ Closing Costs From When You Bought the Property

Your original notary fees and acquisition tax can lower your gain.

✔ Real Estate Commission When Selling

Commission paid to your agent reduces your taxable gain IF you request a proper invoice.

✔ Inflationary Adjustment

Mexico adjusts your original purchase price upward to account for inflation, reducing your taxable gain—even if you made no improvements.

🏠 Can Foreigners Avoid or Reduce Capital Gains Tax?

Yes—sometimes. Here’s how:

1. Mexican Tax Residency

Foreigners who live full-time in Mexico often qualify for RFC (tax ID) + residency and can use the primary residence exemption.

Requirements:

Temporary or permanent residency
RFC
Proof you lived in the home (utility bills in your name)
Property held in your personal name, not a corporation

This can eliminate up to ~$5M MXN in profit tax-free.

2. Correctly Declared Purchase Price

If the original seller under-declared the value (which used to be common), the buyer inherits a problem — a much larger gain on paper.

3. Tracking and Invoicing Improvements

Without valid invoices (CFDI), your improvements cannot be used.

4. Sell Through a Qualified Notary

Not all notaries are equal. A good one will:

Use both tax calculation methods
Apply all deductions
Ensure you pay the lowest legal amount

📌 Example: Capital Gains Tax on a Playa del Carmen Condo

Bought: $200,000 USD
Sold: $330,000 USD
Profit: $130,000 USD

Deductions:

$10,000 improvements (documented)
$8,000 original closing costs
$6,000 real estate commission
$15,000 inflation adjustment

Taxable gain:
$130,000 – $39,000 = $91,000

ISR owed:
$91,000 × 35% = $31,850 USD

(Your notary will calculate the peso value, but this shows the concept.)

⚠️ Common Mistakes Sellers Make

❌ 1. Not collecting invoices for improvements

Receipts are not enough—you need CFDI invoices.

❌ 2. Selling too soon after buying

Owning the property longer increases inflation adjustments.

❌ 3. Not asking the notary to run both ISR formulas

Some notaries only use one method unless asked.

❌ 4. Believing “foreigners don’t pay capital gains”

Incorrect—foreigners almost always pay unless they have residency + RFC and full documentation.

💬 FAQ

Do I pay ISR if I sell at a loss?

No. If the sale price is less than the purchase price (plus inflation), you may owe nothing.

Is ISR taken from my sale proceeds?

Yes, the notary deducts it before you are paid.

Do I report this tax in the U.S. or Canada?

Usually yes.
Mexico and your home country have different rules—you may get foreign tax credits.

Are capital gains high in Playa del Carmen?

They can be, because property values have grown significantly in the Riviera Maya.

🏁 Final Thoughts: Plan Your Exit Early

Even if you’re years away from selling your Playa del Carmen property, planning ahead can save you thousands. Start early by:

Keeping invoices
Asking contractors for CFDIs
Obtaining residency + RFC if you plan to live here full-time
Choosing a notary experienced with foreign sellers

About the Author

Hi, I’m Matt from Nasplaya, your go-to guide for living, investing, and thriving in Playa del Carmen and the Riviera Maya. In 2008 my husband and I quit our jobs in Boston, Massachusetts, sold everything we owned and drove to Playa del Carmen, Mexico to start North American Standards (Nasplaya), our property management, vacation rental and real estate company. Now 17+ years later, I am sharing our experience helping expats and property owners navigate the local market. I share honest insights, practical tips, and insider knowledge to make your move—or your investment—a success.

From finding the best schools and maximizing rental income to understanding local regulations and uncovering hidden gems, my goal is to give you clear, actionable advice you can trust. When I’m not exploring the beaches or scouting the newest rental opportunities, I’m sharing stories, guides, and strategies that help you make the most of life in paradise.

Follow along for expert tips, local updates, and everything you need to live, invest, and enjoy the Riviera Maya to the fullest.

North American Standards (NAS Playa)
Property Management • Rentals • Real Estate
📍 Playa del Carmen, Mexico
🌐 www.nasplaya.com 🔑 Rentals: rentals@nasplaya.com
📊 Ventas: buy@nasplaya.com 🏘 Property Management: bookings@nasplaya.com

Understanding Capital Gains Tax When Selling Property in Mexico (2025 Guide)