Authored by the expert who managed and guided the team behind the Mexico Property Pack
Everything you need to know before buying real estate is included in our Mexico Property Pack
As we reach mid-2025, understanding Mexico's property tax system is crucial for anyone considering real estate investment or homeownership in this diverse market.
Property taxes in Mexico are generally lower than in the United States or Canada, but the system involves multiple taxes at different stages of ownership that can catch unprepared buyers off guard.
If you want to go deeper, you can check our pack of documents related to the real estate market in Mexico, based on reliable facts and data, not opinions or rumors.
Property taxes in Mexico include the annual Predial tax (0.1-0.3% of cadastral value), acquisition tax (2-5% when buying), capital gains tax (up to 35% when selling), and various municipal fees, with foreigners paying the same rates as Mexican citizens but facing additional trust-related costs.
The Mexican property tax system operates at federal, state, and municipal levels, with significant variations across locations and property types, making it essential to understand all applicable taxes before investing.
| Tax Type | Rate/Amount | When Paid |
|---|---|---|
| Predial (Annual Property Tax) | 0.1%-0.3% of cadastral value | Annually (January-February for discount) |
| Acquisition Tax (ISAI) | 2%-5% of purchase price | At property purchase |
| Capital Gains Tax (ISR) | 0%-35% of gain | When selling property |
| Notary Fees | 0.5%-1.5% of purchase price | At property purchase |
| Registry Fees | 0.3%-0.8% of purchase price | At property purchase |
| VAT on New Construction | 16% of construction value | When buying new property |
| Trust Fees (Foreigners) | $500-$1,500 annually | Yearly for restricted zone properties |
What property taxes do you pay as a homeowner in Mexico?
As a property owner in Mexico, you'll encounter several mandatory taxes that vary significantly from those in North America or Europe.
The primary tax you'll pay is the Predial (annual property tax), which typically ranges from 0.1% to 0.3% of your property's cadastral value. Beyond this, you'll face municipal fees for services like water, garbage collection, and street lighting, which usually total MXN 2,000-5,000 annually for a typical residential property.
If you generate rental income from your Mexican property, you must pay income tax ranging from 0% to 35% depending on your total earnings and resident status. Non-residents face a flat 25% withholding tax on gross rental income, while residents can deduct expenses and pay tax on net income.
Additional ongoing costs include trust fees for foreigners owning property in restricted zones (coastal and border areas), which average $500-1,500 USD annually. These trusts, called fideicomisos, are mandatory for foreign ownership within 100 kilometers of borders and 50 kilometers of coastlines.
It's something we develop in our Mexico property pack.
How much is the annual property tax (Predial) and how is it calculated?
The Predial tax in Mexico is remarkably affordable compared to property taxes in the United States or Canada, typically ranging from 0.1% to 0.3% of the cadastral value.
Cadastral values in Mexico are usually set at 10-30% of market value, which means your actual tax burden is quite low. For example, a property with a market value of $300,000 USD might have a cadastral value of just $60,000 USD, resulting in an annual Predial tax of only $60-180 USD.
The calculation involves multiplying your property's cadastral value by the municipal tax rate, then applying any applicable discounts. Most municipalities offer significant discounts for early payment - typically 10-20% if you pay in January or February.
As of June 2025, major cities like Mexico City, Guadalajara, and Monterrey have slightly higher rates (0.2-0.3%), while smaller towns and rural areas often charge closer to 0.1%. The tax is calculated based on land value plus construction value, with different rates sometimes applied to each component.
Property improvements and renovations should be reported to update your cadastral value, though many property owners delay this to keep taxes low.
Do tax rates vary by property type or location?
Tax rates in Mexico show significant variation based on both property type and location, with differences that can impact your overall investment returns.
Commercial properties typically face higher Predial rates than residential properties, often 0.3-0.5% of cadastral value compared to 0.1-0.3% for homes. Luxury properties in areas like Los Cabos, Puerto Vallarta, and Playa del Carmen may be subject to additional luxury taxes or higher cadastral valuations.
| Location Type | Typical Predial Rate | Additional Considerations |
|---|---|---|
| Major Cities (CDMX, Monterrey) | 0.2%-0.3% | Higher cadastral values, more services |
| Beach Towns (Cancun, Tulum) | 0.15%-0.25% | Tourist taxes may apply |
| Colonial Cities (San Miguel) | 0.1%-0.2% | Historic zone restrictions |
| Rural Areas | 0.05%-0.15% | Lower values, fewer services |
| Industrial Zones | 0.3%-0.5% | Higher rates for commercial use |
| Gated Communities | 0.15%-0.25% | Plus HOA fees $100-500/month |
| Ejido Land | Variable | Special regulations apply |
Tourist areas often impose additional fees or taxes to fund local infrastructure and services, which can add 1-3% to your annual carrying costs.
What capital gains taxes apply when selling Mexican property?
Capital gains tax (ISR - Impuesto Sobre la Renta) on Mexican property sales can take a significant bite out of your profits, with rates reaching up to 35% for non-residents.
Mexican residents pay capital gains tax on a progressive scale from 0% to 35% based on their total annual income, while non-residents face a flat 25% rate on the gross sale price or 35% on the net gain (whichever the seller chooses). The tax is calculated on the difference between your adjusted purchase price and sale price, with certain deductions allowed.
You can reduce your capital gains tax by deducting the original purchase price (adjusted for inflation), notary fees, transfer taxes, and documented improvements. If the property was your primary residence for at least three years, you may qualify for an exemption of up to 700,000 UDIs (approximately $700,000 USD as of 2025).
The seller is responsible for paying this tax, but Mexican law requires the buyer to withhold 25% of the purchase price if the seller is a non-resident. This withholding ensures tax compliance but may exceed the actual tax owed, requiring the seller to file for a refund.
Professional tax planning can significantly reduce your capital gains liability through strategies like establishing Mexican residency before selling or structuring the sale through a Mexican corporation.
Do foreigners pay additional taxes compared to Mexican citizens?
Foreigners pay the same property tax rates as Mexican citizens, but face additional costs related to the mandatory trust structure (fideicomiso) required for properties in restricted zones.
The fideicomiso itself costs approximately $500-1,500 USD annually in bank fees, plus initial setup costs of $1,500-3,000 USD. These trusts must be renewed every 50 years at a cost of about $1,000-2,000 USD, representing a significant additional expense over Mexican citizens who hold direct title.
When it comes to rental income taxation, non-resident foreigners face less favorable treatment with a flat 25% withholding tax on gross rental income, while Mexican residents (including foreign residents) can deduct expenses and pay tax only on net income. This difference can mean paying thousands more in taxes annually on rental properties.
Non-resident foreigners selling property also face automatic 25% withholding on the gross sale price, while residents have more flexibility in tax planning and deductions. However, foreigners with temporary or permanent residency in Mexico are treated identically to Mexican citizens for tax purposes.
It's worth noting that as of 2025, there are ongoing discussions in the Mexican Congress about potentially allowing direct foreign ownership in restricted zones, which could eliminate the fideicomiso requirement and its associated costs.
What taxes apply when purchasing property in Mexico?
Purchasing property in Mexico triggers several immediate tax obligations that typically add 4-7% to your total acquisition cost.
The acquisition tax (ISAI - Impuesto Sobre AdquisiciĂłn de Inmuebles) ranges from 2% to 5% of the purchase price depending on the state and municipality. For example, Mexico City charges 5%, while Quintana Roo (including Cancun and Playa del Carmen) charges 3%, and some states like Yucatan charge as low as 2%.
Notary fees in Mexico are regulated but substantial, typically ranging from 0.5% to 1.5% of the purchase price. These fees cover the notary's services in researching title, preparing documents, calculating taxes, and registering the property. For a $300,000 USD property, expect to pay $1,500-4,500 USD in notary fees.
Additional purchase costs include registration fees (0.3-0.8%), appraisal fees ($300-800 USD), and trust setup fees for foreigners ($1,500-3,000 USD). If you're buying new construction, you'll also pay 16% VAT on the construction value, though land value is exempt.
It's something we develop in our Mexico property pack.
Are there ongoing taxes beyond annual property tax?
Beyond the Predial tax, Mexican property owners face several ongoing financial obligations that can significantly impact your carrying costs.
Municipal services fees are mandatory and cover water, sewage, garbage collection, and street lighting. These typically range from MXN 2,000-5,000 annually for a standard home, but can reach MXN 10,000+ for larger properties or those in tourist areas. Water rights in particular can be expensive in drought-prone regions.
If your property is in a homeowners association (HOA), expect monthly fees ranging from $50-500 USD depending on amenities and location. Beachfront condos in places like Puerto Vallarta or Cancun often charge $300-500 monthly for maintenance, security, and amenities.
Properties generating rental income may also be subject to state lodging taxes (ISH - Impuesto Sobre Hospedaje) of 2-5% on short-term rentals. As of 2025, Quintana Roo charges 5%, while most other states charge 2-3%. These taxes are collected from guests but must be remitted by property owners.
Environmental fees and beach access taxes apply in coastal areas, typically adding $100-500 annually. Some municipalities also charge special assessments for infrastructure improvements, which can be substantial one-time costs.
What are the tax obligations for rental income in Mexico?
Rental income taxation in Mexico requires careful attention to compliance and can significantly impact your investment returns.
Mexican tax residents must report all rental income and can deduct legitimate expenses including maintenance, utilities, property management fees, insurance, and depreciation. After deductions, you'll pay income tax at progressive rates from 0% to 35% based on your total annual income.
Non-residents face a simpler but often more expensive system with 25% flat withholding tax on gross rental income. For example, if you earn $2,000 monthly in rent, you'll pay $500 in taxes regardless of your expenses. This makes it crucial to evaluate whether obtaining Mexican tax residency would reduce your tax burden.
Short-term rental platforms like Airbnb are required to withhold taxes at source: 4% ISR (income tax) plus 16% VAT for Mexican tax residents with RFC registration, or a combined 20% for those without proper registration. Non-residents face automatic 20% withholding on platform bookings.
You must register with SAT (Mexican tax authority) to obtain an RFC (tax ID) and file monthly tax declarations by the 17th of each month. Failure to comply can result in penalties of 55-75% of unpaid taxes plus interest charges.
How does property tax work with multiple properties?
Owning multiple properties in Mexico means managing tax obligations across potentially different municipalities, each with its own rates and payment schedules.
Each property is taxed individually based on its cadastral value and local tax rate. There's no progressive taxation on property ownership - owning ten properties doesn't increase the tax rate on any individual property. However, you'll need to track payment deadlines for each municipality to capture early payment discounts.
| Number of Properties | Tax Considerations | Administrative Burden |
|---|---|---|
| 1-2 Properties | Standard rates apply | Manageable personally |
| 3-5 Properties | Consider bulk payment discounts | Spreadsheet tracking recommended |
| 6-10 Properties | May qualify for investor status | Property manager advisable |
| 10+ Properties | Consider corporate structure | Professional administration needed |
| Mixed Use Portfolio | Different rates per property type | Specialized accounting required |
Multiple property owners often benefit from establishing a Mexican corporation (S.A. de C.V.) which can provide tax advantages and simplified administration, though this triggers different tax obligations including 30% corporate income tax.
Can you legally reduce your property taxes in Mexico?
Several legitimate strategies exist to minimize your Mexican property tax burden while remaining fully compliant with tax laws.
The most immediate savings come from paying Predial early - most municipalities offer 10-20% discounts for payment in January or February. Some cities provide additional discounts for seniors (50% or more for those over 60), disabled persons, and low-income residents, though these typically require Mexican residency.
Challenging your cadastral value assessment can yield significant savings if your property is overvalued. You can petition for reassessment if comparable properties have lower valuations or if your property has factors reducing its value. This process typically costs MXN 5,000-10,000 but can reduce your tax bill for years.
Strategic property structuring through Mexican corporations or trusts can provide tax advantages for multiple properties or commercial operations. While setup costs range from $3,000-10,000 USD, the ongoing tax savings can justify this for larger portfolios.
Proper documentation of all property-related expenses is crucial for reducing rental income taxes and eventual capital gains. Keep receipts for all improvements, maintenance, and professional services as these can be deducted from taxable income.
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What happens if you don't pay property taxes on time?
Failing to pay property taxes in Mexico triggers a series of increasingly serious consequences that can ultimately result in losing your property.
Initial penalties start immediately after the due date, typically 1.5% monthly interest on unpaid amounts. After three months, additional surcharges of 5-10% may apply. Unlike the lenient approach in some countries, Mexican municipalities actively pursue tax collection and can place liens on properties with just a few months of unpaid taxes.
After 12-24 months of non-payment (varies by state), municipalities can begin foreclosure proceedings. The property enters a public auction process where it's sold to recover tax debts. Former owners have limited rights to reclaim the property once this process begins, and accumulated penalties can quickly exceed the original tax amount.
Unpaid property taxes also prevent you from selling or transferring the property, as notaries must verify all taxes are current before processing transactions. This can trap owners who fall behind, as they can't sell to pay the debt without first clearing the taxes.
For foreign owners, tax delinquency can also affect immigration status and future property purchases in Mexico. The SAT shares information with immigration authorities, potentially impacting visa renewals or applications.
Are there any tax law changes coming in 2025?
As of June 2025, several significant tax reforms are being implemented or discussed that will affect Mexican property owners.
The federal government has approved increases to capital gains tax rates for high-value property transactions, with properties selling for over 10 million pesos facing an additional 2% surcharge starting July 2025. This particularly impacts luxury markets in Los Cabos, Puerto Vallarta, and Mexico City's upscale neighborhoods.
Digital tax reporting requirements have been strengthened, with all rental income from platforms like Airbnb now automatically reported to SAT. Property owners must ensure their RFC registration is current and linked to all rental platforms by September 2025 or face automatic maximum withholding rates.
Several states are implementing new environmental taxes on coastal properties to fund beach preservation and infrastructure. Quintana Roo leads with a new 0.5% annual tax on beachfront properties, while Nayarit and Baja California Sur are considering similar measures.
Discussions continue in Congress about reforming the fideicomiso system to allow direct foreign ownership in restricted zones. While not yet approved, this change could eliminate annual trust fees for foreign owners, potentially saving $500-1,500 annually per property.
It's something we develop in our Mexico property pack.
Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.
Understanding Mexico's property tax system is essential for making informed investment decisions and avoiding costly surprises.
While property taxes in Mexico are generally lower than in North America, the combination of acquisition taxes, ongoing fees, and potential capital gains taxes requires careful planning and budgeting to ensure your investment remains profitable.
Sources
- Mexican Tax Administration Service (SAT)
- Federal Mortgage Society (SHF) - Property Guidelines
- Mexico News Daily - Property Tax Overview
- Mexperience - Guide to Mexican Property Taxes
- International Monetary Fund - Mexico Tax Report
- OECD Revenue Statistics - Mexico
- Bank of Mexico - Economic Indicators
- PwC Mexico - Tax Guide 2025
- KPMG Mexico - Tax Updates
- Deloitte Mexico - 2025 Tax Reform
We did some research and made this infographic to help you quickly compare rental yields of the major cities in Mexico versus those in neighboring countries. It provides a clear view of how this country positions itself as a real estate investment destination, which might interest you if you're planning to invest there.