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Understanding Mexico's property tax system is crucial for anyone looking to buy real estate in the country.
As of September 2025, Mexico operates a three-tiered taxation system involving federal, state, and municipal levels, each imposing different taxes on property owners. The total tax burden typically ranges from 2% to 8% of property value during acquisition, with ongoing annual costs usually under $500 USD for most properties.
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.
Mexico's property tax system includes acquisition taxes (2-5%), annual municipal predial tax (0.1-0.3% of cadastral value), and various income taxes for rental properties and capital gains upon sale.
Foreign owners face the same tax rates as residents but may require fideicomiso bank trusts for coastal properties and could be subject to automatic withholdings on rental income and sales.
| Tax Type | Rate/Amount | When Applied |
|---|---|---|
| Acquisition Tax (ISAI) | 2-5% of property value | At purchase closing |
| Municipal Predial Tax | 0.1-0.3% of cadastral value | Annually (January-March) |
| Rental Income Tax | 4% withholding + 16% VAT | Monthly on rental income |
| Capital Gains Tax | 25% of gross price or 1.92-35% of net gain | Upon property sale |
| Fideicomiso Fee | $500-$1,500 USD annually | Foreign owners in restricted zones |
What types of property are subject to taxation in Mexico?
Mexico's tax system applies to all real estate categories that foreign investors typically consider.
Residential properties include primary homes, vacation houses, and condominiums in both urban and resort areas. Commercial properties encompass office buildings, retail spaces, and mixed-use developments.
Land purchases, whether urban plots ready for development or rural agricultural land, fall under the same tax framework. Investment properties used for long-term rentals face standard residential tax rates.
Short-term rental properties through platforms like Airbnb or VRBO trigger additional tax obligations including lodging taxes and higher scrutiny from tax authorities.
The tax treatment varies primarily based on use rather than property type, with short-term rentals facing the most complex requirements.
Which government levels impose property taxes in Mexico?
Mexico operates a three-tier taxation system where federal, state, and municipal governments each impose different taxes on property owners.
Federal taxes include income tax on rental earnings and capital gains tax when selling properties. The federal government also collects 16% VAT on new construction purchases and rental income from short-term accommodations.
State governments collect acquisition taxes (ISAI or ISABI) ranging from 2% to 5% of property value during the purchase process. Some states also impose lodging taxes on vacation rentals, typically 2% to 5% of rental income.
Municipal governments levy the annual predial tax, which functions as the primary ongoing property tax. Municipalities also collect various fees for services like water, sewage, and garbage collection.
Each level operates independently, meaning property owners must comply with requirements from all three governmental tiers simultaneously.
What acquisition taxes apply when buying property in Mexico?
The primary acquisition tax is called Impuesto Sobre Adquisición de Inmuebles (ISAI or ISABI), paid by buyers during the closing process.
Tax rates typically range from 2% to 5% of the higher amount between the assessed value and actual sale price. As of 2025, popular destinations like Los Cabos, Playa del Carmen, and Tulum increased their rates to 3%.
| Location | 2025 ISAI Rate | Additional Costs |
|---|---|---|
| Los Cabos | 3.0% | Notary fees 0.5-1.5% |
| Playa del Carmen | 3.0% | Registry fees 0.3-0.8% |
| Tulum | 3.0% | 16% VAT on new construction |
| Mexico City | 2.5% | Legal fees 0.2-0.5% |
| Puerto Vallarta | 3.0% | Trust setup fees if applicable |
Additional closing costs include notary fees (0.5% to 1.5%) and property registry fees (0.3% to 0.8%). New construction purchases also incur 16% VAT on the property value.
The acquisition tax becomes deductible when calculating capital gains upon future sale, effectively reducing the long-term tax burden for investors.
How does the municipal predial tax work?
The predial tax serves as Mexico's primary annual property tax, collected by municipal governments between January and March each year.
The tax base relies on cadastral value, which represents the municipality's assessed property value, typically set significantly below market value. Cadastral valuations usually range from 20% to 60% of actual market worth.
Tax rates generally fall between 0.1% and 0.3% of cadastral value, though some municipalities calculate using different methods such as pesos per thousand of assessed value. Most property owners pay between $150 and $500 USD annually, even for high-value properties.
Early payment discounts of 10% to 25% apply when paying during January and February. Senior citizens and other vulnerable groups may qualify for additional reductions up to 50%.
Payment methods include visiting municipal offices in person or using online portals where available, with some cities offering mobile payment options.
What taxes apply to rental income from Mexican properties?
Rental income in Mexico triggers multiple tax obligations that vary based on rental duration and platform used.
- Income tax (ISR) at 4% monthly withholding rate, automatically deducted by major platforms like Airbnb
- Value-added tax (VAT/IVA) at 16% on gross rental income, collected regardless of owner residency status
- State lodging taxes ranging from 2% to 5%, applicable specifically to short-term vacation rentals
- Platform fees and additional local taxes may apply depending on municipality
- Annual income tax filing requirements for earnings above specific thresholds, with rates potentially reaching 35%
These taxes apply immediately when rental income begins, with platforms typically handling withholding and remittance automatically. Property owners must maintain detailed records of all rental transactions and related expenses.
Long-term rentals (over 29 days) may qualify for different tax treatment, potentially avoiding lodging taxes while still subject to income tax and VAT obligations.
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What taxes apply when selling property in Mexico?
Capital gains tax (ISR) represents the primary tax obligation when selling Mexican real estate, calculated using two possible methods.
Sellers can choose between paying 25% of the gross sale price or using a sliding scale of 1.92% to 35% applied to net capital gain. The net gain calculation subtracts acquisition costs, improvements, commissions, notary fees, and inflation adjustments from the sale price.
Mexican residents holding valid RFC tax registration can claim an exemption on primary residence sales up to 700,000 UDIs (approximately $4.8 to $5.9 million pesos in 2025). This exemption applies once every three years and requires the property to serve as the seller's primary residence.
Deductible expenses include original purchase price, documented improvements with invoices, real estate agent commissions, notary and legal fees, and inflation indexation based on INPC (National Consumer Price Index).
Foreign sellers may face automatic withholding by notaries or banks, requiring careful planning to optimize tax obligations and ensure compliance with both Mexican and home country tax requirements.
What special rules apply to foreign property owners?
Foreign property owners face identical tax rates as Mexican residents but encounter additional requirements and restrictions.
Properties located within 50 kilometers of coastlines or 100 kilometers of international borders require fideicomiso bank trusts, costing $500 to $1,500 USD annually. These trusts provide legal ownership rights while complying with Mexican constitutional restrictions on foreign land ownership.
Automatic tax withholding often applies to foreign owners' rental income and property sales, with platforms and notaries collecting taxes before distributing proceeds. This withholding serves as prepayment toward final tax obligations.
US-Mexico tax treaties provide relief mechanisms allowing Mexican taxes paid to credit against US tax obligations, though professional tax advice becomes essential for proper compliance. Required documentation includes RFC tax registration, fideicomiso contracts, and detailed expense records.
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What serves as the tax base for each type of property tax?
Each tax type in Mexico uses specific valuation methods and requires different supporting documentation.
| Tax Type | Tax Base | Required Documents |
|---|---|---|
| Acquisition Tax (ISAI) | Higher of assessed value or sale price | Notary deed, purchase contract, appraisal |
| Annual Predial Tax | Municipal cadastral value | Cadastral statement, property registration |
| Rental Income Tax | Gross rental receipts | Rental agreements, platform statements |
| VAT on Rentals | Total rental price charged | Invoices, booking confirmations |
| Capital Gains Tax | Net gain or gross sale price | Purchase invoices, improvement receipts, sale contract |
| Lodging Tax | Nightly rental rate | Platform statements, occupancy records |
Accurate documentation becomes crucial for tax compliance and potential audits. Property owners should maintain comprehensive records including all purchase documents, improvement invoices, rental agreements, and expense receipts.
Professional appraisals may be required for high-value transactions or when significant discrepancies exist between assessed and market values.
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What exemptions and incentives are available in 2025?
Several exemptions and incentives can significantly reduce property tax obligations for qualified owners.
- Early payment discounts on predial tax up to 25% when paying during January and February
- Primary residence capital gains exemption up to 700,000 UDIs for Mexican residents with RFC
- Senior citizen predial tax reductions up to 50% in many municipalities
- Disability and low-income predial tax discounts varying by local regulations
- Acquisition tax deductibility when calculating future capital gains
The primary residence exemption requires Mexican tax residency, valid RFC registration, and limits usage to once every three years. Property must serve as the owner's principal residence, not an investment or vacation home.
Municipal exemptions vary significantly between locations, with some offering additional reductions for veterans, widows, or other specific groups. Property owners should verify local incentive programs with municipal tax offices.
Investment property improvements documented with proper invoices become deductible against future capital gains, encouraging property maintenance and upgrades.
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What are the filing and payment deadlines for 2025?
Property tax deadlines in Mexico follow specific schedules that property owners must monitor independently.
| Tax Type | Payment Deadline | Payment Method |
|---|---|---|
| Predial Tax | January-March (discounts Jan-Feb) | Municipal office or online portal |
| Acquisition Tax | At closing | Notary handles payment |
| Rental Income Tax | Monthly/Quarterly | Platform withholding or SAT portal |
| VAT on Rentals | Monthly | Digital platform or SAT filing |
| Capital Gains Tax | At sale closing | Notary or bank withholding |
Mexican tax authorities do not provide automatic reminders, making owner responsibility crucial for avoiding penalties. Many municipalities offer online payment systems, though in-person payment remains common in smaller locations.
Rental tax obligations require monthly or quarterly attention depending on income levels and platform arrangements. Professional tax advisors often help foreign owners navigate complex filing requirements.
What penalties apply for late or incorrect payments?
Mexico imposes significant penalties and interest charges for late or incorrect tax payments, varying by tax type and jurisdiction.
Municipal predial tax penalties typically range from 1% to 3% monthly surcharge on unpaid amounts, with some municipalities initiating legal proceedings after extended delinquency. These actions can affect property sale or transfer ability.
Federal and state tax penalties follow more complex formulas, with interest accruing from the original due date according to rates published by tax authorities. Penalties can compound monthly, making prompt payment financially important.
Incorrect filings may trigger audits, additional assessments, and penalty charges beyond basic interest. Professional tax preparation becomes valuable for complex situations involving multiple properties or significant rental income.
Legal proceedings for tax delinquency can result in property liens, affecting ownership transfer rights and potentially forcing sales to satisfy tax obligations.
What local variations and 2025 updates should property owners know?
Property tax regulations vary significantly between Mexican states and municipalities, requiring location-specific research.
Major 2025 updates include acquisition tax rate increases to 3% in Los Cabos, Tulum, and Playa del Carmen. Several municipalities also updated predial tax calculation methods and discount structures.
Official sources for current information include municipal government websites, state Secretaría de Hacienda offices, SAT (federal tax authority), and local notary association bulletins. Bank of Mexico publishes UDI values used for exemption calculations.
Lodging tax rates vary dramatically by state, from 2% in some locations to 5% in popular tourist destinations. Some states negotiate direct collection agreements with major rental platforms.
Property owners should verify current rates and requirements with local authorities before making investment decisions, as regulations can change with little advance notice.
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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.
Mexico's property tax system remains relatively favorable for foreign investors compared to many developed countries, with low annual carrying costs and reasonable acquisition taxes.
Success requires understanding the three-tiered taxation structure and maintaining compliance with federal, state, and municipal requirements throughout the ownership period.
Sources
- Maya Ocean - Types of Real Estate Investments in Mexico
- IAD Overseas - Mexico Property Investment 2025
- Snell & Wilmer - Property Acquisition Tax Rate Increase
- MexLaw - Real Estate Acquisition Tax Update
- MexLife - Property Taxes and Tax Rates
- Plalla - How to Calculate Property Tax in Mexico
- MexTax - Tax Requirements for Digital Platforms
- Tulum Times - Capital Gains Tax for Foreign Sellers