From rental income ISR to capital gains on sale, foreign property owners in Mexico face specific tax obligations most buyers don't know about until it's too late.
2026-07-05
When foreign buyers research property in Mexico, they focus on prices, neighborhoods, and legal structure. Taxes are usually an afterthought—until they receive a SAT notice, try to sell a property, or ask their accountant what they owe on rental income. Mexico’s tax system for foreign property owners is not simple, and the consequences of non-compliance are serious: penalties, fines, and complications when you try to sell.
This guide covers the major taxes foreign buyers encounter: the acquisition tax paid at closing, annual property tax (predial), income tax on rental earnings (ISR), IVA on short-term rentals, and capital gains on eventual sale. It also explains the restricted zone rules that affect how foreigners can hold property—and why the holding structure affects your tax profile.
When you buy property in Mexico, you pay an Impuesto Sobre Adquisición de Inmuebles (ISAI) at closing. This is a one-time transfer tax, not an annual obligation.
For a $400,000 USD property in Quintana Roo, budget $12,000 USD in transfer tax at closing. This is separate from notarial fees (typically 0.5–1.5% of value) and attorney fees.
Predial is Mexico’s annual property tax, similar to property tax in the US or Canada. It is assessed on the valor catastral (the government’s assessed value), which in most Mexican municipalities is significantly below market value.
Predial is paid annually, typically in January with a discount (often 10–15%) for early payment. Unpaid predial accrues interest and can become a lien on the property. Always verify predial is current before closing on any purchase.
If you earn rental income from Mexican property, you owe Mexican income tax (Impuesto Sobre la Renta, ISR) regardless of your nationality or where you live. This applies to both short-term Airbnb/VRBO rentals and long-term leases.
You pay ISR as a resident taxpayer. Rental income is added to your total income and taxed at Mexico’s progressive rates (1.92% to 35%). You can deduct allowable expenses (maintenance, property management, depreciation, predial, HOA fees) against the gross income.
If you are a non-resident (residente en el extranjero), your Mexican rental income is subject to withholding tax:
Key compliance step: Non-resident landlords should register with SAT (Mexico’s tax authority) and file annual returns even if income has been withheld at source. Failure to file creates penalties and complicates property sale.
Mexico’s Value Added Tax (IVA) at 16% applies to short-term rentals (less than 30 days), treating them as a hospitality service rather than a lease. This has been enforced through platform withholding since 2020.
If you rent via Airbnb or VRBO:
For most casual landlords using Airbnb, the platform handles IVA compliance. If you manage your own rental directly, you need a Mexican accountant.
Mexico’s electronic invoicing system (CFDI) requires that all business transactions—including rental income—be supported by a digital tax receipt issued through SAT’s system. If you have SAT registration and issue receipts to tenants, you’re compliant. If you’re collecting cash from renters without CFDI, you’re exposed to penalties.
For short-term rental operators not using platforms, hiring a Mexican contador (accountant) to handle CFDI issuance is not optional—it is legally required and typically costs $150–$400 USD/month for ongoing accounting services.
When you sell Mexican property, the gain is subject to ISR. The calculation differs for residents and non-residents.
Non-residents pay a withholding of either:
The seller chooses whichever is lower. In practice, most non-residents elect the 35% of net gain option, since it accounts for your original cost and produces a lower tax when appreciation is moderate.
Example:
The 35% on net gain wins clearly in most scenarios.
Residents have a significant advantage: a $700,000 MXN exemption (approximately $35,000 USD) on the capital gain from the sale of their primary residence, applicable once every 3 years. This requires proof of residency (FM2 or Permanente status) and that the property was your actual primary home.
Mexico allows you to adjust your original purchase price for inflation using official INPC indices, which reduces your taxable gain. Over 5–10 years of high Mexican inflation, this adjustment can be meaningful. Your notario and accountant will calculate this at the time of sale.
If you hold property in Mexico’s restricted zone (within 50 km of coasts or 100 km of borders) through a fideicomiso (bank trust), the trust itself is transparent for tax purposes—you are treated as the direct owner. Your rental income and capital gains are taxed the same way they would be if you held the property directly.
If you hold property through a Mexican corporation (Sociedad Anónima or SAS), the company pays ISR on its net income at a flat 30% corporate rate. Dividends paid to a foreign shareholder are subject to an additional 10% withholding. This structure can be beneficial for investors with large rental portfolios but adds complexity and compliance costs.
American citizens and green card holders must report their worldwide income to the IRS, including Mexican rental income. Mexico and the US do not have a full tax treaty for real estate income, but you can typically claim a foreign tax credit for Mexican ISR paid against your US tax liability.
Additionally:
Work with a US tax professional who has international experience, not just your local CPA.
| Obligation | Frequency | Typical Cost |
|---|---|---|
| Predial (property tax) | Annual | $75–$750 USD |
| ISR on rental income | Monthly/Annual | 25–35% of income |
| IVA on short-term rentals | Monthly (if not via platform) | 16% of gross rent |
| SAT annual return (if registered) | Annual | Accountant: $500–$2,000 USD/year |
| CFDI invoicing | Per transaction | Included in accounting fees |
The takeaway: foreign landlords in Mexico who earn rental income have real tax obligations that require a Mexican accountant and ideally a US/Canadian tax advisor. The taxes are not confiscatory—Mexico’s rates on rental income are manageable—but ignoring them creates compounding problems that complicate your eventual sale.
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