Do I Have to Pay Capital Gains Tax When Selling My Property in Puerto Vallarta?

If you’re considering selling your property in Puerto Vallarta, you’re likely wondering about capital gains tax (known as “Impuesto Sobre la Renta” or ISR in Mexico). Here’s what you need to know to understand if you’ll need to pay it and how much it might cost.

1. Exemptions for Primary Residences

One of the most common ways to avoid or reduce capital gains tax in Mexico is by qualifying for an exemption on your primary residence. Here are the key criteria:

The property must be your primary residence.
You must have owned the property for at least three years.
The sale price must not exceed 700,000 UDIs (approximately $5 million MXN, depending on exchange rates).
You cannot have claimed this exemption in the past three years.
You must provide proof that it’s your primary residence, such as:
- Utility bills with your name and the property address.
- Matching address on your official government ID.

If you meet these conditions, you could qualify for a partial or full exemption from ISR.

2. How Capital Gains Tax (ISR) Is Calculated

If your property does not qualify for the primary residence exemption, you will be required to pay capital gains tax. ISR is calculated using the greater of two methods:

Flat rate: 25% of the gross sale price.
Net profit: 35% of the net profit, which is determined by subtracting allowable deductions from the sale price.

Allowable deductions include:

The original purchase price (adjusted for inflation).
Receipts for home improvements (official facturas required).
Costs associated with the sale, such as real estate commissions and notary fees.

A notario público (public notary) will determine the final ISR amount based on these calculations.

3. Foreigners and Capital Gains Tax

Foreigners selling property in Mexico are subject to the same capital gains tax rules as Mexican citizens. However, if you own property through a Fideicomiso (a trust required for foreigners purchasing property near coastal areas), the notary will ensure your tax obligations are met.

The notary will withhold the appropriate amount of ISR at the time of sale and remit it to the Mexican tax authorities. It’s essential to work with an experienced notary to ensure all calculations and deductions are handled correctly.

4. How to Reduce ISR Liability

If you don’t qualify for a full exemption, there are strategies to reduce the amount of ISR you’ll pay:

Provide receipts for home improvements: Official invoices (facturas) for renovations or upgrades can be deducted.
Adjust for inflation: The original purchase price is adjusted for inflation to lower your taxable profit.
Claim all valid deductions: Work with a knowledgeable notary and real estate professional to identify all deductible expenses, such as closing costs and agent commissions.

5. Why Work With a Professional?

Navigating ISR regulations and exemptions can be complex. A real estate expert or notary public can:

Analyze your specific situation.
Help you gather the necessary documentation.
Ensure that you’re paying the correct amount of ISR (and not more than necessary).

Selling property in Puerto Vallarta can be a lucrative opportunity, but understanding your tax obligations is essential to avoid surprises. Whether you qualify for exemptions or need help minimizing your ISR liability, it’s always a good idea to consult with a professional.

If you’re ready to sell or simply want clarity on your tax situation, reach out to a trusted local expert like Daniel Durán of Century 21 Bayside Properties. With the right guidance, you can navigate the process with confidence.

Need help or have questions? Contact us today to schedule a consultation and get the answers you need!