How to compute the gain on a property sale in Mexico

When you sell a house, apartment or lot in Mexico, you don't just receive the price: you pay an Income Tax (ISR) on real estate disposal that is calculated on the gain, not the total price. Understanding the formula lets you anticipate the amount, take legitimate deductions and, in many cases, apply exemptions that drastically reduce the tax.

What the law says

Articles 119 to 128 of the LISR govern the ISR calculation on real estate disposals. The basic rule is:

Gain = Sale price − Updated acquisition cost − Improvements and deductible expenses

The notary public is jointly responsible for withholding the tax and paying it to the tax authority. That's why they typically run all the calculations before signing.

Components of the calculation

Acquisition cost

The amount you paid for the property. It must be backed by the deed. Land value and construction value are separated when there's a building.

Inflation adjustment

The cost is updated using INPC factors (National Consumer Price Index). The construction depreciates 3% annually (capped at 80%). Land is updated but not depreciated.

Documented improvements

You can add to the cost:

• Construction, expansions and significant improvements.
• Professional fees for project and supervision.
• License and permit costs.

Invoices with your RFC and proof of bank-channeled payment are required.

Notary fees and commissions

Fees paid to the notary and appraisals linked to the operation are deductible, as are invoiced brokerage commissions.

Simplified formula

ISR = (Sale price − Updated cost − Improvements − Expenses) × Tax rate

The rate is the one in article 96 of the LISR, applied to the gain divided by the number of years you held the property (capped at 20). The result is then multiplied by that same number of years to obtain the projected annual tax and is compared against the provisional withholding the notary makes.

Provisional vs. annual payment

• The notary computes and remits a provisional payment to the SAT.
• In your annual declaration, you recompute the operation with all your income and deductions. There may be a refund or balance due.

Exemptions under article 93 of the LISR

Casa habitación

Up to 700,000 UDIs (≈ $5.7 million MXN in 2026) are exempt if you prove the property was your primary residence and you didn't use another exemption in the prior 3 years.

Donations among relatives

Donations between spouses or between ascendants and descendants can be exempt if formal requirements are met (notary, formalization).

Example: house sale in Guadalajara

• Sale price: $4,500,000 MXN.
• Acquisition cost (2014): $2,200,000.
• INPC-updated (2026): $3,300,000.
• Depreciated construction: already integrated into the calculation.
• Documented improvements: $250,000.
• Notary fees and commissions: $230,000.

Taxable gain: 4,500,000 − 3,300,000 − 250,000 − 230,000 = $720,000 MXN.

If the house was your casa habitación, that gain probably falls within the 700,000-UDI exemption and you pay no ISR. If it wasn't your casa habitación, the progressive rate applies on the $720,000.

Step-by-step procedure

1. Gather purchase deeds, improvement invoices and proof of payments to the notary.
2. Ask the notary for the ISR calculation draft before signing.
3. Verify that the following have been applied:
   • Correct INPC factors.
   • Construction depreciation.
   • Deduction of notary fees and appraisals.
4. If applicable, present proof-of-address documents to support casa habitación.
5. Keep the withholding certificate signed by the notary.
6. In your annual declaration, integrate the operation using form 86-A.

Mistakes that cost dearly

• Not keeping improvement invoices: you lose the deduction.
• Forgetting that construction depreciates 3% annually.
• Trying to apply the casa habitación exemption without physical and tax evidence.
• Not banking the payment: you lose probative capacity.
• Confusing the provisional payment with the final ISR.

When professional advice pays off

• Operations above $10 million MXN.
• Inherited properties with unclear cost basis.
• Sales among relatives.
• Properties with mixed use (residential and commercial).

Prior tax advice can legitimately reduce ISR by identifying deductions, documenting improvements and choosing the optimal sale moment.

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