Tax exemptions when selling a house in Mexico

Selling a house in Mexico almost always involves paying ISR on transfer of assets, but Mexican law recognizes a very powerful exemption for the primary residence: up to 700,000 UDIS of the sale price can be free of ISR if the requirements are met. Used well, this exemption saves hundreds of thousands of pesos. Mishandled, it keeps causing problems with SAT for years. This article explains how it works and when to use other legal routes.

The primary residence exemption

Article 93, section XIX, paragraph a) of the Income Tax Law exempts the gain from the sale of the taxpayer's primary residence, provided the price does not exceed 700,000 UDIS. If it does, the gain attributable to the excess pays ISR proportionally.

At 2026 UDI values, 700,000 UDIS is roughly 6.4 million pesos (the exact figure is published by Banxico). This is the largest tax exemption available to individuals in Mexico.

SAT requirements (non-negotiable)

For the notary to apply the exemption when signing the deed, the seller must show:

1. Being a natural person (does not apply to legal entities).
2. That the property was their primary residence.
3. Proof of residence with at least one of these documents in their name and at the property's address:
   • INE ID.
   • Electricity, water, telephone or gas bills going back at least six months.
   • Bank statements showing the address.
4. Not having applied the primary residence exemption in the last three years (under reforms in force since 2014).

The notary is jointly liable for withholding and remitting ISR, so they request the documentation strictly. If a single piece is missing, they withhold as if no exemption applied.

What if the property exceeds 700,000 UDIS?

The excess pays ISR on the proportional gain:

Taxable gain = Total gain × (Price − 700,000 UDIS) ÷ Price

In other words, if you sell a house for 9 million pesos that was worth 4 million when you bought it, the gain is 5 million, but only a portion is taxed because part of the price (700,000 UDIS) is exempt.

Adjusted acquisition cost

Even when full exemption does not apply, there is another key tool: the acquisition cost is adjusted for inflation. SAT lets you multiply the original price by the INPC factor between the month of purchase and the month of sale. On properties acquired 15–25 years ago, this dramatically reduces the taxable gain.

To this you can add:

• Improvements and construction documented with invoices.
• Taxes paid on acquisition (state ISAI, RPP fees, notary fees).
• Real estate commissions paid on sale, with CFDI.
• Tax appraisal and other procedure costs.

Keeping invoices throughout the holding period is one of the most profitable decisions an owner can make.

Other legal routes to reduce ISR

Donation between direct relatives

Donations of property between spouses, ascendants and direct descendants are exempt from ISR (Article 93 LISR). Useful when planning to pass on an estate before selling, but the donee assumes the original acquisition cost for future sales.

Inheritances

Inheriting does not generate ISR. The heir receives the property with an acquisition cost equal to the value of the estate appraisal. If they sell shortly thereafter, the gain will be minimal. This is why many tax advisors recommend not selling property that is about to be inherited.

Contribution to a company

Contributing the property to one's own company (SA, SAPI or SC) generates a transfer, but it allows medium-term planning if the plot is to be developed. It is not avoidance, it is planning, and it requires professional advice.

Forbidden mechanisms (do not fall for them)

• Deeding at a lower price to reduce the gain. It is simulation and SAT now cross-checks with INDAABIN and bank commercial appraisals.
• "Donating" to a non-relative third party. It is a taxable donation to the donee.
• Doing a "swap" that is really a hidden sale. Audit guaranteed.

Real case

A married couple in Guadalajara bought their house in 2008 for $1,800,000. They sell it in 2026 for $5,200,000. They lived there from 2008.

• INPC-adjusted cost: ~$3,200,000.
• Gross gain: $2,000,000.
• Since the price (5.2 M) is below 700,000 UDIS (~6.4 M), the exemption covers everything.
• ISR to pay: $0.
• Saving compared to a legal entity in the same operation: on the order of $600,000.

Practical steps before selling

1. Check whether you applied the exemption in the last three years.
2. Gather proof of address at the property for at least six months.
3. Gather invoices for improvements and original notary expenses.
4. Ask the notary for a prior ISR calculation with and without exemption.
5. If the operation exceeds the cap, consider splitting between spouses if both live in the property; each applies their own exemption.
6. Keep a correct withholding certificate; safeguard it for ten years.

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