Capital Gains Tax in Mexico

There is a Mexican tax on capital gain upon sale of property, although it is not determined or collected as it is in the U.S.A.   This tax, called Impuesto Sobre la Renta (ISR), is actually an income tax calculated and collected from the seller or from selle's proceeds by the notario at the time of closing.
 
Here, the gain from the sale of the property is considered ordinary income, and the tax is calculated and collected at closing as part of your escrow disbursement.  An estimate of capital gains exposure is provided by your Century 21 professional at the time a listing agreement is accepted, but the actual determination can only be made by the notary who handles the sale. One of two calculation methods may be applied for residential property:
 
1.   28% of the net profit after deductions for:   a) the original property value stated in the title documen, plus small percentages of that amount annually (indexing)t; b) improvements that have been officially recorded (manifested); c) most closing costs paid upon acquisition, and d) realtor commissions paid upon sale.  Deductions must be accompanied by legal receipts (facturas), the manifestation of construction and/or improvements, and any other required supporting documentation.
 
2.   25% of the sale price with no deductions.
 
Mexican citizens or foreigners who are permanent residents and who are selling their primary residence may be entitled to one of two forms of exemption from the capital gains tax (ISR):  one is a partial exemption up to $5M pesos, which may be claimed more than one time, and the other a one-time lifetime exemption without current limit.   The details of eligibiliity vary from time to time.   At the time a listing is taken we frequently ask an opinion of a notary on the client's behalf, if it appears ISR exemption will be an issue.  If you are considering selling your property, it would be prudent for you to seek such a consultation, determine your probable eligibility for exemption, and learn what proofs you will have to assemble to get exemption.

For Americans, the tax treaty provides for a credit for the American taxpayer against capital gains tax that would otherwise be due when the sale is reported on the next tax return in the USA.   Note that the Mexican tax is calculated and collected right at closing, rather than being reported later on a tax return as is currently the case in the U.S.
 
Though the above is the basic structure, the notarios have a complex formula for getting all this exact, and a little space for personal judgment on certain issues.
All buyers should insist their purchases be reported in their trust at full sales price, regardless of the fact they may have to pay a higher 2% acquisition fee. Do not be taken in by the argument that documenting a lesser price "saves on taxes". The seller or developer would save their own Capital Gains tax, and then pass on the exposure for that tax to their buyer.