What Taxes Do I Have to Pay When Selling a Property?
If you are considering selling your property in Puerto Escondido, it is not only about the sale itself. You must also consider the taxes you may need to pay when selling a property. Here, we explain what they are.
Taxes to Pay When Selling a Property
When carrying out the purchase and sale of a property, several tax obligations arise for both the buyer and the seller.
For this reason, we will discuss one of the main obligations to pay: Income Tax (ISR) on the sale of the property.
What Is ISR?
ISR, or Income Tax, is a federal tax paid on the profits obtained by a person. It is a charge applied to income that represents an increase in the assets of individuals or legal entities.
Therefore, ISR is paid on the transfer of real estate. This refers to any type of property transfer that generates income.
How Much Tax Must Be Paid?
In the case of selling real estate, the profit is understood as: Sale Price - Purchase Price + Deductible Expenses
The ISR rate on the sale of real estate is variable, although the maximum rate can reach 35% for individuals, depending on the amount obtained in the transaction and several other factors:
- The profit from the transaction
- The taxpayer’s tax status
- The characteristics of the property
It is important to mention that the recommended approach is to consult a notary public to calculate the ISR when selling a property, since the notary will be responsible for making the calculation and withholding the payment at the time of deed formalization.
However, ISR can be estimated by calculating gross profit.
Gross Profit
It is the difference between what is earned from the sale and what was invested in the property.
- Sale price - (Purchase price + Deductible expenses + Verifiable improvements + Notarial acquisition expenses)
| Sale price | This is the cost stated in the purchase-sale deed. It may be the cadastral value, the agreed value, or the tax appraisal value, depending on which one is chosen or which one is higher. |
| Purchase price | What was originally paid for the property, updated according to inflation as established by the SAT or INEGI. |
| Verifiable improvements | These are works carried out on the property that increase its value, such as remodeling, expansions, or the construction of additional floors. All modifications must have invoices issued in your name in order to be valid. |
| Deductible expenses | Property appraisal, notarial expenses and deed expenses from the original purchase, and real estate agency or agent commissions. |
Deductible Expenses to Reduce ISR
The Income Tax Law includes certain elements that may be considered deductible:
- Property appraisals.
- Invoices for remodeling and improvements.
- Notarial expenses from the original purchase of the property and deed expenses.
Once the notary provides the gross profit calculation, or once we prepare our own estimate, the expenses related to the property sale process are then subtracted.
How to Qualify for an ISR Exemption When Selling a Property
In certain cases, ISR payment may be avoided:
- It applies only to a primary residence.
- The exempt amount applies up to a property value of 700,000 UDIs (Investment Units), equivalent to approximately $5 million pesos, although this varies depending on the UDI value at the time.
- You must prove that you have lived in the property through water, telephone, electricity bills, and your INE.
- It can only be applied if you have not sold another property within the last three years.
Finally, other expenses and considerations to keep in mind include:
- Settle property tax before the sale.
- VAT does not apply to the sale of a used residential home, but it does apply to commercial-use properties or land that is not considered residential.
- If agreed in the contract, the seller must pay registration and notarial fees.
At Viva México® Real Estate, if you are looking to sell your property, we provide you with a real estate agent who will help sell your property under the terms you need and without complications.
Learn which taxes you must pay when selling your property and which exemptions you can take advantage of, so you can complete your transaction with safety and confidence. At Viva México®, we provide the information you need so your sale is clear, legal, and free of surprises.
