Do I pay taxes in the US if I sell my house in Mexico
Karla & Erick | Cabo Realty | Century 21 Paradise Properties
Do you pay U.S. taxes when you sell a house in Mexico? Yes. U.S. citizens must report the sale on their U.S. return, because the IRS taxes worldwide income. But you usually don’t pay twice: Mexico taxes the sale first (the notary withholds it at closing), and you can claim that Mexican tax as a foreign tax credit against the U.S. tax on the same gain. As a non-resident, Mexico charges either 25% of the gross sale price or 35% of the net gain. If the Cabo home was your main home for 2 of the last 5 years, the U.S. lets you exclude up to $250,000 ($500,000 married) of gain. This guide is for owners from California, Texas and Arizona.
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| 25% / 35% Mexican tax for non-residents: gross price or net gain |
Yes U.S. citizens must report the sale |
| Credit Mexican tax offsets U.S. tax on the same gain |
$250K / $500K U.S. exclusion if it was your main home |
The notary calculates the capital gains tax (ISR) and withholds it at closing. How much depends on your tax status in Mexico:
| Seller | How Mexico Taxes the Sale |
|---|---|
| Non-resident (most U.S. owners) | Either 25% of the gross sale price with no deductions, or 35% of the net gain after documented deductions, if you meet the legal requirements (including a legal representative in Mexico). The notary runs both numbers |
| Mexican tax resident | Progressive rates up to 35% on the net gain. If it’s your home, an exemption of up to 700,000 UDIs (roughly 5–6 million pesos) may apply, once every 3 years, with an RFC and proof of residence |
Deductions need official invoices (facturas): the purchase price (adjusted for inflation), improvements, the real estate commission, notary fees and the acquisition tax you paid. No factura, no deduction. Mexico calculates the gain in pesos; see How the Peso–Dollar Exchange Rate Affects Buying Property in Los Cabos.
| Tool | What It Does |
|---|---|
| Foreign tax credit (Form 1116) | The Mexican ISR on the sale reduces your U.S. tax on the same gain, dollar for dollar. Unused credit carries forward up to 10 years |
| Home sale exclusion (Section 121) | Up to $250,000 ($500,000 married filing jointly) of gain is excluded if you owned and lived in the home as your main home for 2 of the last 5 years. Vacation homes usually don’t qualify |
Predial, transfer taxes and notary fees are not creditable as foreign tax, but some may be part of your cost or selling expenses.
These are simplified illustrations, not real clients, using round numbers and ignoring exchange-rate and inflation adjustments.
| Bought / sold | $800,000 / $1,200,000 |
| Documented costs (commission, notary, improvements) | $60,000 |
| Net gain | $340,000 |
| Mexico: 25% of gross vs. 35% of net | $300,000 vs. $119,000 → the net method saves about $181,000 if you qualify and have facturas |
| U.S. tax on $340,000 at 20% + 3.8% | About $81,000, typically wiped out by the $119,000 Mexican foreign tax credit |
You lived in the Cabo home as your main home for the last 3 years and are a Mexican tax resident. In Mexico, the home exemption of up to 700,000 UDIs may cover much or all of the gain. In the U.S., you may exclude up to $250,000 ($500,000 married) under Section 121, and any remaining Mexican tax can be credited.
Related: Closing Costs in Los Cabos, Property Taxes and Fees in Los Cabos and Does Mexico Tax U.S. Retirement Income?
Yes. U.S. citizens report it on Form 8949 and Schedule D, even if Mexico withheld tax.
Usually not twice. The Mexican tax is withheld at closing, and you can claim it as a foreign tax credit against the U.S. tax on the same gain.
For non-residents, either 25% of the gross sale price or 35% of the net gain, if you meet the requirements and have invoices for your deductions.
Yes, if it was your main home for 2 of the last 5 years. A vacation home generally doesn’t qualify.
The notary calculates and withholds it at closing and reports it to the SAT.
We help U.S. owners prepare the documents, coordinate with the notary and sell at the right price.
Sources: Taxes for Expats, “US citizen selling property in Mexico: Taxes & IRS rules” (2026); Baja Properties, “Capital Gain Tax Mexico” (Sep 2025); IRS, Publication 523 (Selling Your Home) and Form 1116 instructions; Mexican Income Tax Law (LISR), Articles 93 and 160. Information verified October 2026.
Disclaimer: This is general information, not tax advice. Examples are simplified illustrations. Talk to a U.S.–Mexico tax professional before you sell. Karla & Erick are MLS members with Century 21 Paradise Properties.
Karla & Erick | Cabo Realty | Century 21 Paradise Properties
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