Mexico Primary Residence Capital Gains Exemption: 700,000 UDI Cap

The Mexico primary residence capital gains exemption lets you sell your home free of federal income tax (ISR) when the sale price stays at or below 700,000 Unidades de Inversión (UDIs), which in mid-2026 comes to roughly 6.19 million pesos. The rule sits in Article 93, Fraction XIX of the Ley del Impuesto Sobre la Renta, and it depends on three things: the property was genuinely your home, the sale is formalized before a Notary Public, and you have not claimed the same exemption on another property in the previous three years.¹ Any gain above the UDI cap is taxed under the standard ISR rules, and the Notary calculates and withholds that tax at closing.

The Three Conditions You Have to Meet

Eligibility turns on three tests, and the Notary Public verifies each one before authorizing the exemption in the deed.

Actual residence. The property has to be the place where you actually live. A vacation home, a rental, or an investment property does not qualify.
Three-year cooling period. You cannot have claimed this exemption on any other sale in the three years immediately before the current one. Sell two homes inside that window and only the first one qualifies.
Residential use only. If part of the property is used for business, that portion is stripped from the exemption. And if the lot is more than three times the footprint of the building, the excess land stays taxable. The rule keeps sellers from sheltering a large parcel of vacant land behind a small house.

The Notary is the gatekeeper. Before signing off, they check your residency documents, confirm your tax registration, and query the SAT to make sure your RFC has not been used for an exempt sale within the prior three years.

Documents That Prove the Home Is Yours

Article 155 of the LISR Regulations sets the documentation. You need to give the Notary at least one of the following, and the address on it has to match the property being sold exactly:

Voter ID (INE credential), current as of the sale, showing the property’s address.
Utility bills, typically CFE electricity or landline telephone, issued as CFDIs (digital tax receipts) with a valid fiscal folio.
Bank or credit card statements listing the property as your registered domicile.

The documents can be in your name, your spouse’s name, or the name of a direct family member (parent or child) who lives with you at the same address. That flexibility helps in families where utilities happen to sit under a relative’s name. Pull these together well before closing. The Notary needs time to validate fiscal folios and confirm with the SAT that no prior exemption is on file for your RFC within the three-year window.

You also need a valid CURP and RFC. Without an RFC the Notary cannot process the exemption at all, and the sale gets treated as if you were a non-resident, which triggers a flat withholding of up to 25 percent on the gross sale price.²

What 700,000 UDIs Is Worth Right Now

The cap is written in UDIs rather than pesos so it tracks inflation. A UDI (Unidad de Inversión) is an inflation-indexed unit maintained by the Bank of Mexico and updated daily against the National Consumer Price Index. As of late May 2026, one UDI is worth about 8.844 pesos.³ That puts the 700,000 UDI ceiling at roughly 6.19 million pesos.

The Notary uses the official UDI value published in the Diario Oficial de la Federación on the day of closing, multiplied by 700,000. Because the value moves every day, two closings a week apart will have slightly different caps. The gap is usually small, but on high-value homes sitting right at the threshold, a few days can matter.

Married Couples and Co-Owners

The exemption applies per taxpayer, not per property. If both spouses are on the deed as co-owners and both meet the residency requirements, each spouse gets their own 700,000 UDI cap. On a home that sells for 12 million pesos, each spouse’s half of the gain can fall inside the exemption, where a single owner would blow through the limit. For higher-value homes, how the deed is titled becomes a real planning question.

When the Sale Exceeds the UDI Cap

If your gain climbs past 700,000 UDIs, only the excess (the excedente) is taxable. The first 700,000 UDIs of gain stay exempt, and the Notary runs the standard ISR real estate rules on the surplus. Rates are progressive, roughly 2 percent up to 35 percent depending on the size of the gain.

To reach the taxable portion, the Notary allocates your cost basis proportionally. If the exempt gain accounts for 70 percent of your total gain, only 30 percent of your deductible costs apply against the taxable portion. You cannot deduct the full cost basis against just the excess. The Notary calculates the final tax, withholds it from the sale proceeds at closing, and remits it to the SAT as a provisional payment on your behalf.² You get a CFDI documenting the tax paid and the exemption applied. Because the withholding is provisional, you can revisit the numbers on your annual return; some sellers end up entitled to a refund once their full-year income and deductions are folded in.

Deductions That Shrink the Taxable Gain

When the sale is above the cap, deductions do the heavy lifting. The law lets you subtract the following from the sale price:²

The original purchase price, adjusted for inflation using the INPC from the month of purchase to the month of sale.
Construction, improvements, and extensions, also inflation-adjusted, but only if you have CFDIs documenting the work. Maintenance and repairs do not count.
Notary fees and transfer taxes from both the original purchase and the current sale.
Appraisal costs.
Real estate commissions paid by the seller.

The inflation adjustment is where most of the savings come from on long-held homes. The Notary restates your original purchase price in today’s pesos using official INPC figures. A home bought for 2 million pesos fifteen years ago might carry an inflation-adjusted basis of 4 million or more, which cuts the taxable gain sharply.

What If You Don’t Have Invoices for Past Remodeling

Missing CFDIs for improvements is one of the most common problems. Without an invoice, the Notary cannot fold those costs into the deduction. One workaround is a specialized appraisal called an Avalúo Comercial con Mejoras ISR Enajenación, which documents the improvements and assigns them a value. The SAT recognizes 80 percent of the appraised improvement value when no original invoice exists. It only works for genuine structural work, not for repainting or fixing a faucet. If you are planning renovations with a future sale in mind, keep every invoice, contract, and proof of payment from day one; starting January 1, 2026, Article 29-A of the Código Fiscal de la Federación gives the SAT broader authority to demand evidence that the work behind a CFDI actually happened.

You Still Report the Sale Even When You Owe Nothing

If your entire gain falls inside the 700,000 UDI exemption and you owe zero tax, you still need to report the sale on your annual ISR return when your total income for the year (including exempt amounts) exceeds 500,000 pesos. The sale shows up as informational income. Skipping this step is a costly mistake: failure to disclose an exempt home sale on the annual return can cause the SAT to reclassify the income as taxable and undo the exemption.¹ The CFDI the Notary issues at closing is the document you file with.

Foreign Owners and Fideicomiso Properties

Foreigners with legal residency in Mexico and a valid RFC qualify for the exemption on the same terms as Mexican nationals. Citizenship is not the test; residency and proof that you actually live in the property are. The same voter ID, utility bills, or bank statements matching the property address will satisfy the Notary.

Many foreign owners in the restricted coastal and border zones hold their homes through a fideicomiso, or bank trust. The trust structure does not change the capital gains math or block the exemption. What matters is whether you, as the beneficiary, are a Mexican tax resident with an RFC and can prove the property is your primary home.

Non-residents cannot use this exemption. They face a different regime: either 25 percent of the total sale price with no deductions, or up to 35 percent on the net gain after deductions, provided they appoint a legal representative in Mexico and the sale goes through a Notary.² On long-held homes with a high inflation-adjusted basis, the net gain method almost always produces the lower bill.

1
Procuraduría de la Defensa del Contribuyente. Guia Para la Enajenacion de Casa Habitacion
2
Servicio de Administración Tributaria. Sale of Real Estate Income
3
Banco de México. Valores de UDIS – CP150