Quick Answer
ISR (Impuesto Sobre la Renta) is Mexico's income tax. For property owners, ISR applies to rental income and capital gains from property sales. Rental ISR can be paid as a flat rate (approximately 4% of gross income if you lack an RFC) or on net income after deductions (rates from 1.92% to 35% depending on bracket). Most foreign owners benefit from registering with an RFC to claim deductions.
Detailed Answer
The ISR (Impuesto Sobre la Renta) is Mexico's federal income tax and the primary tax that affects foreign property owners in two scenarios: earning rental income and selling property. For rental income, the ISR can be handled in two ways. Without an RFC, platforms like Airbnb withhold a flat rate of approximately 4% of gross receipts. With an RFC and proper filings, you are taxed on net income after deductions using a progressive rate schedule ranging from 1.92% to 35% — which almost always results in lower total tax.
For property sales, ISR is the capital gains tax applied to the net profit from the transaction. The notario publico calculates and withholds the ISR at closing, ensuring it is paid before the deed is recorded. Deductions such as inflation adjustments, documented improvements, and transaction costs can dramatically reduce the taxable gain. Our team walks sellers through this calculation well before listing to avoid surprises.
Understanding the ISR is fundamental to smart property ownership in Mexico, and it is far more manageable than most buyers initially expect. With the right accountant and proper record-keeping, your effective ISR rate on rental income can be well under 10%. Browse more tax topics in our FAQ hub or contact our team for a personalized overview of tax obligations.