The price is not the income
In the sale of a property by an individual, Income Tax is levied on the gain — the difference between the sale price and the adjusted acquisition cost, less verifiable improvements and notarial expenses — not on the total amount of the transaction. The notary acts as withholding agent: calculating and remitting the tax at the time of closing.
That mechanism explains why two transactions at the same price can yield very different net proceeds, and why the tax planning of a sale does not begin when an offer is accepted, but before going to market.
The primary residence exemption
Article 93, section XIX, subsection a) of the Ley del Impuesto Sobre la Renta establishes that no tax will be paid on income derived from the sale of the taxpayer's primary residence, provided the consideration does not exceed 700,000 investment units and the transfer is formalized before a public notary.
The value of the UDI is updated daily and published by Banco de México, so the peso equivalent of the cap varies throughout the year. It is worth verifying on the day of the transaction rather than assuming a fixed figure.
Three simultaneous conditions
That the seller is an individual. The exemption does not apply to legal entities.
That the property was in fact the taxpayer's primary residence. It does not apply to land, commercial premises or properties of other use. It is evidenced before the notary with documentation in the seller's name showing the property's address.
That the exemption has not been applied in the previous three years. The benefit is exercised once every three years per taxpayer, and the notary verifies that record with the authority before signing.
Exceeding the cap does not void the benefit
When the sale price exceeds 700,000 UDIS, the exemption is not lost in its entirety. The proportion the excess represents of the total price is determined, and that same proportion is applied to the gain to obtain the taxable base. The portion of the consideration that does not exceed the cap remains exempt.
This is a relevant distinction in the city's residential segment, where most transactions exceed that threshold and where a mistaken reading of the rule can lead to unnecessarily conservative pricing decisions.
What to have in hand before signing
Four documents that define the tax outcome of a sale
Acquisition deed, to determine the original cost.
Invoices for improvements and additions made to the property.
Proof of address in the seller's name.
Current tax status certificate.
Without the first and the second, the acquisition cost is calculated on a lower base than the real one and the taxable gain comes out higher than it should.
This note is for informational purposes and does not replace the advice of a notary or tax advisor in a specific transaction.
Sources
Ley del Impuesto Sobre la Renta, article 93, section XIX, subsection a), and Chapter IV of Title IV.
Servicio de Administración Tributaria (SAT), provisions on the sale of real property.
Banco de México, daily value of the Unidad de Inversión (UDI).
Reglamento de la Ley del Impuesto Sobre la Renta.
Archivo Rocca
Real Estate Practice
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