Mexico Rental Income Tax Guide 2026

ISR on Rental Income

Rental income (ingresos por arrendamiento) is classified as a separate category under the LISR (Articles 114–116). The income is included in the taxpayer's annual return and taxed at the standard progressive ISR rates (1.92% to 35%). Landlords may choose between two methods: taxing actual rental income or being subject to deemed income rules. Monthly provisional payments are required by the 17th of the following month, with an annual reconciliation due by 30 April.

Actual Rental Income Method

Under the actual method, the landlord pays ISR on the net rental income (total rent received minus deductible expenses). An optional 50% deduction is available: instead of itemizing actual expenses, the landlord may deduct 50% of the gross rental income without providing receipts. This is a simplified deduction designed to cover typical costs such as property taxes, repairs, maintenance, insurance, and management fees. If actual expenses exceed 50%, the landlord may instead itemize deductions (with proper CFDI receipts) including:

• Property tax (predial) payments
• Maintenance and repair costs
• Insurance premiums
• Property management fees
• Mortgage interest on the property
• Utilities if paid by the landlord
• Depreciation of the building (2% annually)

The 50% optional deduction provides significant simplification for small landlords who may not have detailed expense records.

Deemed Income for Empty Properties

For properties that are not rented out (or are rented below market value), the SAT applies a deemed income rule. The landlord is presumed to receive rental income equal to 10% of the property's cadastral value (valor catastral) or market value (whichever is higher) per year. This applies to:

• Unoccupied properties (vacant homes, unused commercial spaces)
• Properties used by the owner without paying rent (second homes, vacation homes)
• Properties rented to related parties at below-market rates

The 10% deemed income is treated as actual rental income and taxed at progressive ISR rates. The 50% optional deduction also applies, resulting in effective tax on 5% of the property value. This rule ensures that property owners cannot avoid tax simply by keeping properties empty. Landlords who actually rent the property report the actual rent received (which will generally be lower than 10% of value for expensive properties).

No Separate Rental ISR Rate

Mexico does not have a special or flat ISR rate for rental income. Unlike some countries that apply a flat withholding rate on rent, all rental income (actual or deemed) is aggregated with the landlord's other income and taxed at the standard progressive rates (1.92% to 35%). This means that high-income landlords may pay up to 35% on their rental income, while low-income landlords may pay much less. The monthly provisional payment is calculated using the annual ISR table applied to the estimated annual income.

IVA (VAT) on Rentals

Residential rental income is exempt from IVA (16% VAT). However, commercial rental income (renting to businesses for commercial, industrial, or professional use) is subject to IVA at the standard 16% rate. Landlords renting commercial properties must charge IVA on the rent and remit it to the SAT monthly. The IVA is collected on the gross rent before the 50% expense deduction. Mixed-use properties (e.g., a building with both residential and commercial tenants) require separate accounting.

Filing Requirements for Landlords

Landlords must file monthly provisional ISR declarations (by the 17th of each month) and an annual reconciliation. Monthly DIOT reporting may be required if the landlord is registered as a business. CFDI invoices must be issued for each rental payment received (using the arrendamiento CFDI type). Landlords using the 50% optional deduction do not need to itemize expenses but should still keep basic records. Properties subject to the deemed income rule must be reported on the annual return even if no actual rent is received.

FAQs

Can I use the 50% deduction if I have actual expenses below 50%?

Yes, the 50% optional deduction is available regardless of actual expenses. You may always take the 50% flat deduction without providing receipts. If actual expenses exceed 50%, itemize using CFDI receipts for maximum benefit.

How is the deemed income calculated for an empty property?

The deemed income is 10% of the higher of the cadastral value (valor catastral) or the market value of the property. For example, a property valued at MXN 2,000,000 would have deemed annual rental income of MXN 200,000, taxed at progressive ISR rates after the 50% deduction.

Do I need to report rental income if I rent to my own company?

Yes, renting to a related party requires reporting actual rent received. The SAT will scrutinize related-party rental transactions for arm's length pricing. If the rent is below market, the deemed income rule may apply.

Disclaimer

This guide provides general information about Mexican rental income taxation for 2026. Tax laws, rates, and filing requirements may change. The information is based on published SAT data and may not reflect individual circumstances. Always consult with a qualified Mexican tax advisor for advice specific to your situation. InvestmentKit does not provide tax advice.