New Mexico capital gains tax on real estate rose for most investors in 2025: the old deduction of 40% of net capital gains was replaced with a cap of $2,500, with the 40% version kept only for gains from selling a New Mexico business. A rental property gain is now taxed almost in full at rates up to 5.9%, which makes a 1031 exchange in New Mexico worth noticeably more on the state side than it was a year or two ago.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Graduated rates from 1.5% to 5.9%; the 5.9% top rate applies above $315,000 (joint) or $210,000 (single) of taxable income. |
|---|---|
| Long-term capital gains treatment | Deduction limited to $2,500 of net capital gain (from 2025). The 40% deduction, on up to $1 million of gain, now applies only to the sale of a New Mexico business. |
| Nonresident withholding at closing | No general withholding on an individual's real estate sale. Pass-through entities withhold for nonresident owners. |
| Withholding form | None for individuals at closing; entity withholding is reported on the entity return, with owner statements on RPD-41359. |
| Transfer or conveyance tax (a 1031 does not defer it) | No transfer tax. A real property transfer declaration affidavit goes to the county assessor within 30 days of recording. |
| Clawback on out-of-state replacement property | No state tracking form. |
| Conforms to Section 1031 | Yes. New Mexico starts from federal adjusted gross income. |
| Property tax note | Residential values are capped at 3% annual growth, but the cap resets to market value when the property sells. |
Table of contents
- How much is capital gains tax on real estate in New Mexico?
- New Mexico tax on a $300,000 gain: worked example
- Nonresident withholding in New Mexico
- New Mexico transfer taxes: none, but file the affidavit
- New Mexico conformity and clawback
- The 3% property tax cap resets when you buy
- Moving into or out of New Mexico
- Where 1031 exchanges happen in New Mexico
- Federal rules for a New Mexico exchange
- New Mexico-specific mistakes
- Start your New Mexico exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in New Mexico?
New Mexico taxes capital gains as ordinary income. House Bill 252 (2024) rebuilt the brackets starting with tax year 2025: rates now run from 1.5% up to 5.9%, and the 5.9% rate applies to taxable income above $315,000 for joint filers and $210,000 for single filers.
The bigger change for investors is the capital gains deduction in NMSA §7-2-34. Through 2024 you could deduct the greater of $1,000 or 40% of net capital gains, which cut the effective top rate to about 3.5%. For tax years beginning January 1, 2025, the deduction is the greater of:
- your net capital gain, up to $2,500; or
- 40% of up to $1 million of net capital gain from the sale of a business allocated or apportioned to New Mexico.
A rental house or apartment building is generally not "a business" for this purpose, so most real estate sellers get the $2,500 deduction and pay close to the full 5.9% on the rest. Depreciation recapture gets no separate state rate. New Mexico has no local income tax. Weigh selling outright against deferring with our capital gains vs. 1031 exchange comparison.
New Mexico tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on a New Mexico investment property, $100,000 of it unrecaptured §1250 depreciation, joint filers already above $315,000 of taxable income so the gain is taxed at 5.9%. The deduction is $2,500.
| Tax line | Amount |
|---|---|
| Unrecaptured §1250 gain: 25% of $100,000 | $25,000 |
| Long-term capital gain: 20% of $200,000 | $40,000 |
| Net investment income tax: 3.8% of $300,000 | $11,400 |
| Federal subtotal | $76,400 |
| New Mexico income tax: 5.9% of ($300,000 − $2,500 deduction) = 5.9% of $297,500 | $17,553 |
| Total tax deferred by a full 1031 exchange | $93,953 |
Under the pre-2025 rules the same seller would have deducted $120,000 (40%) and owed about $10,620 to New Mexico. The new cap adds roughly $6,900 to the state bill, all of which a full exchange defers. Check your recapture with the depreciation recapture calculator.
Nonresident withholding in New Mexico
New Mexico does not require the title company to withhold state income tax when an individual sells real estate, so a 1031 closing needs no state exemption certificate. Nonresidents owe New Mexico tax on income from New Mexico sources, including gain on New Mexico property, and file a New Mexico return for a taxable sale.
Entities are different. A partnership, LLC or S corporation must withhold New Mexico tax from each nonresident owner's allocable share of net income unless it elects to pay at the entity level. A full exchange leaves no recognized gain to allocate. Foreign sellers face federal FIRPTA withholding; see foreigners selling U.S. property.
New Mexico transfer taxes: none, but file the affidavit
New Mexico does not charge a real estate transfer tax, deed stamp or mansion tax, which keeps closing costs on both sides of an exchange low. What it does require is a real property transfer declaration affidavit, filed with the county assessor within 30 days after the deed is recorded (NMSA §§7-38-12.1 and 7-38-12.2). The affidavit reports the price and is how assessors reset values after a sale.
A 1031 exchange changes none of this.
New Mexico conformity and clawback
New Mexico begins with federal adjusted gross income, so gain deferred under Section 1031 is also deferred for New Mexico. There is no New Mexico form that tracks deferred gain after you exchange into another state. A resident who later sells the replacement in a taxable sale owes tax under that year's rules.
The 3% property tax cap resets when you buy
New Mexico limits annual increases in the taxable value of residential property to 3%, which over many years can leave a long-held rental assessed far below market. When the property sells, the prior owner's cap is removed and the assessor revalues it at market, which is why the transfer affidavit reports the price.
- Underwrite the replacement at market value. The seller's low tax bill will not carry over to you.
- Nonresidential property has no cap. Commercial property is valued at market every year, and assessors treat short-term rentals as nonresidential.
Moving into or out of New Mexico
New Mexicans often exchange into Texas, which has no income tax, or into Arizona and Colorado. New Mexico has no clawback, so if you move out before selling the out-of-state replacement, New Mexico generally cannot tax that later gain. Property kept in New Mexico remains taxable here as New Mexico-source income wherever you live.
Where 1031 exchanges happen in New Mexico
The Albuquerque metro, including Rio Rancho, carries most of the state's exchange volume, from multifamily and single-family rentals to industrial space tied to film studios and manufacturing. Santa Fe is a higher-priced market of second homes, galleries and small hospitality properties. Las Cruces and ranch land in the eastern counties round out the market.
Federal rules for a New Mexico exchange
After your sale closes, you have 45 days to identify replacement property in writing and 180 days to acquire it. A qualified intermediary holds the proceeds throughout. Buying equal or greater value and replacing the debt defers all federal gain. See our 1031 exchange guides, the 45-day identification validator, and the 1031 exchange calculator.
New Mexico-specific mistakes
- Using the old 40% deduction. Since 2025 most real estate sellers get only $2,500, so older estimates understate the state tax.
- Assuming a rental counts as "a business." The 40% deduction applies to the sale of a business; confirm with your CPA before relying on it.
- Forgetting the transfer affidavit. It is due to the assessor within 30 days of recording.
- Underwriting on the seller's capped taxes. The 3% cap resets at sale.
Start your New Mexico exchange
Set up your exchange with 1031 Specialists before closing so the title company wires proceeds to us. Start your exchange online or book an intro call.
Frequently asked questions
What is the New Mexico capital gains tax rate on real estate?
New Mexico taxes gains as ordinary income at rates up to 5.9%. Since 2025 most real estate sellers can deduct only $2,500 of net capital gain, so the effective rate on a large gain is close to 5.9%.
How can I avoid capital gains tax on real estate in New Mexico?
A 1031 exchange defers both the federal and New Mexico tax when you reinvest through a qualified intermediary within 45 and 180 days. Selling outright, you get the $2,500 deduction, or 40% of up to $1 million if the gain is from selling a New Mexico business.
Does New Mexico still allow a 40% capital gains deduction?
Only for gains from the sale of a business allocated or apportioned to New Mexico, on up to $1 million of gain. For tax years beginning in 2025, other capital gains get a deduction of up to $2,500.
Does New Mexico have a real estate transfer tax or withholding?
No transfer tax and no withholding on an individual's sale. You must file a real property transfer declaration affidavit with the county assessor within 30 days of recording.
Does New Mexico follow federal 1031 rules?
Yes. New Mexico starts from federal adjusted gross income, so a valid exchange defers the state tax, and there is no clawback form for out-of-state replacement property.
Sources
- New Mexico Legislature: HB 252 (2024), income tax brackets
- New Mexico Legislature: HB 252 fiscal impact report (capital gains deduction change)
- New Mexico Taxation and Revenue: personal income tax overview
- New Mexico Taxation and Revenue: pass-through entity withholding
- Santa Fe County Assessor: FAQs (3% limitation and reassessment at sale)
- Santa Fe County: residential real property transfer declaration affidavit
- IRS: like-kind exchanges, real estate tax tips
Related: Texas, Arizona, Colorado, Oklahoma, all 50 states.
This page is general information, not tax or legal advice. We serve as a qualified intermediary and do not advise on taxes; confirm New Mexico treatment with your CPA.
