New Mexico
Reviewed July 2026Federal §453 conformity
Yes — New Mexico starts from the federal return and taxes installment gain as payments arrive, with a 40% deduction of net capital gain (or $1,000, whichever is greater) taking the effective top rate to roughly 3.5%. The deduction applies year by year to each payment's gain component; the note's interest is ordinary income at full rates.
Nonresident sourcing
Gain from New Mexico real estate or a business operating here is New Mexico income for sellers anywhere, with the deduction applying to that gain; intangible gain generally follows the seller home.
Withholding
New Mexico imposes no closing-table withholding on nonresident real estate sellers. Pass-throughs withhold on nonresident owners' New Mexico income each recognition year unless composite filing or the PTE election covers it.
Selling, then moving (residency change)
New Mexico-source gain stays taxable here after a move; other gain travels with the seller, and no rule accelerates deferred gain at the border. The Texas line sits close for much of the state — the usual rules about genuine, documented, pre-sale moves apply.
Pass-through entity (PTE) tax election
New Mexico's PTE election is available at the top rate with owner credits, on the usual annual keep-the-entity-alive terms. As with the other exclusion states, confirm the entity-level computation's treatment of the 40% deduction before electing in a heavy gain year.
Estate and IRD
New Mexico has no estate or inheritance tax. At death the federal rules apply — heirs pay income tax as payments arrive, with the deduction continuing to apply to the gain component. New Mexico adds one distinction the other exclusion states lack: it is a true community property state, so a married couple's appreciated assets generally take a full basis step-up on both halves at the first death — the double step-up other states' couples have to opt into, delivered here by default.
Planning notes
New Mexico's list: apply the 40% deduction before quoting any rate, check its current percentage each year, and — for married sellers — put the community property basis question first, because a sale sequenced after a first death may have far less gain to structure in the first place.
New Mexico is a true community property state: both halves of a married couple's community assets step up in basis at the first death. Before structuring a sale, ask the sequencing question — a sale after that step-up may have dramatically less gain to defer at all.
Educational information, current as of the July 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
← Back to State Tax Center