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How does taxation of real estate capital gains work in Portugal?

Apr 01, 20262 min read

Taxation of real estate capital gains in Portugal refers to the tax on profit obtained from the sale of properties. This profit is calculated as the difference between the sale price and the acquisition price, adjusted by certain factors. Here are the main aspects of real estate capital gains taxation:

Calculation of Capital Gains

  1. Basic Formula:

    Capital gains = Sale Value - (Acquisition Value x Currency Devaluation Coefficient) - Purchase and Sale Charges - Property Enhancement Expenses.

  2. Taxation:

    As a rule, 50% of capital gains are taxed under IRS, with the amount included with the taxpayer’s other income to determine the applicable tax rate.

Exemptions and Reductions

  1. Properties Acquired Before 1989:

    Properties acquired before January 1, 1989 are exempt from capital gains taxation, due to the non-retroactivity of the IRS Code.

  2. Reinvestment in Own and Permanent Residence:

    If the amount obtained from the sale of an own and permanent residence is reinvested in the acquisition of another residence with the same purpose, the taxpayer may be exempt from paying tax on capital gains. This reinvestment must occur in the 24 months before or the 36 months after the sale.

  3. Sale to State or Public Entities:

    Sales of properties to the State, Autonomous Regions, local municipalities, or public business entities in the housing area may benefit from capital gains tax exemption.

Specific Rules

  • Inclusion:

    Capital gains are included with the taxpayer’s other income for IRS purposes, which means that the tax rate to apply depends on the taxpayer’s income bracket.

  • Deductible Expenses:

    Expenses related to property enhancement in the last 12 years can be deducted, as well as purchase and sale charges, such as deeds and real estate brokerage commissions.

Final Considerations

It is important to declare the sale of properties in the IRS declaration, even if there is exemption, using annexes G or G1, as applicable. To optimize capital gains taxation, it is advisable to consult an accountant or lawyer specialized in real estate taxation.