What Are Capital Gains?
Capital gains (mais-valias) are the profit made from selling property. It’s the difference between the sale price and the original purchase price. If this difference is positive, it’s taxed as a capital gain. Here’s how it’s calculated:
Capital Gain = (Sale Price – Purchase Price) x Inflation Coefficient – Deductible Costs
Deductible Costs
You can reduce your capital gains by deducting certain costs, such as:
- Renovations done in the last 12 years (must have official invoices)
- Real estate agent fees
- Energy certificate costs (required for most property sales)
- Property transfer tax (IMT)
- Stamp duty (IS)
- Notary fees and registration costs
Now, let’s look at how these taxes apply in different situations.
1. Selling a Primary Residence
If you’re selling your main home, you might get a partial or full exemption from capital gains tax.
- Partial Exemption: Only 50% of the gain is taxed. Tax rates depend on your total income, ranging from 13.25% to 48%.
- Full Exemption: If you reinvest the entire sale price (minus any mortgage) in a new primary residence in Portugal or another EU country, you could be fully exempt. This must happen within 24 months before or 36 months after the sale.
- Proportional Exemption: If you reinvest only part of the sale, the exemption is applied proportionally.
2. Selling a Secondary Residence
For both residents and non-residents, 50% of the gain is taxed, based on your total worldwide income. However, under the Mais Habitação law, you could be exempt if you use the gains to pay off a mortgage on your primary residence or that of your children or grandchildren within 3 months of the sale.
Note: This exemption only applies to properties sold between 2022 and 2024.
3. Selling an Inherited Property
When selling inherited property, the calculation uses the tax value (Valor Patrimonial Tributário or VPT) instead of the purchase price. The same rules for primary or secondary residences apply, depending on the property’s status.
4. Selling a Property Registered as an Alojamento Local (AL)
If your property is registered as an AL (short-term rental), 95% of the gain is taxed. If only part of the property is used for AL, the 95% rule applies to that portion, while the rest follows the normal 50% rule.
If you cancel the AL registration and wait at least 3 years before selling, you return to the regular 50% tax rate.
5. Selling Overseas Property
If you are a Portuguese tax resident and sell property abroad, the tax depends on where the property is located. Typically, the country where the property is sold has the right to tax the gain. If you have Portugal’s Non-Habitual Resident (NHR) status, you may be exempt from taxes in Portugal. If you don’t have NHR in most cases Portugal will tax the difference if the taxes in the country where the property is located are less than taxes here.
6. Other Situations regarding Real State in Portugal
- Properties bought before January 1, 1989 are exempt from capital gains tax.
- Owners aged 65 or older can reinvest the sale proceeds of a primary residence into certain retirement products, potentially avoiding capital gains tax.
In all cases, we strongly recommend consulting a tax expert to ensure you’re taking advantage of all exemptions and deductions available.
Contact us at PortugalTaxes.pt to book your consultation today and simplify your tax filing process!
Disclaimer:
This website is for informational purposes only and does not constitute legal, tax, or financial advice. Individual circumstances vary, and we recommend consulting a qualified professional before making any tax-related decisions. PortugalTaxes.pt is not affiliated with the IRS, Portuguese Tax Authority, or Portal das Finanças. PortugalTaxes.pt is not affiliated with the IRS or Portuguese Tax Authority.