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Have you sold your house and are unsure whether you need to pay capital gains tax to the tax authorities? This is a common question for property owners who are often surprised by tax obligations after selling their home.
In this article, we’ll explain in simple terms what capital gains are, who is subject to taxation, how this tax is calculated, and how to declare the sale of your property.
1. What are Real Estate Capital Gains?
It's a tax levied by the State on the difference between the purchase price of a property and the selling price. In other words, it represents the profit made from the sale. If the selling price is lower than the purchase price, no capital gain exists—instead, you would have a capital loss.
According to Article 10 of the Portuguese IRS Code, capital gains are defined as the profits obtained from the sale of real estate, securities, or intellectual or industrial property, among other assets, which are not classified as business, professional, capital, or rental income.
Thus, capital gains apply to physical (tangible) assets like real estate, and non-physical (intangible) assets such as shares or other financial products.
2. Taxation of Real Estate Capital Gains
For tax residents, only 50% of the capital gain is taxed. However, for non-residents, the entire capital gain is subject to taxation. Additionally, if you buy or renovate a property with non-repayable public support and decide to sell it before 10 years have passed, you will have to pay tax on the total profit.
3. How Are Capital Gains Calculated?
This tax is calculated by subtracting the acquisition value (adjusted for inflation using the monetary correction factor), as well as certain expenses related to the purchase and sale of the property, from the selling price. The calculation follows this formula:
To calculate this tax, you need to know:
Realization Value: the amount for which the property was sold.
Acquisition Value: the amount you paid when buying the property.
Monetary Depreciation Coefficient: an adjustment factor that updates the property's value based on the year of purchase, applied when more than 24 months have passed between the acquisition and the sale. These coefficients are updated annually by decree.
Costs related to Sale and Acquisition: you can include the real estate agency's commission (sales through LEILOSOC® are commission-free), the energy certificate, and other expenses related to deeds, registrations, and taxes such as IMT and Stamp Duty.
Property Improvement Costs: expenses for conservation, maintenance, and improvement works carried out in the past 12 years.
4. Who is Exempt from Capital Gains Tax
Despite this tax, you may be exempt from paying the tax in the following cases:
Properties Acquired Before January 1989: Not subject to capital gains taxation upon sale. These properties do not need to be the taxpayer’s main residence to be exempt.
Reinvestment of Capital Gains in Another Home: Individuals who sell their primary residence and reinvest the proceeds in a new property intended for their own permanent residence, its construction, or rehabilitation. This reinvestment must occur within 36 months after the sale or 24 months before. The new property can be located in Portugal, any EU member state, or EEA countries, provided there is an exchange of tax information.
Reinvestment by Individuals Over 65 in Financial Products: Individuals over 65 or retirees who reinvest the proceeds from selling their primary residence in a life insurance policy, an individual open pension fund, or public capitalization scheme contributions, within six months from the date of sale.
5. How to Declare the Sale of a House?
For the Tax Authority to calculate capital gains, it is mandatory to declare the sale in the IRS return for the year in which the transaction occurred. If you sell a property in 2025, you must report it in the 2025 IRS return, to be submitted in 2026.
You should fill in and submit Annex G if the property was purchased after January 1989, or Annex G1 if it was bought before January 1989.
In summary, understanding how this taxation works is essential to make informed decisions when selling property and to ensure compliance with tax obligations while taking advantage of any available exemptions.
Article by Isabel Meireles for LEILOSOC®, dated May 9, 2025.
