There are lots of questions, doubts, and confusion about the payment of capital gains tax after you sell your property in Portugal. Let us give you some guidelines.
Let’s start with what capital gains are. On the sale of your property, you will generally make a profit. Calculating capital gains involves subtracting the property’s purchase price from its selling price. This difference is then adjusted for inflation using a monetary correction coefficient corresponding to the year of acquisition.
The tax rate applied to capital gains depends on the duration the real estate was owned before the sale. Short-term capital gains apply if the property was held for less than a year, and long-term capital gains apply for assets held for at least 12 months. Long-term capital gains tax rates are much less onerous. This applies to properties that are permanent homes. The capital gains tax rate for second home sellers is a flat rate of 28%.
You can deduct certain expenses from the capital gains, but keep in mind that you must provide the receipts as proof.
These are the expenses you can deduct:
– The cost of the energy certificate
– The commissions paid to the estate agent for the sale
– The maintenance and conservation works carried out in the last 12 years
– Stamp Duty (IS) at the time of purchase
– The Municipal Tax on the Transfer of Real Estate (IMT)
– Costs related to the deed of purchase of the property (Notary)
– Solicitor’s fees if applicable
– The land registry costs
If you bought a property before 1989 which is your own permanent home, you may be exempt from paying capital gains tax on the sale. However, you still need to declare the sale to the IRS. If you sold construction land, the exemption covers land purchased before June 9, 1965.
One way to reduce the amount of capital gains tax owed is by taking advantage of the reinvestment of capital gains. This means that if the seller reinvests the profits from the sale of the property into another qualifying investment, the capital gains tax can be deferred or reduced. However, it is important to consider the expenses related to the property sold and the requirements for reinvesting the capital gains. But again, this only applies to the sale of your own permanent home and the acquisition of an equivalent asset.
The reinvestment of capital gains can be made up to 36 months after selling your home or you can use that money for a purchase you made up to 24 months before.
When we record capital gains from the sale of a property, it is possible to reinvest part or all of the sale proceeds, thereby reducing the tax payable.
To be exempt from the payment of capital gains tax, you must reinvest the whole amount of the sale and not only the equivalent of the capital gain.
So, in a nutshell, capital gains are the profit made on the sale of an asset and are subject to tax payment. However, there are expenses you should declare that can help you reduce the total amount you have to pay. Those expenses include the costs with the issuing of an energy certificate, the commission paid to your estate broker, maintenance and improvement works carried out in the last 12 years as well as municipal tax on real estate transfers and expenses with registrations and deeds.