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Real Estate Capital Gains

Capital gains generate many doubts for those who intend to sell a property. Learn what is a capital gain, how to calculate it and how to reduce the tax value.

What is a real estate capital gain?

In short, a real estate capital gain is the profit made through the sale of a property. For example, if you bought a property for 200,000 euros and sold it for 250,000 euros, you have obtained a capital gain of 50,000 euros. However, it is possible to reduce the value of the capital gain considered for the calculation of the tax to be paid. This capital gain is subject to the payment of a tax.

If you have made a capital gain by selling an inherited house, the “purchase” value will be the value that was used for stamp duty purposes at the time the inheritance took place. If you have built a house, the purchase value will be the value at which the property was registered in the year the construction was completed.

If you bought a house before 1989, you are exempt from paying capital gains tax.

Deductible expenses

Therefore, the monetary devaluation coefficient, which is used to update the value of the property, has to be taken into account when calculating capital gain. Besides the coefficient, there are also expenses that are deductible in the calculation of capital gains obtained through the sale of real estate. These expenses include:

  • The Energy Certificate
  • Commissions paid to the real estate agency for the sale
  • Maintenance and conservation works performed in the last 12 years
  • Stamp Duty from purchase
  • IMT (Property Transfer Tax)
  • Solicitor’s fees
  • Land Registry

Please note that it is necessary to have in your possession all the invoices with the mentioned expenses. Thus, assuming that you had a total of 15.000 euros of expenses in the mentioned categories, this amount will be subtracted from the 50.000 euros, previously calculated, resulting in the decrease of the capital gain obtained.

How is the capital gain calculated?

Purchase value – (acquisition value x coefficient of currency devaluation + charges with asset appreciation + charges with the purchase and sale process

How are real estate capital gains taxed?

Capital Gains for Residents

For Portuguese resident taxpayers, only half of the capital gain is taxed. The amount of tax payable depends on the income the seller records, i.e. it will depend on the seller’s tax framework.

Capital Gains for Non-residents

Regarding non-residents, the regime stipulates that taxes will be paid on the entire real estate capital gain at a flat rate of 28%.

When are real estate capital gains taxes paid?

Capital gains are taxed when you file your IRS return. This means that if you sold your property in 2021, you will have to declare the sale when you file the 2022 return, which refers to the 2021 IRS.

If you have any doubts relating to your capital gains, please contact us.