Before putting your property up for sale, it is always useful to consult an accountant or lawyer to get information on how the capital gain from the sale is to be calculated. As a real estate agency, we are not qualified to answer tax questions, but we would like to share some general information in this article.

After the sale of your property, the difference between the price at which you bought it and the price at which you sold it will be calculated. The price at which you bought the property will be assigned a devaluation coefficient, which is published annually by the government. However, if less than 24 months have elapsed between the time of purchase and the time of sale, no coefficient will be awarded.

If the difference is positive, the capital gain will be calculated, i.e. the gain you made on the sale of the property.

The calculation of capital gains does not apply to properties built or bought before January 1, 1989, although there are two exceptions to this:

1 – This exemption only applies to natural persons.

2 – The exemption does not apply if works or alterations requiring a permit have been carried out subsequently.

When calculating capital gains, you can take into account the expenses you have incurred on the property, such as renovations, painting, etc. These expenses are taken into account if they were incurred in the 12 years prior to the sale; all expenses must be supported by an invoice/receipt.

Expenses resulting from the sale process are also taken into account, such as the real estate commission or preparing the Energy Performance Certificate. However, as a general rule, lawyers’ expenses are not taken into account.

The capital gain is included in the annual income and, for tax residents in Portugal, this means that tax is calculated on 50% of the profit made on the sale of the property. For non-habitual residents, 100% of the profit made is taken into account, and a flat rate of 28% is applied. However, even non-habitual residents – as long as they are resident in another European Union country – can choose to declare their global income and thus only be taxed on 50% of the profits made.

Here too there is an important exception that should be mentioned: The profit obtained from the sale of the property will not be subject to IRS (income tax for natural persons) if, within 36 months of the sale, this profit is reinvested in the purchase of another property intended as the owner’s long-term residence. This property may be in Portugal, the European Union or the European Economic Area, as long as there is an exchange of tax information in force.

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