I Sold My House: Do I Have to Pay Capital Gains?

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Sold your house and don't know if you have to pay capital gains to the Tax Authority? This is a common question for owners who, after selling their home, are surprised by tax obligations.

In this article, we explain in simple terms what capital gains are, who is taxed, how this tax is calculated, and how to declare the sale of your house.

1. What are real estate capital gains?
2. Taxation of real estate capital gains?
3. How are real estate capital gains calculated?
4. Who is exempt from capital gains tax?
5. How to declare the sale of the house?

1. What are real estate capital gains?

Capital gains are a tax charged by the State on the difference between the acquisition value of a property and the realization value at the time of sale. Thus, capital gains correspond to the profit obtained from the sale. If the sale value is lower than the purchase value, there is no capital gain; rather, there is a capital loss.

According to Article 10 of the Personal Income Tax Code, capital gains are profits obtained that, not being considered business and professional income, capital income, or real estate income, result from the sale of real estate, securities, or intellectual or industrial property, among others.

Therefore, capital gains apply to physical (tangible) assets, such as real estate, and to non-physical (intangible) assets, such as shares or other financial products.

2. Taxation of real estate capital gains

For tax-resident citizens, capital gains are taxed at 50%. In the case of non-resident citizens, they are taxed in full. If you buy or rehabilitate a property with non-repayable public support and decide to sell it before 10 years have elapsed, you will also have to pay tax on the full amount of your profit.

3. How are real estate capital gains calculated?

The capital gain is the result obtained when you subtract the acquisition value (after applying the monetary correction factor), the costs of appreciation, and certain expenses related to the alienation and acquisition from the sale value. It is calculated using the following formula:

Therefore, to calculate real estate capital gains, there are several figures you should know:

• Realization value: the amount for which the property is sold;

• Acquisition value: the amount for which you bought the property;

• Monetary depreciation coefficient: coefficient for updating the value of the property taking into account the year in which you bought it, applied whenever more than 24 months have elapsed between the acquisition date and the sale. These coefficients are updated annually by order published in the Official Gazette;

• Costs of realization and acquisition: this may include the real estate agency commission (a sale through LEILOSOC® is free of any such cost), the energy certificate, as well as expenses you had with the deed, registrations, and taxes on the purchase (IMT and Stamp Duty);

• Costs of property appreciation: conservation, maintenance, and improvement works carried out on the property in the last 12 years.

4. Who is exempt from tax?

Despite the payment of tax, when selling a property, you may be exempt if any of the following situations applies:

• Properties acquired before January 1989: They are not subject to capital gains taxation in the event of sale. These properties do not have to be the taxpayer's own permanent residence to be exempt from taxation;

• Reinvestment of capital gains in another residence: People who sold their own permanent residence and invest the sale value in a new property to live in (it must be used as their own permanent residence), in its construction, or in its rehabilitation. This must be carried out within 36 months after the sale or 24 months before the sale. The property may be located in Portuguese territory, or in any member State of the European Union or the European Economic Area, provided that, in the latter case, there is an exchange of information in tax matters.
• Reinvestment of capital gains in certain financial products (over 65 years old): Individuals over 65 or retirees who invest the realization value (originating from the sale of a property intended as their own permanent residence) of the capital gains in a life insurance contract, in individual participation in an open pension fund, or in contributions to the public capitalization regime, to occur within the six months following 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 Personal Income Tax (IRS) return for the year in which the transaction took place. If you sell a house in 2025, you must indicate it in the 2025 IRS return, to be submitted in 2026.

You must fill in and submit Annex G if you sold a property purchased after January 1989, or Annex G1 if the house was purchased before January 1989.

In summary, understanding how real estate capital gains work is essential to making informed decisions when selling properties and ensuring compliance with tax obligations, while taking advantage of any available exemptions.

Article by Isabel Meireles by LEILOSOC® dated May 9, 2025