Investing in rental properties is often viewed as a reliable source of passive income—but when you’re relocating to Portugal, the tax story becomes more complex. Many expatriates moving under the D7 visa are surprised to learn that Portugal does not recognize many of the same deductions allowed by the IRS. This can lead to an unfortunate outcome: you report a rental loss in the U.S., but still owe tax in Portugal.
🇺🇸 U.S. vs 🇵🇹 Portugal: Same Property, Different Results
Let’s consider a real-world example:
Rental Property in the U.S.
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Gross Rental Income: €30,000
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Mortgage Interest: €10,000 (deductible in U.S., not in PT)
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Depreciation: €8,000 (deductible in U.S., not in PT)
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Property Tax (IMI): €2,000
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Repairs & Maintenance: €5,000
🧾 How the U.S. Calculates Taxable Rental Income
| Item | Amount (€) |
|---|---|
| Gross Rental Income | 30,000 |
| (-) Mortgage Interest | (10,000) |
| (-) Depreciation | (8,000) |
| (-) IMI | (2,000) |
| (-) Repairs & Maintenance | (5,000) |
| Net Taxable Income | €5,000 LOSS |
✅ No U.S. tax is owed thanks to deductions like interest and depreciation.
🇵🇹 How Portugal Calculates Taxable Rental Income
| Item | Amount (€) |
|---|---|
| Gross Rental Income | 30,000 |
| (-) IMI | (2,000) ✅ Deductible |
| (-) Repairs & Maintenance | (5,000) ✅ Deductible |
| (-) Mortgage Interest | ❌ Not deductible |
| (-) Depreciation | ❌ Not deductible |
| Net Taxable Income | €23,000 |
🔴 Despite a declared loss in the U.S., Portugal taxes you as if you earned €23,000.
🇵🇹 Portugal Tax Options
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Flat Rate (25%): €23,000 × 25% = €5,750
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Progressive Tax Brackets (2025 Example):
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€7,703 @ 14.5% = €1,117
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€3,920 @ 23% = €902
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€4,849 @ 26.5% = €1,285
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€3,028 @ 28.5% = €863
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€3,500 @ 35% = €1,225
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Total = €5,392
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👉 Either way, your tax bill in Portugal is over €5,000—even though you’re technically at a loss in the U.S.
🔍 Key Takeaways
✅ In the U.S.
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Mortgage interest and depreciation reduce taxable income → €5,000 loss.
❌ In Portugal
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Those same deductions don’t apply → €23,000 taxable income.
🧾 You could owe up to €5,750 in Portuguese tax on a property that loses money on paper in the U.S.
✅ What Can You Do?
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Use the U.S. Foreign Tax Credit (FTC)
Offset Portuguese tax paid against future U.S. liabilities. -
Plan a Strategic Property Exit
If your rental yields poor tax results, consider selling under Portuguese tax rules that minimize capital gains. -
Use Advanced Portugal Tax Planning
Consider splitting rental and personal income, or restructuring ownership to stay within lower tax brackets.
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