When selling a property in Portugal, the taxable capital gain is not calculated simply by subtracting the purchase price from the sale price.
Portuguese tax law allows certain expenses to be deducted, which can significantly reduce the capital gain subject to IRS. However, not all costs are accepted, and the Portuguese Tax Authority may request supporting documentation.
This is especially important for expatriates, non-habitual residents, and foreign property owners selling real estate in Portugal.
1. How are property capital gains calculated in Portugal?
For Portuguese IRS purposes, the sale of real estate is generally treated as a capital gain under Category G.
The taxable gain is broadly calculated as:
Sale value – acquisition value – deductible expenses = capital gain
Under Article 10 of the Portuguese Personal Income Tax Code, gains from the sale of real rights over immovable property qualify as capital gains.
For Portuguese tax residents, only 50% of the net capital gain is generally included in taxable income and taxed at progressive IRS rates.
2. What expenses can be deducted?
Under Article 51 of the CIRS, the following can be added to the acquisition value when calculating the taxable capital gain:
a) Costs related to the acquisition of the property
These include expenses that were necessary to purchase the property.
Examples:
IMT – Property Transfer Tax
This is deductible because it is a mandatory tax paid on the acquisition of Portuguese real estate.
Stamp Duty
Stamp duty paid on the acquisition deed is also deductible.
Notary fees and registration costs
Costs related to the deed and registration of the property may be included if properly documented.
Bank cheque issuance costs
These may be deductible where directly connected to the acquisition transaction and supported by documentation.
b) Costs related to the sale of the property
These are expenses directly connected with the sale.
Examples:
Real estate agent commission
The estate agent’s commission is generally deductible if it was paid in connection with the sale and supported by an invoice.
Energy certificate
The energy certificate is usually required for the sale of property in Portugal and may be treated as a sale-related expense.
Legal, solicitor, or notary costs linked to the sale
These may be deductible where they are directly connected with the sale process.
c) Improvement, maintenance, and renovation costs
Article 51 also allows the deduction of documented costs relating to the improvement or enhancement of the property, provided they were incurred within the legally relevant period. The current rule refers to costs demonstrably incurred in the previous 12 years.
Examples may include:
Renovation works
Examples: structural repairs, painting, flooring, bathroom works, kitchen installation, plumbing, electrical works.
Materials incorporated into the property
Examples: paint, tiles, construction materials, fixed kitchen units.
Contractor invoices
Works performed by contractors may be included where properly invoiced and connected to the property.
3. What expenses should be treated with caution?
Not every cost connected with the property can safely be deducted.
The following items are higher risk:
Furniture
Movable furniture is generally not a property improvement cost.
Decoration and comfort items
Decorative items, curtains, lamps, rugs, utensils, and similar items should normally be excluded.
Appliances
Electrical appliances may be challenged unless they are clearly integrated into a fixed installation and the invoice supports the treatment.
Generic bricolage purchases
Purchases from DIY stores may be accepted if they relate to works or materials incorporated into the property, but the invoice description should be sufficiently clear.
4. Practical example: renovation expenses
Assume a taxpayer incurred the following expenses before selling an apartment:
IKEA kitchen: €3,396.50
Paint supplier: €303.00
Bricolage materials: €1,226.00
Additional bricolage materials: €275.54
IKEA kitchen: €1,044.00
Hardware and materials: €294.00
Hardware: €22.00
Contractor/service provider: €81.00
Total: €6,642.04
These costs may be deductible if they are supported by valid invoices and relate to works or materials incorporated into the property.
However, if part of the IKEA invoice includes appliances, furniture, utensils, or removable items, those parts should be excluded or reviewed carefully.
5. Documentation is critical
The Portuguese Tax Authority may request proof of the expenses.
For each expense, the taxpayer should keep:
Valid invoice
Preferably issued with the taxpayer’s Portuguese NIF.
Proof of payment
Bank transfer, card payment, receipt, or other payment evidence.
Clear description of the works or materials
The invoice should show that the expense relates to the property.
Connection to the sold property
The expense should be linked to the property sold, not to another property.
The AT’s published doctrine also confirms the relevance of Article 51 expenses in the capital gains calculation, including improvement costs and necessary acquisition or sale-related costs.
6. Reinvestment relief is a separate issue
If the property sold was the taxpayer’s main and permanent home, capital gains may be excluded from taxation if the sale proceeds are reinvested in another qualifying main residence.
Under Article 10(5) of the CIRS, reinvestment relief generally requires reinvestment in another main residence in Portugal, the EU, or the EEA, within the applicable legal timeframe, and the intention to reinvest must be declared in the IRS return.
If there is no reinvestment, the capital gain remains taxable, subject to the normal capital gains rules.
7. Practical recommendation
Before filing the IRS return, taxpayers should separate expenses into three categories:
Clearly deductible
IMT, stamp duty, notary fees, registration costs, real estate commission, energy certificate.
Potentially deductible
Renovation works, fixed kitchen installation, painting, repairs, construction materials.
High-risk or normally excluded
Furniture, appliances, decoration, comfort items, removable items, and poorly documented purchases.
Conclusion
The correct treatment of expenses can materially reduce Portuguese capital gains tax on the sale of real estate.
However, the key issue is not only whether the expense was paid, but whether it is legally deductible, properly documented, and directly connected with the acquisition, sale, or improvement of the property.
For expatriates and foreign property owners, this review should be completed before submitting the Portuguese IRS return, particularly where invoices, renovation works, or reinvestment relief are involved.
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