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What are capital gains on property? Find out everything

7 MAART 2023
Onderwerpen
Imóveis Mercado Imobiliário Comprar Casa em Portugal Portugal Mais-Valias
The Government has already announced limitations to the IRS exemption on capital gains, but what are they really about? SUPERCASA News explains.
What are capital gains on property? Find out everything
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Author: Redaction

It was common, when selling a property instead of buying a new one, within one year, to be exempt from IRS on the capital gains of that sale. In other words, by applying the sale value in the acquisition of another property, for the purposes of own and permanent residence, one did not have to pay IRS on that value. However, under the new legislative package on housing, this practice is no longer in force. It is still possible to benefit from the IRS exemption on capital gains, but with new limitations.

What are capital gains from property?
Imagine that you owned a house, which you sold at a certain price. The capital gains are the difference between the value at which you bought the house and the price at which you sold it, which is the surplus. In simple terms, capital gains refer to the gains (or losses, called capital losses) arising from events resulting from any concrete application, regarding tangible or intangible assets. 

The calculation for calculating capital gains on your property is as follows:

Capital gains = sale value - (purchase value X depreciation coefficient) - charges for the purchase and sale - charges for the appreciation in value of the property over the last 5 years

To access the coefficient of devaluation, you will have to consult the Administrative Rule at the Customs Tax Authority, which is updated annually. 

What are the limits on the IRS exemption on capital gains on the sale of one's own home?
If you sell your property in the 24 months prior to the date of transfer and the purpose of the sale is to amortize the mortgage of your own and permanent home, or that of your descendants, and if the revenue obtained from the sale is higher than the amount necessary to amortize the mortgage, the remaining value of this business - in other words, the capital gains - will be taxed without any type of exemption and according to the general rules of the Personal Income Tax. You can only exchange your home benefiting from the IRS capital gains exemption if you have not used this tax benefit during the current year or the three previous years or, exceptionally, if you can prove the circumstances for the reason for the acquisition of a new property. 

Conditions to benefit from the IRS exemption on capital gains
    - The property sold must have been a tax address, declared in the Finance Department, in the two years prior to the sale;
    - Not have used this tax benefit during the current year and the three previous years.

Thus, the objective is to bar taxpayers from moving house several times, with the exemption of capital gains, limiting these transactions. 

What are the exceptions?
Outside these rules are the capital gains obtained by residents with offshores, i.e. tax residences in territories with more favourable tax regimes.

However, according to the government document, if the properties are to be sold to the State: "capital gains arising from the sale of residential properties to the State or local authorities are exempt from Personal Income Tax". Therefore, any cases of this nature are subject to approval, in an ordinance from the Tax Department.

Was this information helpful to you? Read also Rent in arrears: How does the State support work?
Onderwerpen
Imóveis Mercado Imobiliário Comprar Casa em Portugal Portugal Mais-Valias
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