If you have received an inherited property but don't know how you can sell it, follow these steps to make selling inherited property simple.
In case you have inherited a property, be aware that in addition to the inherited property, the deceased's debts also pass to the heirs. That is, if the credit of the house is still being paid and does not have an associated life insurance, the heir will be responsible for paying it.
So, learn the steps necessary to proceed with the sale of inherited property in a simple way.
#Step 1: Calculate real estate capital gains
The sale of inherited property will generate capital gains associated with the profit that the seller earns.
Capital gains from a property are calculated using the following formula:
- Capital gains = Sale value (acquisition value x currency devaluation coefficient) - charges for purchase and sale (charges incurred with property appreciation in the last 5 years).
The expenses incurred with the increase in value of the property refer to the works or investments in the house that have contributed to its increase in value, such as, for example, the installation of a central heating system, and which took place in the last five years before the sale of the house.
The purchase and sale charges are the IMT (Municipal Tax on Onerous Transmissions of Real Estate) and the deed for the house sold.
However, in the situation where the property is inherited, how is it possible to know the acquisition value of the property, if it was not bought by the person who bought it?
According to article 45.1 of the IRS Code, regarding assets acquired gratuitously (as is the case of inheritances), the acquisition value is the one corresponding to that weighted for the purpose of Stamp Duty (or the former inheritance tax) settlement, even if the operation has benefited from exemption.
This value refers to the Taxable Patrimonial Value (VPT) of that property and that was included in its Caderneta Predial in the year in which it was transmitted by inheritance. Therefore, it will be essential to validate the values with a tax office, especially if the division was made some time ago.
The purchase value in the Caderneta Predial is updated by the Finance Department. A monetary correction is applied, which differs depending on the year of purchase, and the calculations to establish the amount of the correction are made by the Tax Authority.
#Step 2: Declaring the sale of inherited property in the IRS
Next, you will need to declare the sale of inherited property on the IRS. The amount you will profit from the sale, that is, the capital gains, is always subject to taxation by the IRS.
The income from this sale must be included in Annex G of Form 3, to be submitted in the second phase of the income declaration. If the property belongs to more than one heir, each heir will have to identify his hereditary quota.
According to the IRS Code, capital gains derived from the sale of inherited property purchased before January 1, 1989 and land for construction purchased before June 9, 1965 are not subject to IRS taxation. However, the declaration of this income is mandatory in Annex G1 of Form 3.
For tax residents in Portugal the taxation of capital gains is weighted at 50%, i.e. half of the profit you made from the sale of the property will be included in your IRS and will be taxed according to your tax bracket for that tax year.
However, in the case of a property declared as permanent residence (HPP) and if the value of the capital gain is intended for reinvestment in the purchase, construction or even construction of a new HPP, the capital gains acquired with the sale of the property are exempt from IRS payment, as long as the investment is made within 36 months after the sale of the first property.
#Step 3: Execute the deed
Finally, to sell the inherited property it is necessary to execute the deed of purchase and sale of the property. This can be done in the Notary's Office, in the Land Registry Office or in one of the branches of the Casa Pronta service.
All the costs referring to the deed are supported by the house buyer, to which are added a series of taxes to pay:
- Registration of the deed;
- Payment of IMT (Municipal Tax on Onerous Transmissions of Real Estate);
- Stamp Tax on the transaction = 0,8%;
- Stamp Tax on the credit, if the buyer uses a mortgage (0.5% for loans of up to five years and 0.6% for loans longer than five years).
IMT Formula:
- IMT = Deed Value or Taxable Asset Value (whichever is greater) x Rate to apply - Portion to be abated
In certain cases a Notarial Justification deed may be required. This is common when dealing with very old properties that lack a formal title (such as a deed) valid for registering the acquisition.
Therefore, if there is no declaration that can legitimize your property rights, the Notarial Justification serves to prove exactly that. Usually these contexts occur when in the past there have been purely verbal deals of purchases and sales, donations and partitions of the property.
Note that if the property is not registered in your name you cannot sell, mortgage, or lease it. In this sense, it is essential that you pay attention to this aspect in the process of selling inherited property.
This deed is executed in a Notary's Office, which provides all the legal accompaniment and organizes all the necessary procedure for registering the property of the current owner, including the participation of the Tax Department.
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