When a house is sold, this transaction generates real estate gains for the seller, which correspond to the profit he makes in the process.
According to the Finance Portal, “gains or losses realized through onerous transfer are considered realized gains or losses whatever the title because it operates and, well, those resulting from claims resulting from the allocation".
How are they calculated?
To find out the capital gains generated in your favor by selling a property you can use the following formula:
Calculation of capital gains:
Sales value - (acquisition value x currency devaluation coefficient) - purchase and sale charges - charges incurred with the property valuation (in the last 5 years)
In the calculation above, note that the "charges incurred with the property valuation" refer, for example, to the installation of a central heating system in the dwelling, which is something that contributes to the valuation of a house. In turn, the “purchase and sale charges” include, for example, the IMT (Municipal Tax on Transfer of Real Estate) and the deed of purchase of the house sold.
The value of real estate capital gains falls on the IRS corresponding to 50% of the profit obtained. For example, if real estate capital gains are 14 thousand euros, taxation amounts to 7 thousand euros.
The IRS is an annual tax base, which means that if you sell a property in 2018, you will need to include this transaction in this year's IRS statement, which will be filed in 2019.
All data relating to real estate capital gains must be declared in annex G of the IRS, which is one of the annexes to model 3 of the income statement, unless there is an exemption from taxation.
Can exemptions exist?
Portuguese taxpayers can be exempt from real estate gains in two different situations.
# 1 - Acquisition of property prior to 1989
First, if the property that is for sale was acquired before 1989 (which was the year the IRS Code came into force), then its sale is not subject to IRS.
But note that, even if not subject to tax in this case, the transaction has to be declared in Annex G1, which refers to untaxed capital gains.
# 2 - Reinvestment in another house
Second, if the property that is for sale is its own, permanent home, there will be an IRS exemption if the owner chooses the reinvestment regime. This means that if the amount acquired from the sale of the house is reinvested in the purchase of another dwelling (or even a piece of land for construction), then the surplus value will not be subject to tax.
If you choose to reinvest, please note that it must be done within a maximum period of 36 months for the exemption to apply.
If the solution chosen by you lies in reinvestment, find out how much it will cost you to finance the new property through of this simulator.
If real estate gains are not invested in the acquisition of another house, the IRS declaration should nevertheless describe any costs that may have incurred with works / improvements carried out on the house, replacement of windows, issuing of energy certificate, IMT, expenses with the deed and the like.
It should also be noted that the reinvestment may be partial, that is, used, for example, to carry out works to expand another property. In this case, it is necessary to calculate the proportion of the capital gain that is not subject to IRS.
However, note that if the residence that is for sale is a second housing (a holiday home, for example), the reinvestment regime cannot be applied and, consequently, 50% of the capital gain will be taxed.
Also consider the existence of losses
If, instead of everything that has been described so far, the sale of a house generates a loss instead of a profit, then we are facing a loss.
If the sale of the property results in a loss rather than a gain, this loss must be reported within 5 years.
It should also be noted that the annual taxation corresponds to the balance between real estate gains and losses. Therefore, if, for example, you sell two properties and one gains a gain and the other a loss, the difference between the two (therefore the balance) will be the one subject to IRS.
In short, the profit you can make from selling a home will never be exempt from taxation unless you use that amount to purchase another property (reinvestment hypothesis). And whether capital gains are generated or not and whether they are taxed or not, it will always be necessary to declare the transaction at the IRS.