Capital gains on selling a property: how they are calculated and taxed

What are capital gains on a property?

When you sell a property for more than you paid for it, you have a capital gain, which is taxed under IRS (Category G, capital increments)¹. But, contrary to what many people think, you do not pay tax on the sale value, nor even on the whole difference between what you sold and what you bought for: the law requires several adjustments that usually reduce the taxable gain considerably.

The rules for property are different (and more favourable) than those for shares, ETFs and funds. With shares you pay 28% on the whole gain; with property only half of the gain is taxed and the purchase value is first adjusted for inflation.

How is a property capital gain calculated?

The full formula is¹³:

Gain = sale value − (purchase value × devaluation coefficient) − buying and selling costs − improvement costs

Each part in turn:

• Sale value: the price you sold for.
• Purchase value, adjusted for inflation by the currency-devaluation coefficient (see below).
• Buying and selling costs: the IMT and stamp duty paid on purchase, the deed, registration, the estate-agent fee on the sale and the energy certificate³.
• Improvement costs: the works that added value to the property (with invoices), carried out in the last 12 years³.

You can estimate all of this, line by line, in the property capital gains calculator.

What is the currency-devaluation coefficient?

It is a factor published every year by Portaria that adjusts the purchase value for cumulative inflation since the year you bought⁴. It exists so you are not taxed on a purely nominal gain (one that just reflects the general rise in prices, not real enrichment). It applies only if more than 24 months passed between purchase and sale¹.

For sales in 2025, the table is the one in Portaria n.º 382/2025/1. Some values:

Example: a home bought in 2010 for €150,000 counts, in a 2025 calculation, as 150,000 × 1.28 = €192,000. That is €42,000 of "inflation gain" that is not taxed.

How much is capital gains tax? The 50% rule

Here is the big difference from shares: for residents in Portugal, only 50% of the gain is taken into account for tax (Article 43, paragraph 2 of the IRS Code)². The other 50% is not taxed.

But note: there is no flat 28% rate. That half is added compulsorily to your other income for the year (work, pensions, etc.), in what is called mandatory aggregation, and is taxed at the progressive IRS rates, which run from 12.5% to 48% depending on your bracket¹. That is why, in the calculator, you enter your marginal IRS rate (the one that applies to the top of your income).

Worked example

Suppose you bought a home in 2015 for €120,000 and sell it in 2025 for €250,000, with €18,000 of costs (IMT, deed, agent fee) and €12,000 of works:

• Adjusted purchase value: 120,000 × 1.20 (2015 coefficient) = €144,000.
• Gain: 250,000 − 144,000 − 18,000 − 12,000 = €76,000.
• Taxable portion (50%): €38,000.
• IRS (at a 34.9% marginal rate): 38,000 × 0.349 = €13,262.
• You keep: 76,000 − 13,262 = €62,738 of the gain.

The tax (€13,262) is about 17% of the total €76,000 gain, well below the 28% on shares. Test your own numbers in the property capital gains calculator.

Do I pay capital gains if I reinvest in a new home?

You can be exempt. If the property sold was your main and permanent home and you reinvest the sale proceeds (net of any loan you repay) in buying, building or renovating another main and permanent home, within the legal deadlines (generally 36 months after the sale or 24 months before), the gain can be fully or partly exempt¹. The exemption is proportional to the part you reinvest.

There are other exempt situations too, such as properties bought before 1989 (before the IRS Code came into force). Our calculator estimates the tax without applying the reinvestment exemption: it is for the general case of a taxed sale.

What if I sell at a loss?

If, after adjusting the purchase value and adding the costs, you sold for less than the adjusted cost, you have a capital loss and pay no tax. That loss can be carried forward for five years to offset future property gains².

Where do I report property capital gains for IRS?

In Anexo G of the Modelo 3 IRS return, stating the acquisition and disposal dates and values, the costs and the improvement works¹. Because aggregation is compulsory, the gain is added to your other income. If in doubt about your specific situation (especially the reinvestment exemption), consult a certified accountant or the Portal das Finanças.