Reinvesting home-sale gains: how to pay no IRS when you sell your home

The most valuable relief in Portuguese property tax

When you sell a property at a profit, the general rule is clear: 50% of the gain is added to your income and taxed at the progressive IRS rates². On a home that gained €100,000 in value, that can mean well over €15,000 of tax. The big exception is selling your main permanent home (habitação própria e permanente): article 10(5) of the IRS Code excludes the gain from taxation when the sale proceeds are reinvested in another main permanent home¹.

The exclusion is neither automatic nor unconditional, and the calculation the law makes is not the one most people imagine. Before going further, compute the gain in the property capital gains calculator and simulate the exclusion in the capital gains reinvestment calculator.

The right calculation: what you actually must reinvest

The most expensive mistake in this regime is thinking it is enough to reinvest the profit. What the law requires you to reinvest is the sale value (valor de realização), minus a single item: the repayment, made at the sale, of the mortgage taken to buy the home sold¹.

An example with round numbers:

To pay no IRS at all on the €60,000 gain, this family must apply €150,000 to the new home, not €60,000. The calculator runs this calculation and shows the tax in each scenario.

The new mortgage does not count

Reinvesting means applying the money the sale left in your hands, not signing a new credit agreement. The Portuguese tax authority consistently takes the position that the part of the new home financed by a new loan is not reinvested sale proceeds³.

If the new home costs €300,000 and you borrow €200,000 from the bank, the reinvestment considered is €100,000, your own funds. In the example above, that family would have reinvested €100,000 of the €150,000 required: two thirds. Which brings us to the next rule.

Partial reinvestment: the exclusion is proportional

If you do not reinvest everything, you do not lose everything. Article 10(12) excludes the proportional part of the gains corresponding to the amount reinvested¹:

• you reinvested two thirds of the required amount → two thirds of the gain is excluded;
• the remaining third follows the normal regime: 50% of it is added to your income and taxed at the progressive rates².

In the example: €40,000 of the gain is exempt, €20,000 remains taxable, and the taxable base is €10,000. At a 35% marginal rate, the IRS falls from €10,500 (without reinvestment) to €3,500: a €7,000 saving just from applying the rule well.

The deadlines: 24 months before, 36 months after

The reinvestment must happen within a precisely defined window¹:

• between 24 months before and 36 months after the sale date;
• buying first and selling later also qualifies, as long as the sale happens within the 24 months following the purchase;
• the intention to reinvest, even partially, must be declared in Anexo G of the IRS return for the year of the sale;
• after the reinvestment, the new home must become your or your household's residence within 12 months; for construction, enlargement or works, the property (or the changes) must be registered in the matriz within 48 months of the sale.

Missing any of these steps cancels the benefit: the IRS on that gain is assessed with the legal additions¹.

The eligibility conditions

Not every home sale qualifies. The cumulative conditions of paragraph 5 are¹:

• the property sold was the main permanent home of the taxpayer or their household, proven by the fiscal domicile, for the 12 months before the sale (a condition introduced by the Mais Habitação package);
• the reinvestment is made in Portugal, the EU or the European Economic Area with tax information exchange;
• the destination is another main permanent home: buying a property or a plot for construction, or building, enlarging or improving a property for that purpose.

Second homes, rented-out properties and investment properties stay out: for those, the normal regime of the property capital gains calculator applies.

Aged 65+ or retired: exemption without buying a home

If you sell your home at a stage of life where you no longer want to buy another, there is a dedicated alternative. If, at the date of the sale, the taxpayer, their spouse or civil partner is retired or at least 65 years old, the gain is excluded when the sale value (minus the loan repayment) is applied, within the following 6 months, to one of these products¹:

• a life-insurance financial contract;
• an individual subscription to an open pension fund;
• a contribution to the public capitalisation scheme;
• a PEPP (pan-European personal pension product).

The exclusion is equally proportional to the amount applied, and there are payout conditions (regular instalments) and redemption limits to respect. If you are weighing this route, comparing it with a PPR and the retirement simulator helps see the full picture.

What changed and what has already ended

Two recent changes cause frequent confusion:

• Mais Habitação (2023) tightened the entry: the home sold must now have been the main permanent residence for the 12 months before the sale.
• The temporary mortgage-repayment regime is over: between 2022 and 2024, gains from other properties (plots, second homes) could be applied to repaying the mortgage on the main home of the taxpayer or their descendants. That regime has ended; today, repaying another home's mortgage does not count as reinvestment.

When in doubt about what is still in force, the safe source is the consolidated text of article 10 on the Portal das Finanças¹.

From the sale to the new home, with the numbers done

The reinvestment regime is one of the few where the taxpayer controls almost everything: the window is wide (5 years between the before and the after), the partial exclusion avoids all-or-nothing outcomes and declaring the intention costs one cross in Anexo G. What it does not forgive is the base of the calculation. Before deciding how much to borrow for the new home, simulate the scenarios in the capital gains reinvestment calculator, add the IMT and stamp duty of the purchase, and check that the mortgage payment fits your budget: the new loan lowers the exclusion, but it is also what shapes the rest of your financial life.