The “More Housing” Program introduced changes to capital gains tax exemptions on property sales, but with Decree-Law 175/2024, effective from September 11, the exemption for properties classified as primary residences now comes with even more flexible rules.
Capital Gains Tax Exemptions Apply to Various Types of Properties
In fact, with the enactment of Law 56/2023 on October 7, new reinvestment rules came into force that grant exemptions on capital gains taxes arising from the sale of properties such as:
- Primary residences
- Secondary residences
- Properties sold to the State
Exemptions on Capital Gains from the Sale of Primary Residences
Before the implementation of Law 56/2023, any gains from the sale of your primary residence (after settling any related mortgage, if applicable) were exempt from capital gains tax under the IRS code if reinvested in the purchase of another property for the same purpose within 24 months prior to or 36 months following the sale.
With the introduction of this law, the exemption is now only applicable if the property was indeed your primary residence (verified by your fiscal address) for at least 24 months prior to the sale.
As of September 11, the Residency Period Is Reduced to 12 Months
Under Decree-Law 57/2024, a property is considered a primary residence as long as it has been your fiscal domicile for at least 12 months prior to the sale, instead of the previous 24 months.
But There Are Exceptional Situations
The 12-month residency requirement may not apply in exceptional cases outlined in the decree-law, such as changes in family composition due to marriage, civil partnership, divorce, or dissolution of a partnership, or an increase in the number of dependents. In these cases, if the sale occurs due to one of these circumstances, the property is always exempt from capital gains tax under the IRS code. However, documentation proving the underlying situation must be provided.
Other Capital Gains Exemptions on Residential Property Sales
Sale of a Secondary Residence
To be exempt from capital gains tax on the sale of a secondary residence, you must apply the proceeds to the full or partial repayment of a mortgage loan for a primary residence, whether for yourself or a descendant (children or grandchildren). However, this exemption only applies if the sale occurs before December 31, 2024.
It is important to note that reinvesting the capital gains in the purchase of a new primary residence does not qualify for an exemption. The exemption applies solely to the repayment of existing mortgage debt.
Sale of a Property to the State
You are also exempt from paying capital gains tax if you sell a property to the State. However, this is only applicable if your fiscal domicile is in a jurisdiction with a favorable tax regime or if the gains arise from the sale of a property where the State exercised its right of first refusal.
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