Selling a second home for a profit doesn’t always have to end in a hefty IRS bill. Since 2026, there has been a rule that allows tax on capital gains to be avoided in certain situations, as long as the money from the sale has a very specific destination.
According to , the change is the result of Decree-Law nº 97/2026, published in the Official Gazette of the Union, and is part of the package of measures for housing. The rule has retroactive effect to January 1, 2026 and is valid for sales made until December 31, 2029.
What changed in capital gains
Until this change, the reinvestment exemption applied mainly to the sale of permanent homes. In other words, whoever sold the house where they lived could avoid paying income tax on capital gains if they reinvested the amount in another permanent house of their own, within the deadlines set by law.
Second homes were, as a rule, outside. A vacation home, an inherited property or a house that was no longer the main residence could generate taxation on 50% of the capital gain, an amount later included with the taxpayer’s other income.
With the new rule, the exemption may also apply to the sale of a second home, as long as the amount is reinvested in the purchase of another residential property in Portugal, intended for residential rental at moderate prices.
Exemption is not automatic
The sale of the second home is not automatically free from IRS. To benefit from the exemption, the taxpayer must reinvest the realization value, that is, the sale price, less any outstanding credit on the property sold. This amount must be applied to the purchase of another residential property located in national territory. The mandatory destination of the new property is housing rental, respecting the limits defined by law.
Income cannot exceed 2300 euros
One of the central conditions is the value of the income. The property purchased with the reinvestment proceeds must be rented with a monthly rent that does not exceed 2,300 euros during the first five years. This value corresponds to 2.5 times the national minimum wage of 2026, set at 920 euros. The objective is to direct the tax advantage to properties placed on the housing rental market at moderate values.
Contract has a short term
The lease agreement must be concluded within six months from the date of reinvestment or the date of capital gain, whichever is later. Then, the property must be effectively rented for at least 36 months, consecutive or interspersed, in the first five years. This is one of the most important points of the rule. If the property is not rented on time or if you do not meet the minimum period required, the exemption may fall.
You can buy before selling
The law gives some leeway in the order of operations. Reinvestment can be made in the 24 months before the sale or in the 36 months after. This means that the taxpayer can buy the rental property first and sell the second home later, as long as they respect the two-year period. You can also sell first and buy later, having up to three years to reinvest.
Partial reinvestment also counts
The exemption can be total or partial. If only part of the sale value is reinvested, the exemption applies in that proportion. For example, anyone who sells a second home for 200,000 euros and reinvests 100,000 euros in a new rental property will be able to benefit from exemption on half of the capital gains. This possibility can be useful for those who do not want or are unable to reinvest the entire amount received.
The error that can cause you to lose your exemption
The biggest risk is missing one of the conditions. If the taxpayer is unable to rent the property within six months, he or she may lose the exemption retroactively. In this case, the capital gains will again be subject to IRS, plus any compensatory interest. The law allows justified situations, such as urgent works, but it is up to the taxpayer to prove the impediment. A property sitting idle due to convenience, lack of planning or difficulty finding a tenant may not be enough to maintain the benefit.
Selling too early can also be expensive
There is another important pitfall. If the taxpayer sells the property purchased for reinvestment before completing the 36 months of effective lease in the first five years, he runs the risk of losing the exemption. The reason is simple: the tax benefit protects the capital gain on the home originally sold, not the new property itself. Thus, accepting a tempting purchase proposal before meeting the requirements may return a tax invoice that seemed removed.
How much can you save
Ekonomista presents the example of a holiday home sold for 180 thousand euros, purchased in 2005 for 70 thousand euros. After considering monetary devaluation coefficients and documented expenses, the net surplus value could be around R$80 thousand. As only 50% of this value is included in the IR calculation, around R$40,000 would be included.
For a taxpayer with a marginal rate of 37%, the tax could be close to R$14,800. If the sale value is reinvested in a residential property in Portugal, rented within the deadlines and respecting legal limits, this value may remain in the seller’s portfolio.
How to declare with the IRS
The exemption must be indicated in the IRS declaration. In the year of sale, the taxpayer must complete Annex G, declaring the realization value, acquisition value and deductible expenses. Expenses such as IMT and stamp tax paid upon purchase, works carried out in the last 12 years with invoice and NIF, and duly documented real estate intermediation commissions can be considered. In the same annex, the intention to reinvest must be declared, indicating the expected amount. In subsequent years, it will be necessary to prove reinvestment and compliance with leasing rules.
The new rule may be relevant for those who have a second home and are thinking about selling. But it requires planning. It is not enough to sell at a profit and buy another property. It is necessary to respect deadlines, guarantee a rental contract, comply with the rental limit and keep the property rented for the required period. If everything is fulfilled, the tax savings can be significant.
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