Did you know that selling a property used in your business or profession can be taxed under the rules of IRS category B — IRS being Portuguese personal income tax — instead of the usual property capital gains rules?
The difference in tax can be significant, especially for self-employed workers and owners of properties run as alojamento local, Portugal’s licensed short-term rentals.
How is the gain taxed?
When a property is used in the business, the gain on its sale may be treated as category B income, the category for business and professional income.
Under the simplified regime, a coefficient of 0.95 generally applies to the positive balance of capital gains and losses attributable to the business, under article 31 of the IRS Code.
In practice, on a taxable gain of €100,000, €95,000 may be taken into account to determine taxable income.
What if you take the property out of the business before selling?
Careful! Moving the property into your private assets does not mean its sale is immediately taxed under category G, the capital gains category.
Under article 10, no. 16, of the IRS Code, if the sale happens less than three years after the transfer to private assets, the gain is still taxed under category B rules.
After that period, the sale may fall under category G, depending on the specific situation and the property’s tax history.
Before you sell, get advice
Using a property in your business can have significant tax consequences, even after the business has stopped.
Before selling, check the dates when the property was brought into and taken out of the business, the applicable tax regime and whether any exemption may apply.