Do you know how to declare capital gains on your Portuguese tax return (IRS)? The term capital gains refers to the profit earned from the sale of assets or rights, such as shares, real estate, or other financial investments.
These gains may be subject to IRS taxation, so it is important to understand what must be declared and how to report it correctly.
In this article, we explain everything you need to know.
Capital Gains and IRS: What they are and How to report them
Completing your IRS tax return correctly is essential to avoid tax-related issues.
It is important to remember that any capital gains realised during a given tax year must be included in the IRS return for that tax year, which is submitted in the following year.
As mentioned above, capital gains refer to profits generated from the sale of assets or rights, including shares, property, and other investments.
The first step before completing your tax return is to identify which assets were sold and determine their sale price.
It is worth noting that the sale price corresponds to the amount received from the transaction. However, this amount may be adjusted to include costs directly associated with the sale, such as brokerage commissions or taxes paid as part of the transaction.
The acquisition cost of the asset is also a key factor when calculating capital gains.
How to calculate Capital Gains
Capital gains are calculated as the difference between the sale price and the acquisition cost of the asset sold.
For real estate, the acquisition cost may also include documented expenses for maintenance or improvement works carried out on the property. The resulting amount represents the capital gain that will be subject to taxation.
The applicable tax rate depends on the type of asset sold and the length of time it was held.
For example, gains from the sale of shares are generally taxed at 28%. If the shares have been held for more than 12 months, a reduced tax rate of 14% may apply.
For real estate, the article states that gains are taxed at 50% for properties held for less than two years, reducing to 25% for properties held for more than two years.
How to Declare Capital Gains on your IRS Return
Capital gains must be reported in Box 8 of Annex G of the Portuguese IRS tax return.
In this section, you should provide:
- the asset sold;
- its acquisition value;
- the sale value;
- the amount of capital gain realised.
It is also important to consider the date of each transaction, as sales may occur in different tax years.
Capital gains must generally be declared in the tax return relating to the year in which they were realised.
However, it is also possible to declare the gain in the year the asset was sold, even if payment is only received in a subsequent year.
In addition to gains from the sale of property, losses arising from shares or other financial assets must also be declared.
These losses may be offset against gains realised in the same tax year or carried forward to future years, subject to the applicable rules.
Losses should be reported in Box 9 of Annex G, indicating:
- the type of financial asset;
- its acquisition value;
- the sale value;
- the amount of the loss.
It is important to remember that failing to declare capital gains may result in penalties or even legal proceedings.
The Portuguese Tax Authority has several ways of identifying undeclared transactions, including cross-checking information provided by other parties involved in the transaction, such as buyers or financial intermediaries.
For this reason, make sure you include all relevant information when submitting your IRS return.