Selling your home and reinvesting to rent: the new capital gains tax regime

A new tax framework

Selling a residential property and putting the proceeds into a property to rent out now has its own tax framework.

A new regime, created by Decree-Law no. 97/2026 and reflected in the IRS Code, allows the capital gains from that sale to be excluded from IRS, provided the reinvestment meets a set of conditions.

For anyone considering selling, or who has recently sold, some rules make all the difference. The first is the sale date; the second is how the proceeds are reinvested and placed on the rental market.

Who does the new regime apply to?

The regime covers sales of permanent own homes and other residential properties completed between 1 January 2026 and 31 December 2029.

For this regime, what counts is the sale date, not the reinvestment date. A sale completed in 2025 is therefore outside the regime, even if the reinvestment takes place in 2026.

The relevant amount is not necessarily the gross sale price. The law considers the realisation value, less the repayment of any loan taken out to acquire the property sold.

Within what timeframe must the reinvestment be made?

The reinvestment may take place between 24 months before and 36 months after the sale date.

This window allows the rental property to be acquired before or after the sale of the property giving rise to the capital gain.

There is, however, a formal step that cannot be overlooked: the intention to reinvest, even partially, must be declared in the IRS return for the year of the sale, stating the amount.

This means the decision to reinvest should not be left until after the sale. It is advisable to plan ahead, especially if the purchase of the rental property has not yet been completed.

What conditions must the acquired property meet?

The property acquired with the sale proceeds must be located in Portugal and intended for residential rental.

In addition, the monthly rent may not exceed the maximum limits set under Decree-Law no. 97/2026.

Buying the property is not enough: a residential lease must be signed within six months, counted from the reinvestment or from the date the capital gain is realised, if later.

The law allows an exception where there is a justified impediment, such as the need for urgent works, for the strictly necessary period.

The property must also remain under one or more residential leases for at least 36 months, consecutive or not, within the first five years.

During those five years, the rent charged may not exceed the legal limits applicable to the regime.

There is another relevant condition: the property acquired through the reinvestment may not be transferred, for consideration or free of charge, for five years, counted from the reinvestment or the realisation date, if later.

What if only part of the amount is reinvested?

The reinvestment does not have to be total.

If only part of the sale proceeds is reinvested, the exclusion applies in proportion to the amount invested, provided the remaining conditions of the IRS Code are met.

For example, if part of the amount is used to acquire a property for residential rental and the rest is kept or used for another purpose, only the proportion corresponding to the amount actually reinvested may benefit from the exclusion.

This may be relevant for those who wish to diversify the use of the sale proceeds, but it requires careful planning of the amount, timing and documentation.

What happens if the conditions are not met?

The benefit may be lost if the acquired property is not let within the legal deadline, does not remain let for the minimum required period, if the rent exceeds the set limits, or if the property acquired through the reinvestment is sold or transferred within the first five years.

Before proceeding, it is therefore essential to confirm not only the viability of the purchase but also the rental strategy: the type of lease, the rent, the time to market and the ability to hold the investment for the required period.

What should be checked before deciding?

Before going ahead with the sale or purchase, it is worth confirming whether the property being sold qualifies as residential under the law; whether the sale will take place between 1 January 2026 and 31 December 2029; whether the reinvestment fits the window of 24 months before to 36 months after the sale; whether the intention to reinvest is declared in the IRS return for the year of sale, with the amount; whether the property to be acquired is in Portugal and can be used for residential rental; whether the expected rent respects the regime's maximum limits; whether a lease can be signed within six months of the reinvestment or sale, as applicable; whether it is realistic to keep the property let for at least 36 months in the first five years; whether you intend to keep the property for at least five years; and what share of the proceeds you actually intend to reinvest and its possible tax impact.

A tax decision that starts with a property decision

This regime can make selling a residential property more advantageous when the goal is to reinvest in rental housing.

But the benefit depends on well-sequenced choices: when to sell, what to buy, at what rent to let, and how to ensure the legal deadlines and conditions are met.