The sale of a property must always be declared to the IRS in order to calculate capital gains. Capital gains refer to the profit that has been made and should always be considered in the context of a purchase or sale. They are calculated by the Tax Authority through a calculation that will include various factors, such as the price at which the house was bought, the price at which it was sold and the monetary appreciation at both times. Generally, half of the value of the capital gains will be subject to IRS taxation, with the tax payable subsequently depending on the seller's income and expenses, as well as whether or not the capital gains have been reinvested.
Filling in Annex G
In the year following the sale or purchase of a property, these transactions must be recorded in the IRS tax return, whether or not they have generated capital gains. To do this, simply add Annex G to the tax return and fill in box 4 with the information relating to the property, such as the date and value of the purchase and sale.
Deadline for investing the profit from the property in a permanent home
To reinvest the capital gains and avoid paying tax on them, you can buy a new property for your permanent home up to 24 months before the sale, or up to 36 months after the sale. If you have bought a new home, or intend to do so, you must declare it in Annex G (box 5).
Include expenses with the property
Also in box 4 of annex G, expenses associated with the property sold/acquired and which may influence the reduction in the potential value of the capital gains should be included, such as works to upgrade the property carried out in the last 12 years, requesting an energy certificate, taxes paid at the time of acquisition or real estate brokerage expenses. It is important to note that the taxpayer must be able to prove these expenses.
Taxation differs according to age
The over-65s can benefit from a reduction or exemption from capital gains tax on the sale of a property, even if they don't buy another home. For this to be possible, they must invest in an insurance contract (such as a Savings and Retirement Plan), a pension fund or contributions to the public capitalization scheme (“PPR do Estado”), up to six months after the date of sale of the property.
Source: Doutor Finanças