The sale of real estate in Portugal often involves various costs. Among these, recurring doubts arise about whether expenses with lawyers, solicitors, and experts can be deducted to calculate capital gains in the IRS (Portuguese Personal Income Tax). The Portuguese Tax and Customs Authority (AT) has consistently rejected the deductibility of these expenses, arguing that their involvement is not essential to completing the sale, but rather a choice made by the parties involved. Is this position legally supported? Let’s examine the issue in light of the law, court rulings, and administrative doctrine.
What Does the Law Say?
Article 51(1)(a) of the IRS Code (CIRS) states that, for capital gains calculations, the acquisition value is increased by:
“the costs of improving the property, verifiably carried out within the last five years, and the necessary and effectively incurred expenses, inherent to the acquisition and sale.”
The phrase “necessary and effectively incurred expenses, inherent to the acquisition and sale” is central to the analysis. The law requires that the expenses be necessary and inseparable from buying or selling the property.
What Do the Courts Say?
Court rulings have been clear and consistent: only expenses that are objectively necessary and inseparable from the acquisition or sale of the property are deductible. That is, those without which the transaction could not take place.
The Supreme Administrative Court, in a 2024 ruling, clarified:
“Expenses are considered necessary when they are unequivocally connected to the specific transaction giving rise to the taxable capital gain (e.g., real estate agency or brokerage commissions), and any other expenses, such as those related to eviction proceedings, do not fall under this category.”
(Supreme Administrative Court Ruling, January 11, 2024)
Similarly, the Southern Central Administrative Court emphasised:
“Only expenses directly related to the acquisition or sale of the property can be considered for determining the taxable capital gain in IRS — that is, expenses that are inseparable from the transaction itself, not those unrelated or upstream of the operation.”
(Southern Central Administrative Court Ruling, April 14, 2015)
Examples of Accepted and Non-Accepted Expenses
Accepted:
Real estate agency commissions are considered as long as they are adequately documented and directly related to the transaction.
Costs with deeds and property registration;
Legally mandated expenses, such as energy certification.
(CAAD Ruling, January 31, 2013)
Not Accepted:
Lawyers’, solicitors’, and experts’ fees, unless their involvement is legally required for the completion of the sale;
Court or arbitration costs related to ancillary disputes;
Expenses associated with contract breaches or prior disputes.
(Supreme Administrative Court Ruling, November 10, 2021)
Energy Certification: A Special Case
Energy certification is a paradigmatic example of a mandatory and thus deductible expense. Since 2009, obtaining an energy certificate has been a legal requirement for selling real estate, and its cost is accepted as a deductible expense for capital gains purposes.
(CAAD Ruling, January 31, 2013)
Conclusion
The AT’s position is supported by the law and court decisions: expenses with lawyers, solicitors, and experts are generally not deductible for IRS capital gains purposes unless their involvement is legally required for the transaction to proceed. Only objectively necessary and inseparable expenses from the sale operation may be considered.
Recommendation: Before declaring expenses as deductible, ensure they are either legally required or necessary to complete the sale and adequately documented and unequivocally connected to the transaction. When in doubt, contact a tax professional.
Sources:
Supreme Administrative Court Ruling, January 11, 2024
Southern Central Administrative Court Ruling, April 14, 2015
Supreme Administrative Court Ruling, November 10, 2021
CAAD Ruling, January 31, 2013
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