Portugal Rental Income Tax Guide 2026 — IRS Inclusion & Deductions

Category F — Rental Income Classification

Rental income (rendimentos prediais) in Portugal is classified as Category F under IRS (Código do IRS, Article 8). This includes: income from leasing or subleasing urban property (buildings, apartments, commercial premises); income from leasing rural property (agricultural land); income from leasing of equipment and machinery if connected to property; and income from premiums or compensation for termination or assignment of lease agreements. Rental income is included in your annual IRS return and taxed at the progressive IRS rates (13–48%), not at a flat rate. This means rental income is aggregated with your other income (employment, self-employment, pensions) and subject to the overall progressive tax scale. However, only a percentage of the gross rental income is actually taxable — the law provides a deduction coefficient (coeficiente de dedução) that reduces the taxable amount. For long-term leases (arrendamento para habitação permanente), only 65% of the gross rental income is taxable (i.e., 35% is automatically deducted as a deemed expense). For short-term leases and commercial property, the coefficient is 75% (25% deemed deduction). These deemed deductions apply unless you opt for the declaração de rendimentos com contabilidade (actual expense regime), where you deduct real expenses instead of the deemed coefficient. The deemed deduction is simpler but may result in higher tax if your actual expenses exceed 35% of rental income.

Deductible Expenses for Rental Income

If you opt for the actual expense regime (regime de contabilidade), you can deduct the following expenses from your gross rental income: IMI (municipal property tax) paid during the year; condominium fees paid to the building association (for apartments in shared buildings); insurance premiums for the property (multi-risk, fire, liability); maintenance and repair costs (painting, plumbing, electrical — but not capital improvements which increase the property's value); management fees paid to a property manager or agency; interest on loans used to acquire, build, or improve the rental property (limited to the interest on mortgages for rental properties — this is a significant deduction for leveraged properties); legal and notary fees related to lease contracts; condominium extraordinary works (approved by the condominium assembly); and depreciation (depreciação) of the property at 2% per year of the acquisition cost (excluding land value). The actual expense regime is mandatory if your gross rental income exceeds €200,000 per year or if you opt in voluntarily. You must keep proper accounting records and submit Annex F of Modelo 3 with expense details. Expenses must be documented with invoices that include your NIF (tax number). If expenses exceed rental income in a year, the loss can be carried forward for 5 years to offset future rental income.

Short-Term Rentals (Alojamento Local — AL)

Alojamento Local (AL) — short-term tourist accommodation (e.g., Airbnb, Booking.com) — has specific tax rules. AL income is classified as Category B (self-employment/business income), not Category F (rental income), if you provide additional services beyond simple accommodation (e.g., daily cleaning, breakfast, linen changes, reception). The AT determines the classification based on the level of services provided. If you only rent the property without additional services, AL income is treated as Category F. Category B treatment allows deduction of a wider range of business expenses, but also requires registration as a trabalhador independente (self-employed) and payment of social security contributions (21.4% on 70% of income). Under Category B, the applicable IRS coefficient for AL income is 0.35 (under the regime simplificado — meaning 35% of income is deemed taxable, or 65% is deemed expenses). You can also opt for contabilidade organizada (full accounting) to deduct actual expenses. AL properties must be registered with the RNAL (Registo Nacional de Alojamento Local) through the Portal do Alojamento Local. Municipalities can impose additional restrictions on AL in high-density areas (e.g., Lisbon, Porto may have moratoriums on new AL registrations). AL income is subject to the IVA (VAT) exemption threshold (€12,500 turnover) — above this, VAT at 6% (reduced rate for accommodation) applies to the accommodation component.

Withholding Tax on Rental Income

If you are a non-resident landlord leasing property in Portugal, the tenant (or a Portuguese resident agent) must withhold tax at source on the rental income. The withholding rate is 25% for non-residents (or 28% if the non-resident opts for the 28% flat rate on Category F income — see below). For resident landlords, tenants are generally not required to withhold tax on residential leases. However, for commercial leases and leases where the tenant is a company or business, the tenant must withhold IRS at a rate of 25% (or the progressive rate option if the landlord elects). The withheld amounts are credited against the landlord's final IRS liability when they file their annual Modelo 3 return. If you are a resident landlord with only rental income, you can request periodic withholdings to be reduced or eliminated by applying to the AT (requerimento de redução de retenção). This is common when the deemed deduction (35%) already significantly reduces taxable income. Landlords who are professionals in real estate (empresário de arrendamento) — defined as renting 5+ properties or having €20,000+ annual rental income — must register as a business and charge IVA (VAT) on rentals at 23% (commercial) or 6% (residential with services), and may be required to file periodic VAT returns.

Capital Gains on Property Sales (Mais-Valias)

When you sell a rental property, the capital gain (mais-valia) is taxed under Category G of IRS. The gain is calculated as: sale price minus acquisition cost minus expenses directly related to the sale (e.g., agent commissions, notary fees, stamp duty). Only 50% of the gain is included in taxable income (aggregated at progressive rates of 13–48%). If the property was held for more than 24 months, only 50% of the gain is taxable. If sold within 24 months, the full gain is taxable. If you sell your primary residence and reinvest the proceeds in another primary residence in Portugal (or within the EU/EEA) within 36 months, the gain is exempt from tax. This reinvestment exemption does not typically apply to rental properties unless they were your primary residence. For non-residents selling Portuguese property, capital gains are taxed at a flat 28% (or 50% inclusion at progressive rates if they elect). If you hold a property through a company (Lda/SA) and sell it, the gain is included in the company's taxable profit under IRC at 21% (17% for SMEs). Careful planning of property disposals, especially in the year you plan to leave Portugal or change residency, is essential to minimise tax on property gains.

IMI and IMT — Property Taxes for Landlords

Rental property owners must pay IMI (Imposto Municipal sobre Imóveis) — the annual municipal property tax. IMI is calculated on the VPT (Valor Patrimonial Tributário) — the tax value assessed by the AT — at rates of 0.3% to 0.45% for urban properties (depending on the municipality and the year of reassessment). For rural properties, the rate is 0.8%. IMI is normally paid in one instalment if under €100 (May), or in two instalments (May and November) if between €100 and €500, or three instalments (May, August, November) for amounts over €500. IMI is deductible as an expense against rental income if you use the actual expense regime. IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) is a one-time tax paid by the buyer on property acquisition. For rental property purchases, IMT is paid at rates from 1% to 8% depending on the property value and intended use. IMT is not deductible as an expense but is added to the acquisition cost for capital gains calculation. Landlords should also consider: stamp duty (Imposto do Selo) at 0.8% on the purchase price, and AIMI (Adicional ao IMI) — an additional IMI of 0.4% to 1.5% on residential properties owned by companies or individuals with total VPT above €600,000 (for individuals) or €1,000,000 (for companies).

FAQs

Can I deduct mortgage interest on my rental property?

Yes — if you use the actual expense regime (contabilidade), mortgage interest on loans used to acquire, build, or improve the rental property is fully deductible. Under the simplified regime (deemed deduction), you cannot deduct interest separately.

What is the difference between Category F and Category B for rentals?

Category F (rental income) is for simple property leasing without additional services — taxed at progressive IRS rates on 65% of income. Category B (self-employment) is for short-term lets with services (e.g., Airbnb with cleaning) — allows broader expense deductions but requires social security contributions.

Do I pay IRS on imputed rental income (affection to own home)?

No — the imputed rental income (rendimento predial imputado) for owner-occupied properties was abolished from 1 January 2023. You no longer pay tax on the hypothetical rental value of your own home.

Can I offset rental income losses against other income?

No — rental income losses (expenses exceeding income) can only be carried forward to offset future rental income, up to 5 years. They cannot offset employment, business, or investment income.

How does IRS Jovem apply to rental income?

IRS Jovem (youth tax relief) generally applies to Category A (employment) and Category B (self-employment) income, not Category F (rental) income. If you also work and benefit from IRS Jovem, your rental income is taxed separately at standard progressive rates.

Disclaimer

This guide provides general information about rental income taxation in Portugal and does not constitute legal or tax advice. Tax rules, coefficients, and rates may change. Consult a qualified Portuguese accountant (contabilista certificado) or tax advisor for advice tailored to your property and investment portfolio. For official information, visit the Autoridade Tributária at portaldasfinancas.gov.pt and the Portal do Alojamento Local at alojamentolocal.portaldasfinancas.gov.pt.