Selling Portuguese property as a US resident (2026): Portuguese tax, US tax and the treaty

Which country taxes the gain?

Both. Portugal taxes it because the property is in Portugal. The United States taxes it because US citizens and US residents (including green card holders) pay federal income tax on their worldwide income, wherever they live (IRS Publication 54). The 1994 US–Portugal tax treaty decides who goes first and how the double charge is reduced.

Who taxes what, when

	Portugal	United States (federal)	Your US state
Right to tax	First right, as the country where the property is (treaty article 14(1))	Taxes citizens and residents on worldwide gains; the treaty’s “saving clause” preserves this	Most states with an income tax include the gain; the treaty does not cover state taxes (article 2)
Share of gain taxed	50%	100%, less any home-sale exclusion	Usually 100%
Inflation relief	Yes, coefficient on the purchase price if held 24 months or more	No	No
Currency	Euros	US dollars, each amount converted at the rate on its own date	US dollars
Rate	12.5% to 48%, set by your worldwide income	Held over 1 year: 0%, 15% or 20%; 1 year or less: ordinary rates. Plus 3.8% NIIT at higher incomes	State rates; many tax gains as ordinary income
Relief for the other tax	None; Portugal taxes first	Foreign tax credit for Portuguese tax (Form 1116), capped at the US tax on the gain; not available against the 3.8% NIIT	Often none for foreign tax (California, for example, excludes it)
Return	Modelo 3 with Annex G, 1 April to 30 June of the following year	Form 1040 with Form 8949, Schedule D, Form 1116 and, if relevant, Form 8960	Your state return
Payment	By 31 August of the following year	By 15 April of the following year, with estimated payments during the year	State deadline

How does Portugal tax a US resident?

As a non-resident of Portugal, you are taxed on 50% of the gain at Portugal’s progressive rates of 12.5% to 48% in 2026 (articles 43 and 68 of the Portuguese IRS Code). The rate is set by adding your worldwide income, including US salary, pensions and investment income, to the taxable half of the gain, finding the average rate on that total and applying it to the half gain only. A solidarity surcharge of 2.5% can apply above €80,000 of taxable income.

The gain is the sale price minus the purchase price (multiplied by an inflation coefficient if you held the property for at least 24 months), documented improvement works from the last 12 years, and buying and selling costs such as IMT (transfer tax) paid on purchase and the agent’s commission with 23% VAT.

Myth: non-residents pay a flat 28%. That rule applied to property sales until 31 December 2022. From 1 January 2023, after EU court rulings, the State Budget (Lei 24-D/2022) moved non-residents to the 50% rule. Many websites and some agents still quote 28%. The full method, with the 2026 brackets and examples, is in our guide to capital gains tax for non-residents.

What do I have to file in Portugal, and do I need a fiscal representative?

Nothing is withheld at the deed (escritura): the buyer pays you the full price. You declare the sale on the Portuguese income tax return (Modelo 3, Annex G) for the year of sale, filed online between 1 April and 30 June of the following year, and pay by 31 August (article 97 of the IRS Code). For a sale in 2026, that is April to June 2027.

You need your Portuguese tax number (NIF), which you will have from the purchase, and access to the Portal das Finanças. Because the US is outside the EU and EEA, you must either appoint a fiscal representative in Portugal or sign up to the Portal das Finanças electronic notifications service, which removes the need for one (article 19 of the General Tax Law, since 2023). If you do neither, letters and deadlines can pass you by. Many US sellers give a Portuguese lawyer or accountant authority to file the return. If you will not travel for the deed, see selling with a power of attorney.

How does the US tax the same sale?

You report the sale on Form 8949 and Schedule D of your Form 1040 for the year it closes, with the gain worked out in dollars.

• Held more than one year: long-term gain, taxed at 0%, 15% or 20% depending on taxable income (IRS Topic 409). For 2026 the 15% band ends at $613,700 of taxable income for married couples filing jointly and $545,500 for single filers; the 0% band ends at $98,900 and $49,450 (Revenue Procedure 2025-32).
• Held one year or less: short-term gain, taxed as ordinary income at your normal rates. Portugal would also give no inflation coefficient under 24 months.
• Net investment income tax (NIIT): 3.8% on the smaller of your net investment income and the amount by which your modified adjusted gross income exceeds $250,000 (married filing jointly), $200,000 (single) or $125,000 (married filing separately), on Form 8960 (IRS Topic 559). A large property gain alone can push you over.
• A loss is usually not deductible. If the property was a personal-use home, including a vacation home, a loss on sale is not deductible (IRS Publication 523).

A large one-off gain can also trigger an underpayment penalty unless your withholding and estimated payments cover at least 90% of this year’s tax or 100% of last year’s (IRS Topic 306; higher earners need 110% of last year’s under the Form 1040-ES rules). Plan a payment for the quarter the sale closes.

Can I use the $250,000 / $500,000 home-sale exclusion?

Only if the Portuguese property was your main home. Under section 121 of the Internal Revenue Code, you can exclude up to $250,000 of gain, or $500,000 on a joint return, if you owned the home and lived in it as your main home for at least 24 months of the 5 years before the sale, and have not used the exclusion in the previous 2 years (IRS Publication 523). Section 121 contains no requirement that the home be in the United States.

Two limits matter for Portuguese property:

• Vacation homes do not qualify. Gain linked to periods after 2008 when the property was not your main home (for example, years it was a holiday home or a rental) generally cannot be excluded. Time after you last lived there, within the 5-year window, does not count against you.
• The exclusion does nothing in Portugal. Portugal still taxes 50% of the gain. Its own main-home relief requires the property to have been your Portuguese tax domicile for the 12 months before the sale and the proceeds to be reinvested in another main home in Portugal or the EU/EEA, so it rarely helps someone who has already moved back to the US. Where the US exclusion wipes out the US gain, the Portuguese tax has no US tax to offset and becomes a final cost.

How does the foreign tax credit work?

You work out the US tax on the gain as if Portugal did not exist, then subtract the Portuguese tax on Form 1116. The credit is capped at the US tax on the same foreign income, so you pay roughly the higher of the two countries’ income taxes, not both in full (IRS Publication 514). Gains on a personal or holiday home usually fall in the passive category on Form 1116; confirm this with your preparer.

• If Portuguese tax is lower, you pay the difference to the IRS.
• If Portuguese tax is higher, you owe no more federal income tax on the gain. The excess can be carried back one year and forward ten, but it can only be used against US tax on other foreign income in the same category, which many sellers do not have.

Timing. Portugal assesses the tax around July or August of the year after the sale, after your US return is due. A cash-method taxpayer can tick the “Accrued” box in Part II of Form 1116 on a timely original return. Portuguese tax then counts as accruing at the end of the Portuguese tax year, which is 31 December of the year of sale, so you claim it on the same year’s return using an estimate. Accrued taxes are generally translated at the average exchange rate for that year. If the final Portuguese bill differs, you must notify the IRS of the change, usually with an amended return. The choice to accrue applies to all your foreign taxes in later years too (Publication 514).

Myth: the foreign tax credit covers the 3.8% NIIT. It does not. The NIIT sits in a separate chapter of the Internal Revenue Code from the credit provisions. On 31 August 2026 the US Court of Appeals for the Federal Circuit reversed two lower-court wins (Bruyea, under the Canada treaty, and Christensen, under the France treaty) and held that neither the Code nor those treaties allow the credit against NIIT. The Portugal treaty’s credit article is likewise “subject to the limitations of the law of the United States” (article 25(1)), so expect the same result.

What does the 1994 US–Portugal treaty say about property?

The convention was signed in Washington on 6 September 1994 and generally took effect on 1 January 1996. Four provisions matter to a seller:

Provision	What it says	What it means for you
Article 14(1)	Gains from real property in one country, made by a resident of the other, “may be taxed” in the country where the property is	Portugal can tax your gain; the US is not stopped from taxing it too
Protocol, paragraph 1(b)	The “saving clause”: the US may tax its citizens as if the treaty had not come into effect	The treaty never exempts a US citizen from US tax on the gain
Article 25(1)	The US gives a credit for income tax paid to Portugal, subject to US law limitations	This is the Form 1116 credit, with its cap and its NIIT exclusion
Article 2(1)	Covers Portuguese IRS and US federal income taxes	State income taxes are outside the treaty

The treaty also re-sources income for US citizens who live in Portugal (article 25(2)). That matters if you are Portuguese resident when you sell; see the section below.

Why does the exchange rate change my US gain?

The IRS does not take the euro gain and convert it. Your functional currency is the dollar (Publication 54), and each amount is converted at the exchange rate when you pay or receive it (IRS, “Foreign currency and currency exchange rates”): the purchase price and purchase costs at the rate on the purchase date, works at the rate when you paid for them, and the sale price and selling costs at the rate on the sale date. Portugal’s inflation coefficient plays no part.

If the dollar has weakened against the euro since you bought, your US gain is larger than the euro gain. If it has strengthened, the US gain shrinks, and on a personal-use home a resulting loss is not deductible.

Two smaller currency points come from section 988 of the Code:

• A euro mortgage. Repaying it when the dollar is stronger than when you borrowed can create a taxable currency gain, while a currency loss on a personal loan is generally not deductible. Ask your preparer before closing.
• Euro proceeds held and converted later. A currency gain on a personal transaction is taxable only if it exceeds $200 per transaction (section 988(e)).

Worked example: both taxes on one sale

A married couple living in the US, filing jointly, bought an Algarve villa as a holiday home in 2017 for €350,000, paid €24,000 in purchase taxes and costs, spent €30,000 on works in 2020, and sell in October 2026 for €620,000 with 5% commission plus 23% VAT and a €200 energy certificate. Their other income is $160,000 a year (about €138,000), and they take the 2026 standard deduction of $32,200. No section 121 exclusion, because it was never their main home. Exchange rates and purchase costs are illustrative, not historical.

Portugal (in euros), computed with the 2026 brackets and the 2025 coefficient table (the 2026 table is due around November 2026)

Step	Calculation	€
Sale price		620,000
Purchase price × 2017 coefficient	350,000 × 1.18	−413,000
Purchase costs (IMT, stamp duty, deed)	assumed	−24,000
Works in 2020	invoiced	−30,000
Agent commission	620,000 × 5% × 1.23	−38,130
Energy certificate		−200
Gain		114,670
Taxable half		57,335
Total for rate (half gain + €138,000 income)		195,335
Tax on total	195,335 × 48% − 11,387.17	82,374
Average rate	82,374 ÷ 195,335	42.17%
Tax on the half gain	57,335 × 42.17%	24,178
Solidarity surcharge	taxable gain under €80,000	0
Portuguese tax	payable by 31 August 2027	24,178

That is 21.1% of the euro gain.

United States (in dollars)

Item	€	$ per €	$
Sale price less commission and certificate (Oct 2026)	581,670	1.16	674,737
Purchase price and costs (2017)	374,000	1.13	−422,620
Works (2020)	30,000	1.14	−34,200
Long-term gain			217,917
Federal tax at 15% (taxable income $345,717, inside the 15% band)			32,688
Less Portuguese tax (€24,178 at 1.16 average rate)			−28,047
Federal income tax left to pay			4,641
NIIT: 3.8% × ($377,917 MAGI − $250,000)			4,861
Extra US federal tax			9,502

The US gain of $217,917 is far larger than the euro gain converted at today’s rate (114,670 × 1.16 = $133,017), because the US allows no inflation coefficient and the dollar is assumed weaker than at purchase. Total tax is about $37,548 (Portugal $28,047 plus US $9,502), before any state tax. A state with a flat 5% rate and no credit for foreign tax would add about $10,896. Model the Portuguese side with your own numbers in the selling calculator.

Same sale, different exchange rates

Only the dollar rate on the sale date changes; the purchase stays at $1.13 and the Portuguese tax is converted at the same rate as the sale for simplicity.

$ per € at sale	US gain	Federal tax at 15%	Credit used	Federal income tax due	NIIT	Unused Portuguese credit
1.00	$124,850	$18,728	$18,728	$0	$1,324	$5,451
1.05	$153,934	$23,090	$23,090	$0	$2,429	$2,297
1.16	$217,917	$32,688	$28,047	$4,641	$4,861	$0
1.25	$270,268	$40,540	$30,223	$10,317	$6,850	$0

The same €620,000 sale produces US gains that differ by about $145,000. At a strong dollar, the Portuguese tax exceeds the US income tax and the couple still owes NIIT.

What if it was our main home?

Change one fact: the couple lived in the villa as their main home from 2017 until 2025, then moved back to the US and sold in 2026. They meet the 24-out-of-60-months test, and the time since they moved out falls within the 5-year window, so their $217,917 US gain is inside the $500,000 joint exclusion. US federal tax and NIIT on the gain are both zero, because excluded gain is not net investment income (Topic 559). Portugal still taxes them as non-residents at the time of sale, so the €24,178 stays payable, with no US tax to credit it against. If they had stayed Portuguese resident until the sale, Portugal would tax them as residents instead (see below).

What reporting applies to the proceeds in a Portuguese bank?

The property itself is not reportable on the FBAR or Form 8938 if you hold it directly. The bank account that receives the proceeds is (IRS, “Comparison of Form 8938 and FBAR requirements”):

Report	When you must file	Where
FBAR (FinCEN Form 114)	Your foreign accounts together exceed $10,000 at any time in the calendar year	Filed electronically with FinCEN, not the IRS; due 15 April, automatic extension to 15 October
Form 8938 (FATCA)	Living in the US: over $50,000 at year-end or $75,000 at any time (single); $100,000 / $150,000 (joint)	Attached to your Form 1040
Form 8938 (FATCA), living abroad	Over $200,000 at year-end or $300,000 at any time (single); $400,000 / $600,000 (joint)	Attached to your Form 1040

Sale proceeds of several hundred thousand euros sitting in a Portuguese account for even one day will trigger both. The Form 8938 penalty for failing to file is up to $10,000, rising with continued failure after an IRS notice, and FBAR penalties are higher for wilful failures.

Does my state also tax the gain?

Probably, if your state has an income tax. The treaty covers only federal tax, and states set their own rules on foreign tax. California’s Schedule S instructions, for example, allow a credit only for net income tax paid to another US state or US possession and list “taxes paid to any foreign country” among those that do not count. In states like that, the Portuguese tax gives no state relief at all, so the state tax is a full extra cost. States without an income tax, such as Florida and Texas, charge nothing. Check your own state’s rules before you agree a price.

What if I live in Portugal, or abroad, when I sell?

• US citizen resident in Portugal. Portugal taxes you as a resident: 50% of the gain added to your other income at progressive rates, with main-home and reinvestment reliefs possibly available. The US still taxes you as a citizen, with the credit for Portuguese tax, and the section 121 exclusion may apply if it is your main home. Your US return is due 15 June if you live abroad (Publication 54), and the Form 8938 thresholds are the higher “living abroad” ones.
• US citizen living in a third country. Portugal taxes you as a non-resident as above, and the US taxes you as a citizen; your country of residence may tax the gain too, under its own treaty with Portugal.

Key points

• Portugal taxes 50% of the gain at 12.5% to 48%, set by your worldwide income; the flat 28% rate ended in 2023. Declare on Annex G and pay by 31 August of the following year.
• The US taxes the full gain in dollars at 0%, 15% or 20% (long-term), plus 3.8% NIIT above $250,000 / $200,000 of MAGI, and credits Portuguese tax on Form 1116, but not against NIIT.
• Purchase and sale are converted at the dollar rate on each date, so currency moves can change the US gain by six figures.
• The $250,000 / $500,000 exclusion works for a Portuguese main home, not a holiday home, and does not reduce the Portuguese tax.
• The 1994 treaty lets Portugal tax first; its saving clause means it never exempts a US citizen, and it does not cover state taxes.
• File an FBAR and probably Form 8938 for the year the proceeds land in a Portuguese bank.