Declaring rental income in Portugal: allowable expenses and tax deductions

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8 May 2019, 15:11

Property owners in Portugal who take out home contents insurance cannot deduct it from their property income when they file their IRS income tax returns, because it is considered to be an optional extra by the tax authorities.

Within the scope of the IRS category F for declaring rental income, the Portuguese tax agency only accepts deductions for fire insurance, as it is compulsory in all regular Portuguese properties that are rented. In addition, landlords may deduct the allowable expenses incurred from obtaining the energy performance certificate, as well as paying the Municipal Property Tax (IMI) and the condominium fees. Let’s see what other household expenses are tax deductible in Portugal…

In the case of multi-risk home insurance, which offers a set of optional coverages for damage to the property or its contents, as well as for civil liability, the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira or AT) considers it to be outside the scope of the deductions acceptable for the IRS.

It argues that since multi-risk home insurance is "manifestly optional, the corresponding expenses incurred cannot therefore be considered as eligible for the purposes of Article 41 of the IRS Code", that is to say, for the purposes of deduction from the rental income obtained by the taxpayer who lets out their property.

Tax allowances for home improvement work

In an official clarification issued on 23rd January 2019, the AT also explains that the expenses incurred with the IMI tax and the communal building fees can be considered in their entirety, as can the expenses incurred with the issuance of the energy rating certificate "since they constitute an expense necessarily to be borne for the purposes of the lease".

At the same time, expenses related to the repair/replacement of interior doors, windows, cupboards and kitchen worktops are also deductible, "provided that they are duly and legally proven and cannot legally be considered as furniture".

Under the terms of article 41.7 of the IRS Code, "expenses incurred and paid in the 24 months prior to the start of the rental period in relation to maintenance and conservation works of the property may also be deducted, provided that in the meantime the property has not been used for any purpose other than the lease".

To be able to deduct such allowable expenses from your property income tax, it is strictly necessary for the invoice to identify the property that had work done to it and its exact location, and not only the address of the applicants.