In 2015, an exceptional regime was created (article 11 of Law no. 82-E/2014, of December 31), which provided for exemption from the payment of capital gains on property sales between 2015 and 2020, whose loan agreements had been signed until December 31, 2014. This regime was intended to help families in financial difficulties, who were unable to pay their mortgages or buy a new home even if they sold the house where they lived.
This exemption never applied to those who had more than one property and the legal normative was never transposed to the IRS Code, having ceased at the end of last year.
So, paying off the mortgage with the money from the sale of the house no longer gives IRS exemption on the capital gain, and furthermore in 2021 there is no exemption on the payment of capital gains if you sell the house and don't reinvest in a new one.
In practical terms those who bought a house and took out a bank loan before 2014 could, if they only owned that house, until the end of 2020 sells it and repay the loan, without having to pay IRS on the capital gains, even if they did not buy a new home. However, as of this year this is no longer possible. With the end of the exceptional regime, the general rule has returned, so those who sell their house and pay off the debt (but do not buy another house) will see their capital gains taxed at 50%, and this amount will be included in the household's other income and, subsequently, the progressive IRS rate will be applied in the following year.
Nevertheless, there are some exceptions foreseen in the IRS Code:
As mentioned, in situations where the property sold is the family's home and where the capital gains are used to reinvest in another dwelling (purchase, construction or rehabilitation), also intended as the family's home there is an exemption of capital gains.
Note, however, that this reinvestment must occur between 24 months prior to the sale and 36 months thereafter.
There is also an exemption of capital gains in cases where the taxpayers are in a retirement situation or are over 65 years of age. In these cases, the application of the capital gains value in the acquisition of an insurance contract, pension fund or contribution to the public capitalization regime is considered reinvestment.
Finally, for properties purchased before 1989 it is also possible to be exempt from paying capital gains.
For example, if in 2020 you bought a house for 100 thousand euros and now you have the opportunity to sell it for 150 thousand euros, that means you will have 50 thousand euros of profit and capital gains.
If you do not fit into any of the exceptions mentioned, you will pay taxes on 50% of the profit obtained, meaning, in this case hypothetically, over 25 thousand Euros.
Capital gains are foreseen in the IRS Code, Decree-Law 442-A/88, Section VI, and in the State Budget for 2021, Law 75-B/2020.