Rental Income Tax in Portugal: How Categoria F Works

• Rental income (Categoria F) is taxed at a flat autonomous rate of 28%, cut to 25% specifically for housing leases — or you can elect to add it to your other income instead.
• You can deduct maintenance, condo fees, IMI, stamp duty, and rent-guarantee insurance actually paid — not mortgage interest, depreciation, furniture, or the property's purchase price.
• Sign a habitational lease for 5 years or more and the rate drops in steps, down to as low as 5% for contracts of 20 years or more.
• Short lets run as Alojamento Local aren't Categoria F at all — they're Categoria B business income, usually taxed on a share of gross receipts under the regime simplificado.

Categoria F is the IRS category for rendimentos prediais — rent from urban, rural, or mixed-use properties paid or made available to the owner. It covers more than the obvious monthly rent: it also reaches money for letting out installed machinery or furniture, the margin a sublandlord keeps between what they charge and what they pay the owner, letting out common areas of a building for things like advertising, and compensation paid for lost rental income. If the property is genuinely part of a business or professional activity you run, you can opt to have that rental income taxed under Categoria B instead — otherwise it defaults to Categoria F.

The tax rate: a flat rate, separate from your other income

Net rental income is taxed autonomously — as a flat rate applied on its own, not stacked on top of your salary or added into your tax bracket. Most rendimentos prediais are taxed at 28%. Income specifically from a habitational lease (arrendamento habitacional) gets a lower flat rate of 25%. Either way, you're not stuck with the autonomous rate: the law lets you opt instead to englobar this income — add it to your total taxable income and pay the ordinary progressive IRS rates on it. That only pays off if your overall marginal rate ends up below 25–28%, so it's worth checking both ways before you file.

What you can (and can't) deduct

• Deductible: any expense genuinely incurred and paid to obtain or maintain the rental income — maintenance and conservation work, mandatory condominium charges, IMI (municipal property tax) and stamp duty paid in that same tax year, and rent-guarantee insurance premiums.
• Conservation and maintenance costs paid up to 24 months before the lease even started still count, as long as the property wasn't put to any other use in the meantime.
• Not deductible: financial costs such as mortgage interest, depreciation, furniture, appliances, and comfort or decoration items, and the Adicional ao IMI (AIMI) — none of these reduce your taxable rental income.
• The property's purchase price itself isn't deducted from rental income at all — it only comes into play later, as the acquisition cost used to work out any capital gain when you eventually sell.
• If you sublet, the margin between the rent you charge and the rent you pay the owner gets no deduction of its own.

Lower rates for longer habitational leases

These reductions only apply to permanent habitational leases and step down further on renewal at the same duration (an extra 2 percentage points per renewal for the 5–10-year tier, capped at 10 points total). Bring the contract to an early end for a reason attributable to you as landlord, though, and you lose the benefit retroactively — you'll need to declare that and pay back the difference between what you paid and what the standard rate would have cost, plus interest.

Short lets: Alojamento Local isn't Categoria F

Alojamento Local (AL) is legally defined as an establishment providing temporary lodging services — to tourists, among others — for payment. Because that's a service, not a plain letting of the property, AL income falls under Categoria B (business and professional income), not Categoria F, from the moment you register the activity.

Under the regime simplificado, taxable income from a moradia- or apartamento-type AL is worked out by applying a coefficient to your gross receipts: 0.35 in general, rising to 0.50 if the property sits in a municipally designated 'área de contenção' (a zone with restrictions on new AL registrations). The resulting figure is then added to your other income and taxed at the ordinary progressive IRS rates — there's no flat autonomous rate here, unlike Categoria F.