Nobody likes selling stocks, ETFs or funds below the purchase price. But the truth is those losses do not have to go uncompensated - Portuguese law lets you use capital losses to reduce IRS over the following five years.
How it works
The principle is simple: capital losses offset capital gains, and only the difference is taxed. If in one year you have €5,000 in gains and €2,000 in losses from previous years, only €3,000 count for tax purposes.
Capital losses work as a carry-forward "credit" consumed over the next five years. Imagine you booked €3,000 in losses in 2025:
- In 2026, you have €2,000 in gains → you offset everything and still have €1,000 left
- In 2027, you have €3,500 in gains → you use the remaining €1,000 and the carry-forward is exhausted
- From 2030 onwards, anything unused is lost
The essential rule: you must aggregate
Here is what many people miss: to use capital losses you must opt for aggregation (englobamento) on your IRS return, both in the year of the losses and in the years you wish to offset them. Without aggregation, no compensation is possible.
Aggregation means adding investment income to other income for the year, all taxed at general IRS rates.
Does aggregation always pay off?
It depends. The autonomous taxation of capital gains on stocks, ETFs and funds works like this:
- 28% - general rule
- 25.2% - assets held between 2 and 5 years
- 22.4% - assets held between 5 and 8 years
- 19.6% - assets held for more than 8 years
Aggregation only pays off if your resulting effective IRS rate is lower than the applicable autonomous rate. If your losses exceed the year''s gains (leaving no taxable base), aggregating is almost always advantageous.
Practical tip: when filling out the return, always simulate both scenarios before deciding.
Where to declare
Investments go in one of two annexes:
- Annex G (table 9) - when received through a Portuguese broker or institution reporting to the AT. Aggregation option in table 15.
- Annex J (table 9.2A) - when using foreign platforms or Portuguese ones that do not report to the AT. Aggregation option in table 9.2C.
If in doubt, request the tax report from your broker - many provide documents indicating exactly which annex to fill in.
Watch out: some are required to aggregate
If you held the assets for less than 365 days and your taxable income is equal to or above the top IRS bracket (€83,696 in 2025), aggregation is no longer optional - it becomes mandatory.
In summary
Selling at a loss hurts, but if you know how to leverage the IRS rules, you can at least cushion the blow over the next five years. Just aggregate, do the math and declare correctly.
