Rental income on your IRS: category F or B?

Rita inherited the old flat, rented it out and, at her first IRS declaration, panics: does this count as “freelance income”? Do I have to open atividade? What rate do I pay, the 28% everyone talks about? And if I pay for repairs and condomínio, does any of it come off?

Good news: long-term letting is category F (rendimentos prediais), almost always without opening atividade, and you can deduct more than you think. Your salary and your rent are separate things, each with its own rules (we covered that in the article on the 2026 housing tax shock). Let’s get to what decides everything.

Category F or category B? The question that decides everything

This is the fork that changes the whole declaration. The most common mistake is to assume any letting is an “activity” and that you have to open recibos verdes. That’s not how it works.

By default, passive letting is category F. The law says rents are category F “when they do not opt for taxation under category B” - that is, you may opt for category B, but you’re not obliged to.

Where does it change? With alojamento local (AL, Airbnb, per-night letting). The Ficha Doutrinária (Proc. 3269/2018) distinguishes three cases:

• You run the AL yourself (you do the short-stay letting) → category B (business income, art. 4.º n.º 1 h). You need atividade and a licence.
• You own it and merely let the property to whoever runs the AL → for you it’s category F (it’s a letting), unless you opt for B; the operator is the one with category B.
• You hold an AL and cede the operation of the establishment to someone else (cession of the business) → category B for both.

Rule of thumb: if you just let a flat long-term → F, no atividade. If you run it yourself as short-stay letting → B, with atividade and a licence. If your situation is on the border (say, you ceded the operation), check with an accountant before deciding - getting this classification wrong changes the whole declaration.

What you can deduct (and what you can’t)

Here’s what almost nobody knows: from rental income you can deduct the expenses actually paid to earn the rent, property by property (art. 41.º of the CIRS). You don’t pay tax on the gross rent, but on the rent minus those expenses.

What you can deduct:

• IMI and municipal charges
• Condomínio
• Conservation and maintenance
• Mandatory property insurance (e.g. fire) and rent-guarantee insurance (a voluntary multirisk policy isn’t accepted)
• Energy certificate
• Estate-agent commission (documented)
• Expenses from the 24 months before letting (conservation and maintenance, if the property had no other use in the meantime)

What you cannot deduct (express exclusions in art. 41.º n.º 1):

• Mortgage interest and other financing costs - this is mistake number one
• Furniture, appliances and comfort or decoration items (including repairs to those appliances)
• Depreciation and AIMI

Two useful notes: IMI and condomínio are deductible in full (in the year there is taxable income); if you only let part of the property, then yes, you split the expenses by VPT or area.

Note: the interest on the bank loan does not go into this sum, however much it hurts. It’s the most misunderstood exclusion in letting.

How much you pay: the rate and long contracts

No, it isn’t “28% for everything”. The Mais Habitação law (Lei 56/2023) reorganised this:

• Habitacional (residential): base rate 25%
• Não habitacional (shops, offices, land): 28% (art. 72.º n.º 1 e)

And there’s a ladder of reduced rates by contract length for permanent-home lettings (art. 72.º):

Beyond duration, two adjustments can push the rate down further (art. 72.º):

• Renewals: on a 5-to-10-year contract, each renewal of equal length lowers the rate by a further 2 percentage points, up to a limit of 10 p.p. A contract renewed several times thus edges towards the rates of the longer contracts.
• Lower rent: for contracts that already qualify for a duration reduction (permanent-residence lettings of five years or more), a new contract with rent at least 5% below the previous contract on the same property gets an additional 5-percentage-point reduction.

Watch two things. First, the old benefit for 2-to-5-year contracts was abolished by Lei 56/2023 - don’t count on it. Second, for contracts signed from 1/1/2024, these reductions only apply if the monthly rent does not exceed by more than 50% the per-typology, per-concelho limits of Portaria 176/2019; otherwise there is no reduction. So the ladder isn’t a pure function of duration. Two warnings on long contracts: those already on an old reduced rate keep it only until the term ends or the contract renews (renewals from 7 Oct 2023 move to the new regime); and if you end a long contract early for a reason attributable to you, the reduction is cancelled retroactively (art. 72.º).

If you read in the article on the 2026 housing tax shock that there’s a reduced 10% rate for housing, that’s a different, temporary rental-support regime (EBF art. 45.º-C), in force since 1 January 2026 and running to 2029, subject to rent limits. The logic is simple: it applies at most 10%, or less if your long contract already has a lower rate - so a 20-year contract already at 5% does not start paying 10%.

Two final notes. You can opt for englobamento: instead of the autonomous rate, you add your net rental income to the progressive IRS brackets - worth it if your total income is low, but always calculate both options before you submit. And if your tenant has organised accounts (a company), they apply a 25% retenção na fonte - or 10% if the rent falls under the EBF art. 45.º-C regime -, which works as a payment on account (a credit). There’s an exemption if your category F income stays below the art. 53.º CIVA threshold (€15,000 since 2025) and you note it on the receipt; plus another, since 1 July 2025, when each calculated withholding is under €25.

What if the flat is abroad?

Tiago lives in Portugal and rents out a flat in Russia. Here the rule changes: income from property abroad does not go in Anexo F - it goes in Anexo J (a Portuguese tax resident declares worldwide income). And note: the 25/15/10/5% rate ladder does not apply abroad; in Anexo J foreign rental income is taxed at the special rate of 28% or by englobamento.

Good news for anyone who also has recibos verdes: having category F income does not make you lose the category B new-activity discount (only category A/H would), and the same holds for rent abroad. The specifics of the non-habitual resident (NHR) status are worth an article of their own, so here we stick to the essentials.

Warning: The two costliest mistakes with rental income. First: thinking the rate is “28% for everything” - residential is 25% (base), and less still for longer permanent-home contracts. Second: assuming mortgage interest is deductible - it isn’t. And if your situation involves alojamento local, letting property abroad, NHR or long contracts, check with an accountant before you submit.

✅ In summary

1. Category F or B decides everything: long-term letting is category F (Anexo F, usually no atividade); alojamento local that you run yourself is category B (with atividade and a licence). Getting this classification wrong changes the whole declaration.

2. You deduct more than you think, but not everything: IMI, condomínio, conservation, obligatory insurance and estate-agent commission come off; mortgage interest and furniture don’t. And the residential rate is 25% (base); for permanent-home contracts it drops to 15%, 10% or 5% depending on the length - not “28% for everything”.

3. With FIZ you handle your category F with fewer headaches: the system computes your net rental income (rent minus the property expenses), gives you an estimate of the autonomous rate based on the contract date (you confirm the eligibility and the exact rate yourself) and fills in the rental fields for standard contracts. See the plans.