Transactions Excluded from Capital Gains Tax

When we sell an asset at a profit, the profit being known as “capital gains,” income tax is generally levied. However, the law provides for several exemptions (for individuals).

Below, we have organized the most common transactions that are not subject to tax, with objective explanations and practical examples.

1) Insurance compensation (accident, theft, or robbery)

If you are compensated by the insurance company for the market value of the insured property, there is no tax on any “gain.”

Example: Car purchased for R$ 42,000 and, after theft, the insurance company compensates R$ 45,000. The “gain” of R$ 3,000 is not taxed.

2) Sale, for up to R$ 440,000, of the seller's only property

Exempts sales equal to or less than R$ 440,000 when the property sold is the seller's only property (individually, in a condominium, or jointly) and there has been no other property sale in the last 5 years. This applies to any type of property (residential, commercial, urban, or rural).

• The limit of R$ 440,000 is per co-owner (in a condominium) or per couple/partners (unless otherwise specified in a written contract).

Example: Single apartment sold for R$ 260,000, purchased for R$ 190,000. No other sales in 5 years. Exempt (the gain of R$ 70,000 is not taxed).

3) Property acquired before 1969

Gains on the sale of property purchased in 1969 or earlier are exempt.

Example: House purchased in 1969 and sold today: no tax on the gain.

4) Sale of residential property with reinvestment of the proceeds in another residential property in Brazil (180-day rule, effective June 16, 2005)

If an individual resident in Brazil sells residential property and, within 180 days of signing the contract, reinvests the proceeds from the sale in the purchase of other residential property in Brazil, the gain may be exempt (in whole or in part).

• Who pays and when? If there is a taxable portion, the tax is due on the last business day of the month following the purchase of the new property.

• This exemption can only be used once every five years and must be declared at the time of assessment.

Example 1 — total exemption: Sells for R$ 250,000 (cost R$ 200,000) ⇒ gain R$ 50,000. Buys another residential property for R$ 250,000 in 60 days ⇒ exempt.

Example 2 — partial exemption: Sells for R$ 250,000 (cost R$ 200,000) ⇒ gain R$ 50,000. Buys another residential property for R$ 180,000 in 30 days. Applied 72% of the proceeds from the sale; 28% not reapplied ⇒ 28% of the gain is taxable: $14,000. Tax (1st bracket 15%) = $2,100.

Please note:

• This does not apply to the purchase of land, detached or enclosed parking spaces, self-builds, renovations, or improvements.

• In the case of multiple sales, the 180-day period starts from the first sale, and the exemption only applies to gains prior to the first residential purchase during that period.

5) Small sales during the month: up to R$ 20,000 (over-the-counter shares) and up to R$ 35,000 (other assets)

The gain is exempt when, in the same month, you sell:

• Up to R$ 20,000 in shares traded on the over-the-counter market (Brazil or abroad); or

• Up to R$ 35,000 in other assets (e.g., vehicles, works of art, jewelry, etc.).

This applies to a set of assets of the same nature in the month and applies per co-owner in a condominium and per community property in a marriage/civil union.

Example: Two motorcycles sold in April for R$ 12,000 and R$ 14,000 (total R$ 26,000). Gains of R$ 2,000 and R$ 1,000 ⇒ exempt.

Please note:

• The limit considers each calendar month and assets of the same nature (e.g., automobiles and motorcycles; urban real estate and bare land; paintings and sculptures).

• It does not apply to the sale of foreign currency in cash (see item 9).

• Not to be confused with interest on financial investments abroad (these are not included in the R$ 35,000 exemption).

6) Exchange of real estate without “return” (no cash difference)

When exchanging real estate units without cash return, there is no taxation on the gain, provided that the deed is drawn up as an exchange (if there is a deed).

Example: Exchange of a house for an apartment, with no cash difference ⇒ exempt.

7) Sale of assets abroad by non-residents in Brazil

Individuals who are not residents in Brazil and who sell assets located abroad or redeem investments abroad do not pay tax in Brazil on these gains.

Example: A non-resident sells a car in the US for US$ 25,000 (cost US$ 20,000) ⇒ not taxed in Brazil.

8) Exchange rate variation on non-interest-bearing current accounts/cards abroad

Exchange rate fluctuations that increase the balance of non-interest-bearing accounts (or debit/credit cards) in recognized banks abroad are not taxed.

Example: Account in the US (unpaid) of US$ 2,000. The dollar rises from R$ 4.00 to R$ 5.00: balance in reais goes from R$ 8,000 to R$ 10,000 ⇒ exempt on the R$ 2,000 variation.

9) Foreign currency cash sales gains up to US$ 5,000 per year

Exchange rate variations on cash sales are exempt if the total amount sold in the calendar year is equal to or less than US$ 5,000.

Example: Purchase US$ 2,000 at R$ 5.00 (R$ 10,000) and sell US$ 2,000 at R$ 6.00 (R$ 12,000) ⇒ exempt on the R$ 2,000 gain (within the annual limit).

Using capital gains exemptions correctly makes a difference in preserving your assets. Contact us to plan, calculate, and document in order to ensure the legal benefit.