For U.S. citizens living abroad, taxes can be daunting – but there are solid ways to reduce your bill even while investing in Portugal. Here are five deductions and benefits you can confidently rely on today (September 2, 2025).
1. Foreign Earned Income Exclusion (FEIE)
- Limit for 2025: $130,000 of foreign-earned income excluded from U.S. taxation. Global Citizen Solutions KPMG
- Qualification tests:
- Physical Presence: At least 330 full days abroad in a 12-month window.
- Bona Fide Residence: Establish uninterrupted residence in Portugal for an entire tax year.
- Physical Presence: At least 330 full days abroad in a 12-month window.
Plain English: If you live in Portugal most of the year or make it your real home, you can tell the IRS: “Don’t tax me on my first $130,000 of income – I already live and pay taxes abroad.”
2. Foreign Housing Exclusion / Deduction
Allows eligible expats to exclude or deduct certain housing costs:
- Base housing amount: $20,800 (16% of FEIE). Titan Wealth
- General maximum: $39,000, unless local exception applies. Global Citizen Solutions
Plain English: Rent, utilities, and other housing costs in Portugal can also be partly written off, on top of the $130,000 income exclusion. This helps if you’re renting in pricier areas.
3. Foreign Tax Credit (FTC)
Use Form 1116 to claim a dollar-for-dollar U.S. tax credit for eligible Portuguese income taxes (e.g., on income or gains). Global Citizen Solutions
Note: You cannot use FTC on income already excluded via FEIE or housing exclusion.
Plain English: If Portugal already taxed your income, you don’t have to pay U.S. tax on it again. Think of it as showing your IRS receipt so you aren’t taxed twice.
4. U.S.–Portugal Income Tax Treaty
A comprehensive income tax treaty exists to prevent double taxation and works alongside FTC to further protect expats from being taxed twice. beaconglobalwealth.com
Plain English: The U.S. and Portugal have a tax agreement that says, “You shouldn’t be taxed twice on the same money.”
5. Mortgage Interest & Property Taxes
- Mortgage interest on foreign property may be deductible if it qualifies as “acquisition debt,” subject to U.S. limits. KPMG
- Foreign personal residence property taxes are not deductible under U.S. law (2018–2025). Deductibility applies only if the property is rented as an investment.
Plain English: If you have a mortgage on a home in Portugal, the interest might reduce your U.S. tax bill. But property taxes only count if the home is a rental property.
A Note on Portugal’s Tax Regimes (NHR & IFICI)
- The original NHR regime closed to new applicants on 1 January 2024. Existing holders retain benefits for the remainder of their 10‑year term.
- It was replaced by IFICI (also known as NHR 2.0), effective 1 January 2024. This regime targets professionals in innovation, research, and similar fields. Benefits include:
- Flat 20% tax rate on eligible Portuguese-source employment and self-employment income.
- Exemption from Portuguese tax on most foreign-source income, excluding pensions.
- Flat 20% tax rate on eligible Portuguese-source employment and self-employment income.
Plain English: If you got NHR before 2024, you’re still covered. If you moved after, you may qualify for the new IFICI regime – but it’s narrower, meant for specific careers.
Why This Matters for Buyers in Lagos, Algarve
Lower U.S. tax obligations, via FEIE, housing exclusion, FTC, or mortgage interest deductions, mean more disposable income to apply toward property. Especially in Lagos, these strategies help to budget and make real estate investment decisions.
Summary Table (2025 Verified Figures)
| Benefit | Details |
| FEIE | Exclude up to $130,000 of foreign-earned income (2025) |
| Housing Exclusion | Base: $20,800; Max: $39,000 (Lisbon/Alverca cap $40,000) |
| Foreign Tax Credit | Credit for Portuguese taxes paid (not on excluded income) |
| Tax Treaty | U.S.–Portugal treaty helps avoid double taxation |
| Mortgage Interest Deduction | Deductible if acquisition debt; property taxes not deductible for personal residences |
| NHR → IFICI | NHR closed 2024; IFICI offers new regime for innovation professionals |
For up to date advice, it is always recommended to consult an experienced local Portuguese accountant, who is able to assist and advise on the topic of taxation.
