Capital Gains Tax is one of the major taxes involved with real estate, and we’ll cover the essentials below.
Introduction
Taxes are indeed inescapable and the real estate industry is no exception. I am sure a lot of real estate investors are very much interested to know the taxes involved in investing as they significantly impact the total cost of acquiring a property.
What may seem like a good deal may turn out to be a bad one, if all the taxes are factored in. So before you go ahead and plunge into the world of real estate investing, I suggest you take the time to study taxes. For this post, I will be discussing capital gains tax on real estate.
I’ll try to discuss capital gains tax on real estate in layman’s terms, based on what I have learned, for purposes of information-sharing. A disclaimer is in order of course: While great effort has been taken to ensure the accuracy of the discussion here as of its writing, this is not intended to replace seeking professional services. Do read up on the relevant laws and regulations also.
Capital Gains Tax vs. Income Tax
When there is a sale of real estate, automatically people think that they have to pay Capital Gains Tax (CGT). This is not necessarily the case. CGT is a tax on the gain from the sale of capital assets. Regular corporate income tax (RCIT) [for corporations] and regular income tax [for individuals] apply to the sale of ordinary assets while CGT applies to the sale of capital assets.
Thus, we first have to determine whether the asset being sold is a capital or an ordinary asset so as to know the proper tax rate to be used and the BIR form to be used, among others.
Capital assets vs. Ordinary assets
The term “capital assets” is defined negatively in Section 39(A)(1) of the Tax Code as follows:
“(1) Capital Assets. – the term ‘capital assets’ means property held by the taxpayer (whether or not connected with his trade or business), but does not include
• stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or
• property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or
• property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34;
• or real property used in trade or business of the taxpayer.”
As applied to the real estate industry, the terms “capital assets” and “ordinary assets” are defined in Section 2(c) of Revenue Regulations (RR) No. 7-2003 dated December 27, 2002. It’s essentially the same as the above definition.
It has an additional provision, though, on real properties acquired by banks through foreclosure sales – the same are considered as their ordinary assets but banks shall not be considered as habitually engaged in the real estate business for purposes of determining the applicable rate of expanded withholding tax.
Since we are talking about the sale of real property here, we need to know the definition of “real property”. Section 2(c) of RR No. 7-2003 states that “Real property shall have the same meaning attributed to that term under Article 415 of Republic Act No. 386, otherwise known as the “Civil Code of the Philippines.” Article 415 of the Civil Code provides:
“Art. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
(2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable;
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements;
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;
(6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant;
(9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast;
(10) Contracts for public works, and servitudes and other real rights over immovable property.”
Thus, it appears that it is not only the sale of land and buildings or houses which we should be focusing on, but also the sale of the above.
As RR No. 7-2003 is a very important rule on real estate, I have included the said regulations in this post for your reference. Read it in its entirety. You may download a copy here. Answers to frequently asked questions can be found in this document.
In simple terms, if the property is not ordinarily held for sale (as inventory) or used in business and subject to depreciation, then the property is a capital asset. Now, if a seller is engaged in the real estate business, and the property is one he holds out for sale to the public, then the property may be considered as an ordinary asset.
[Note that there may be instances when a seller is engaged in the real estate business but the property is not held for sale or used in business or was idle for a long time – this is one of the instances when the property may be considered a capital asset.]
Conversely, if a seller is not engaged in the real estate business, and the property is not used in business and subject to depreciation, the property may be considered as a capital asset, the sale of which is subject to CGT.
Section 3 of RR No. 7-2003 provides the Guidelines in Determining Whether a Particular Real Property is a Capital Asset or Ordinary Asset.
Tax Rate to be Used
When the real property which is a capital asset to the seller is sold, the gross selling price or fair market value (FMV) [zonal value], whichever is higher, will be subject to 6% CGT. Please refer to the BIR website http://www.bir.gov.ph/index.php/zonal-values.html for the zonal values.
Technically, it’s not really only the gain (selling price less cost) which is taxed, because even if the seller suffered a loss (that is, the selling price is lower than the original acquisition cost of the property), there will still be CGT, because a gain is always presumed.
On the other hand, if the seller is engaged in the real estate business, and the real property sold is an ordinary asset, the sale will be subject to RCIT [or minimum corporate income tax (MCIT), when applicable] if the taxpayer is a corporation and income tax if the seller is an individual.
The proceeds from the sale of the real property will be included in the seller’s global income (meaning income from all sources – note that domestic corporations and resident citizens are taxed on all sources of income, whether from within or outside the country) and only the net income, after allowable deductions such as depreciation, losses, etc. will be subjected to RCIT, MCIT, or regular income tax, whichever is applicable.
Under Republic Act No. 9337, the RCIT is now 30% on net taxable income (beginning on January 1, 2009, down from 35%). The regular income tax for individuals remains at 32%.
Please note that there is an exception to the application of the CGT, and that is the sale of a principal residence (your own home). This deserves a separate discussion as I intend to take advantage of this when we purchase our next residence.
BIR procedure
Assuming that you are interested in buying a property from a seller who is an individual and who is not engaged in the real estate business, the seller needs to pay CGT on the sale of his real property, unless you have made an agreement that you as the buyer will shoulder this.
The seller needs to file BIR Form No. 1706 within thirty (30) days after each sale, exchange, transfer or other disposition of real property. You can download BIR Form No. 1706 here.
Documentary Requirements
1 ) One original copy and one photocopy of the Notarized Deed of Sale or Exchange
2 ) Photocopy of the Transfer Certificate of Title; Original Certificate of Title; or Condominium Certificate of Title
3 ) Certified True Copy of the tax declaration on the lot and/or improvement during nearest time of sale
4 ) “Certificate of No Improvement” issued by the Assessor’s office where the property has no declared improvement, if applicable or Sworn Declaration/Affidavit of No Improvement by at least one (1) of the transferees
5 ) Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable
6 ) Duly approved Tax Debit Memo, if applicable
7 ) “Sworn Declaration of Interest” as prescribed under Revenue Regulations 13-99, if the transaction is tax-exempt
8 ) Documents supporting the exemption
Additional requirements may be requested for presentation during audit of the tax case depending upon existing audit procedures.
How to Pay and File the Capital Gains Tax Return
You just have to file the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the property is located, along with the documentary requirements and the tax due.
In places where there are no AAB, the return will be filed directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer. You can view the Revenue District Offices (RDO) here: http://www.bir.gov.ph/directory/rdo.htm. Click on the concerned RDO.
For example, if you click on RDO 48 – West Makati, you will get to http://www.bir.gov.ph/directory/rdoinner.htm#48. The names of the Revenue District Officer and Assistant Revenue District Officer as well as their contact numbers and e-mail addresses, and the address of the Revenue District Office and the AAB’s within the said RDO may be found there.
Sample CGT computation
A residential condominium in Makati City with a floor area of 50sqm has a Selling Price (SP) of 1.0M. The existing zonal value per square meter for that condo in Makati is currently Php50,000/sqm. You have called the owner and found out that he is not engaged in the real estate business.
He also told you that as part of the deal, the buyer shall shoulder the CGT. As the buyer, how much is the CGT which you will have to pay the seller on top of the selling price?
First let’s compute for the Fair market Value (FMV):
FMV=Zonal Value x Floor Area
=50,000 pesos/sqm x 50sqm
=2,500,000 pesos
Since FMV is higher than SP, we shall use FMV to compute the CGT:
CGT=6% x FMV
=0.06 x 2,500,000 pesos
=150,000 pesos
Therefore, the buyer shall have to shell out an additional 150,000 pesos.
Note that while technically, the CGT is always the responsibility of the seller, and that if the buyer shoulders the CGT, it is in effect part of the selling price to be compared to FMV for purposes of computing the 6% CGT, I noted that the practice of banks is to compute the CGT this way.
Now, what if you called up the seller and told him that you are willing to buy the property but he should shoulder the capital gains tax as the seller, then he counters your offer and says he is willing to shoulder the CGT up to his selling price and the buyer shall shoulder the CGT for the excess or the difference between the SP and FMV, how do you compute for the CGT?
First, let’s compute for the excess or difference between the SP and the FMV:
Excess=FMV-SP
=2,500,000pesos – 1,000,000pesos
=1,500,000 pesos
Now, let’s compute for the CGT to be shouldered by the buyer:
CGT for the buyer =6% x Excess
=0.06 x 1,500,000 pesos
=90,000 pesos
The CGT to be shouldered by the seller is as follows:
CGT=6% x SP
=0.06 x 1,000,000 pesos
=60,000 pesos
Take note that the total CGT is 90,000 pesos + 60,000 pesos = 150,000 pesos, which is consistent with our first computation. The CGT was just split between the buyer and the seller.
As investors, we should always try to negotiate for the best terms and in relation to this particular example, always try to have the other party shoulder the CGT.
The seller will still be the one to file the CGT and he shall have to file the return in an Authorized Agent Bank within the Revenue District where the property is located in Makati, within 30 days the deed of sale was executed.
Capital Gains Tax Calculator
Conclusion
The BIR website (http://www.bir.gov.ph) has a wealth of information on taxes. Refer to it from time to time. The BIR also has a 24-hour contact center (Telephone number 981-8888) and you can call them if you have any questions.
You may also e-mail them at [email protected]. You can also ask me through the comments section and I will do my best to research the answer.
In my next posts, I will be discussing Value-Added Tax (VAT), expanded withholding taxes (EWT) a.k.a. creditable withholding taxes (CWT)**, Real Property Taxes (RPT), Transfer Taxes (TT), CGT on the sale of a principal residence, and estate taxes (as I am sure many of you are also interested in transferring your properties to your heirs in the future – remember, aside from taxes, death is certain too).
Let me know, through the comments section , if you have any other taxes you would like to know about, or if there’s anything you would like to have any clarification on.
In closing, please remember that as an investor, one should always consider the capital gains tax in real estate transactions. Failure to do so could mean your real estate capital gains will just get eaten up by the corresponding capital gains tax and turn what looked like a good deal into a bad one.
Till then, happy investing!
*This article was originally authored by Jay Castillo but was written mostly by his wife Cherry Vi Castillo, who is a certified public accountant, lawyer, licensed real estate broker/appraiser. Authorship has been turned-over to Cherry so she can update this article as needed. 🙂
Hello Jay,
Good Day to you!!
My friend works abroad and have decided to live there. He left his property stop paying his mortgage in pag-ibig fund for two years now. i’m interested in continuing his payments under my name. pls let me knoe what are the procedures in acquiring his house from pag-ibig.
thanks,
greg
Hi Greg, my advice would be for you to check with Pag-ibig first if the property has been foreclosed already. If not, check with them how you can take over the loan of your friend. As far as I know, you will also have to qualify for a pag-ibig loan, and you may have to pay for any penalties/interest that may have accrued, unless they agree to waive these. I highly suggest you attend the loan counseling sessions at Pag-IBIG’s office at the Atrium in Makati to get more details. Thanks for the comment!
‘glad to know ur website sir. I am really forced to check with u, kc first time kong bumili house & lot at just today I got the deed of sale (400,000 pesos)signed in a law office at nalaman ko na malaki laki rin pala ang babayaran ko na Gain Tax, considering na 7% ng valuation ng assesor (estimatedly 28,000 pesos). At meron pa palang 2 years na amilyar na hindi nababayaran ng may-ari (not businessman) ng haus & lot, so ako na rin ang nagbayad in his name kasi kasi medyo malayo na ring lupalop ang may-ari. I also found out na eversince ay walang TIN no. yung may-ari pero may mga resibo sya ng mga previous annual payments. and for processing the transfer of land title, I was advised by the law office (1) to obtain a TIN no. of the owner kasi irerequest daw yung ng BIR, (2) obtain tax declaration for the land from assessor’s office (3) true copy of land title.
My questions are:
(a) Ano-ano at estimatedly magkano pa po ba ang expected na babayaran sa pagproseso ng transfer?
(b) magkano po ang ilalaan ko sa mga fees?
(c) Right now, I don’t have cash for the Gain tax, is there any options from the gov’t for me to pay for it, like installment? or promissory note kc next year pa ako magkakaroon ng cash.
(4) due to relocation, malayo na po yung may-ari, and he is going to US soon, papaano po kung hindi sya makapagfile ng TIN no.?
Thank u po sa site nyo, very helpful and accessible. (first time kong magresearch about tax kc may penalty pala after 30 days kapag hindi nadeclare sa BIR and after 60 days kapag hindi naprocess ang transfer…
sandali lang po mag apply ng TIN sa District Office ng BIR pinakamalapit sa inyo.
If need my help you may contact me at [email protected]
can i have sample affidavit of interest to exempt capital gains tax.
Hi. I just bought a foreclosed properties owned by the GSIS. Do i have to pay capital gains tax or is it exempt being a government property? Thanks a lot.
Hi Genalyn, as far as the BIR is concerned, as long as there is an exchange in ownership, applicable taxes must be paid, CGT in this case, and it does not matter if the property was purchased from a government institution like the GSIS. Thanks for visiting!
Hello Jay,
Good Day..
November 2008 i lend 350,000 pesos to a friend colateralize by their house and lot(2000 sq/m). The said land is not yet titled and still unsubdivided. They bought it from their friend. Theres no title but theres a tax dec. The original area of the land is 4 hectares and they only bought a piece of land(2000 sq/m).
After a year we extend the contract because they have no money to pay all back. We agreed to extend for 7 months which due on June 2010 this year but unfortunately they still have no money.
Now what we are going to do is to repossess the said property and register it into my name and get a title on it under my name. They required me to pass the capital gain tax from the first owner and another capital gain tax to the 2nd buyer to transfer it on my name. in short i am the 3rd party to own the property(2000 sq/m).
Now my question is(are)
1. Since the original area is 4 hectares and the property involve is only 2000 sq/m. Which 1 or which area that i oblige to pay CGT to transfer it in my name?
Sincerely,
Mr LI
Panglao Bohol
Maybe I can be of help. if you have not yet resolved your problem, you may contact me at [email protected]
llo:Ten tears ago I entered into an agreement where the seller criminally misrepresented a piece of property and in fact wrote the deed of sale including property they did not own.When I found out i asked for return of the money paid as the property was worthless to me.The seller absconded with the money.After ten years in court and legal fees of 250,000 peso’s I was awarded the property and damages however cannot collect the damages.The BIR wants 150,000 in CGT that was the obligation of the buyer by contract.
My question is that I do not want the property but was forced to file suit to recuperate my investment and my intent is to sell it to do so.Do I have to pay the 150,000 so it can be transfered to my name?
Thank You
Reply
Hi Gary,
Unfortunately, you will really have to pay the CGT in order for you to transfer the property to your name. Without it, you won’t get the Certificate Authorizing Registration or CAR, which is a requirement for the title transfer. I’m sad that it took 10 years and a big amount in legal fees, but I am glad you won.
Cheers!
Hello:Ten tears ago I entered into an agreement where the seller criminally misrepresented a piece of property and in fact wrote the deed of sale including property they did not own.When I found out i asked for return of the money paid as the property was worthless to me.The seller absconded with the money.After ten years in court and legal fees of 250,000 peso’s I was awarded the property and damages however cannot collect the damages.The BIR wants 150,000 in CGT that was the obligation of the buyer by contract.
My question is that I do not want the property but was forced to file suit to recuperate my investment and my intent is to sell it to do so.Do I have to pay the 150,000 so it can be transfered to my name?
Thank You
Are grave lots sold subject of documentary stamps, capital gain tax or value added tax?
Hi Bal,
Honestly, I am not really sure. Let me check and get back to you on this. Thanks for the question.
Hi Bal, i asked around and so far the response I got is generally, when a memorial lot is sold, the sellers don’t issue TCT’s for the lot, what they issue a Certificate of Ownership originating from their office. They also don’t charge taxes, just burial expenses, the certificate charge and VAT. I hope this helps.
Hi Jay, we have a piece of land which we intend to convert into a cemetery. It adjoins the Roman Catholic Cemetery so we see no other use for it but a cemetery. Are grave lots subject to all these real estate taxes such as Documentary stamps, capital gain tax and value added tax. I shall be very grateful if you can enlighten me on this.
Thanks and regards.
BAL
Hi,
I would like to ask if rent-to-own properties are subject to capital gain tax? I am planning to sell my property after the buy back guarantee on November. Can you please clarify this.
Thanks a bunch.
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Hi! My wife and I are purchasing a house and lot thru a owner financed agreement. We agreed to pay all transfer costs including CGT. Once we complete the payments and obtain the deed of sale, is their a time limit on paying the CGT and transfer fees to put the property in our name. We will not immediately have the funds to cover the taxes right away and will need time to accumulate the funds to cover the taxes. Or will the Bir allow a payment schedule on the taxes owed. I would really prefer not to do it thru bank loan. Any advice would be greatly appreciated. Thanks in advance.
Donny
Hi Donny, the deadline for the filing of CGT is 30 days after the sale. This is reflected on the deed of absolute sale as the date when it was notarized. My advice would be for you to execute the deed of sale only when you already have the money to complete the payments plus the CGT. In addition, the deadline for the payment of Transfer Tax is 60 days after you execute the deed of sale. i hope this helps, thanks for dropping by!
Hi Donny, in addition, DST is also due (5) days after the close of the month when the taxable document was made signed, issued, accepted or transferred, in this case, the deed of absolute sale.
Hi Jay. Thanks so much for the info, very helpfull. One other question arises. Lets say we finish the payments, get the Deed of sale and pay the CGT, DST etc and transfer the title to my wife, I am a foreiner so it cant be in my name. Anyway 6months later we sell the property and end up required to pay the CGT again on the same property as the seller. Once the sale is complete we purchase another property as our primary residence. The 2 previously paid CGT’s can be applied to our new property purchase since it is within 18 months of the previously paid CGT’s. Yes??? Very strange circumstance. Ever heard of this happening? Thanks in advance and I might add that I think you are really helping a good number of people through what is at best organized chaos!!!
Hi! This is very informative, indeed. My question is re the 12% VAT on the sale of real property. I recently won in the bidding to purchase a foreclosed property of one of the big banks here. A friend of mine also won another lot from the same bank last year. The bank charged my friend for the bid price + EWT + DST + Notarial Fee, etc. Having this information from my friend, I assumed that it will be the same with my purchase this year, only to realized when I went to their office that I still have to pay for 12% VAT (based on Zonal Value as it is higher than the bank’s selling price). They told me that they have made a mistake in the tax computations last year and that effective this year, they are now charging 12% VAT on all real estate sale. Is there really instances where a sale of real property is subject to 12% VAT. I assumed that since the properties are considered capital assets, they are not subject to VAT. Thank you.
Hi Faye, yes you are correct. VAT is only applicable to ordinary assets. As far as I know, banks are VAT exempt when it comes to the selling of their aquired assets and this is stated in BIR Ruling No. DA-216-07 dated April 4, 2007, which noted that banks are exempt from VAT.
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We bought a hectare of agric. land in 1997 via Deed of abs sale and tax declaration.
We just sold the property as it is last year, verbally informing our buyers that we had no title for the land. Our Buyer/seller agreement says that all fees to register the property including surveys & relocation fees be paid for by the buyer. The land has been paid in full. Deed of absolute sale has been drawn and executed in favor of our buyers.
Our buyers tried to register it last year. They were not able to because the land is not titled in our names. The orig. owner gave us a photocopy of the original title which included another parcel of land in addition to what we had bought from him. The orig. owner died five years ago, and we heard that his estate and capital gains taxes plus penalties need to be paid first before the property is registered in our names as his Buyer, to be transferred eventually to our Buyer. We found out all these when our buyers failed to register it in their names. So what we did, because of the huge expense estimate, we verbally agreed to share cost with our buyers on a 50-50 sharing, with our share not to exceed 75,000.00 php, thinking that the cost estimate is inclusive of all fees. We found out lately that our buyers do not want to share with us on the survey fees. So now it’s still in limbo. Can we get back to the original contract?
Question??? Are we as sellers for the new transaction, given the above scenario, responsible in paying for the original owner’s estate and capital gains taxes and penalty fees?
Can we have the property that we bought re-titled since original title from the orig. owner includes another property? Can this be retitled under the Free Patent Act 2010?
I appreciate very much your time and advise.
Hi Nati, in my opinion, you should not be responsible for paying for the original owner’s estate and capital gains taxes and penalty fees although the property cannot be transferred because of this. It would be best to consult this with a lawyer that specializes on this.
maybe i can help you with your problem, just contact me with my email add if you [email protected]
Hi, Jay!
Thank you for creating this very informative blog. I wish to consult our situation to you. My mom and her 8 siblings inherited a property in Paranaque. The TCT is under their names. Four of them, including my mom, already died; one of them is already 10 years dead; my mom 6 years; and the remaining 2, 3 years. We are planning to sell the property. But we are very worried about the amount of estate tax that the BIR will imposed on us. Could you please give me a simple computation of the estate tax? We are selling the property for Php2,500.000.00. The property’s zonal value is Php5,000.00 @ 360sq.m. Please advise. Thank you and more power to you.
Hi Jay,
Thank you so much for this blog, it really is informative. I have an on-going transaction of property here in Antipolo & the seller’s condition was for the buyer to shoulder the cgt. as of now my client is thinking it over with their lawyer and waiting for their advice. in this event, i might have ideas for my next transactions. God bless you & keep us inform. Thanks
Hi Niña, you’re welcome and thank you for the compliment. I pray for a successful and win-win deal for all parties!
Hi, can you help me? I was trying to look for an answer on my problem re:Capital Gain Tax but I can’t find any. I hope you can help me. I was an agent before in one of the real state company here in our country.My hubby’s friend bought a 1.9M house&lot property but after paying d 14% down payment she decided to cancel the transaction.And since, i was the one who issued the post dated checks on her behalf we decided to continue paying it. We are now on the process of transferring the name/ownership to our names but the developer was asking us to pay the Capital Gain Tax and Documentary stamp before processing the transfer of ownership. My questions was,do we really obliged to pay the CGT & the documentary stamp since the property is not fully paid and doesn’t have a Title yet? I hope you can help me on this problem. Thank you in advance and more power.
Hi Daisy, I am assuming the transfer of ownership is from the developer to you right? In that case, please ask the developer if it is really CGT or CWT that should be paid. Normally, the seller shoulders the CGT but the cost can actually be passed on by the seller to the buyer if you as the buyer will agree to it. Maybe you can check with your hubby’s friend if this was their original arrangement. I hope this helps. Just let me know if you have further questions. Thanks for visiting!
what if i purchase the land @ a loss kasi i purchased the land @ 180000php. It started kasi as utang hanggang s lumaki ng lumaki.. but FMV ng lupa is around 170000. apno ang calculation po nun….e di loss n po un db
Hi Kathe, 180,000 ba yung nasa deed of sale? Whichever is higher dun sa nasa deed of sale or FMV ang magiging tax base.
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Very informative post. Thanks for posting.
.-= office furniture ortigas´s last blog ..RP’s top 25 contact centers post P68.5B revenue for 2007 =-.
wow, thanks for all the info. A contractor is asking my selling price for my lot in Pasig, so I’m looking for info on how much I would discount my price so I could tell him to assume all the transfer costs. When I bought this lot several years ago, I did all the paperwork, but now, it seems that there are a lot of taxes I’m so overwhelmed. Last night, I thought my family can get some good profits and pay debts; now, they will go to taxes? Anyway, thanks for all the articles. Will find more articles to read here….
Hi Naya, you’re welcome and I do hope you still get some profit from the transaction. Thanks for visiting and please don’t hesitate to let me know if you need help in finding articles/topics here in foreclosurephilippines.com. 🙂
your blog is very informative. i’m planning to buy my 1st house and was browsing the ‘net for information on real estate investing when i chanced upon ur blog.. i’ve learned so much in just an hour of reading. keept it up.
Hi Michelle, thanks a lot for the compliment! Good luck in buying your first house and I hope you will treat it as an investment. 🙂
If you have any questions, please don’t hesitate to ask.
Hi Jay,
I really need your expertise on this. I am trying to transfer the rights to pay of my condo to someone else. In short, I am technically selling my unit via the assume balance scheme. However, my agent told me that I need to pay capital gains tax apart from the transfer fees of 25k. I asked her how would this be possible since I don’t have the deed of sale yet nor the title to the condo unit. My friend’s sister have her condo’s balance assumed by someone else and she only paid for the transfer fees. Can you please advise what fees I need to pay before I can transfer the rights to pay to someone else. My developer is empire east and my condo is in california garden square. I really wanted to know how the “assume balance” scheme works since I am moving to singapore soon.
thanks in advance
Hi Arnel, with transfer of rights, you don’t need to pay capital gains tax. You really have to ask the developer why they insist on this as they have no basis. I believe that even if you have this assessed by the BIR, they will ask for the deed of absolute sale.
Sir,
just two months back, I purchased a lot at orchard cavite through BDO Realty which is payable in four years with zero interest.Now my question is, talaga bang ako ang magbabayad ng CGT at ngayon na, since our contract is in four years time.
hoping to hear from you soon .
Yhank you very much,
emil
Hi Emil, CGT can be shouldered by the buyer, it really depends on the purchase agreement. As for when the CGT should be paid, as far as I know if you are going to pay more than 25% of the contract price in the current year, then yes, CGT will have to be paid now.
sir,
just 2 months back, i purchace alot in orchard cavite through BDO realty which is payable in four years without interest.now my question is, talaga bang ako ang dapat na magbayad ng cgt at ngayon na, since our contract is in four years.
hope to hear from you soon.
thank you very much
emil
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Sir,
About May 21, 2009 I invested in a foreclosed condo unit, paid the 30% downpayment, signed a Contract to Sell, and was also assessed an additional CGT/CWT as the buying price was said to be lower than the BIR Zonal Valuation. This makes it clear that taxes have been paid even if the sale was not yet fully consummated.
As it was an investment, I flipped the property less than a month after (June 9, 2009) and sold it to another person. I then paid the bank in full and gave them copy of a Deed of Assignment and Transfer of Rights of the condo unit to the third party.
Problem is, now the bank people want me to pay them (again) Capital Gains Tax in full. Is this right?
My presumption is that the CGT/CWT allocated in the 1st instance was not yet paid to the BIR as that was not yet a consummated Sale. At the consummation of the sale, albeit transferred to a third party, the bank people are asking me to pay what I believe has been appropriated for in the first place.
Please comment.
Thanks and God bless!
Ave
Hi Ave, would you have a trail that would establish they already paid the CGT or CWT? Banks can pay CWT to the BIR even if you are not yet fully paid. This is currently the practice of one bank I know where I bought some properties from. Of course you should not be made to pay for something twice.
hi jay
i bought a property sa imus cavite last rcbc auction for P4.247M the bank paid P254,820 for CGT. my question is if the land area is 698 smq and the zonal value P2,750 = P1,919,500 x 6% = P115,170.00 will i pay extra if the condition’s buyer will pay difference if zonal value much higher than selling value? sorry hindi ko alam ito kung ito lang zonal value ang basis pero yung house kasali ba ito sa computation?…
regards
olan
Hi Olan, yes, the house or improvement should be included in the computation for the total zonal value. The zonal value of the improvement should be indicated on the updated tax declaration for the house. The total zonal value is the zonal value of the land(P1,919,500) plus the zonal value of the house. Once you get this, you can then determine if CGT should be based on the SP or the zonal value. CGT is 6% of the Selling Price or Zonal value, whichever is higher.
I had a condominium office unit foreclosed by bank for P 6,800,000.oo. Title was consolidated by Bank. After few years of arguing with bank in court the bank agreed to sell it back to me for P 1,500,000.00 on the condition that I must take care of payment of Capital Gain Tax and Docs stamps tax. Pls let me know abt the 2 taxes as I am the original owner buying back my own property from Bank who foreclosed it or is covered by any other withholding tax. As far as I know Bank ROPOA are considered ordinary assets and not subject to Tax upon sale as Bank is reconveying back to same original owner same property. Rgds.
Best n urgent reply appreciated. Rgds, ZOREN SILVA
Hi Zoren, I’m glad that your were able to buy back your condo unit! You are correct, bank ROPOA’s are considered as ordinary assets. Instead of CGT, the correct tax would be creditable withholding tax (CWT). Please refer to https://www.foreclosurephilippines.com/2009/03/creditable-withholding-tax-in-real.html for more info on CWT. DST on the other hand is 1.5% of the Selling price or Zonal value, whichever is higher, which you as the buyer will have to shoulder. Just let me know if you need further info.
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Hi Jay,
I have a question regarding conditional exemption of Final Capital Gains Tax when it is used to acquire another principal residence within 180 days.
My question is whether you can still avail the exemption if the sequence is reversed – when you “Buy First, then Sell Later”?
SITUATION:
==========
A “Contract to Sell” has been signed for a pre-sell condominium. Payment has been made through monthly amortization. Upon close to turnover, a decision was made to sell the primary residence. Let us assume the “Contract of Sale” for the new residence was done *after* the disposition of the primary residence, however both “Contract to Sell” and amortization payments for the new residence have occurred prior to the sell of the old property.
In this situation, can you still avail of Final Capital Gains exemption? Is there any special watchout &/or procedure given the reverse order of the transaction? Thanks!
Your perspective much appreciated!
Hi Susan, I will have to get back to you on this, this is a very unique situation and I will need to do some research for this. Actually we are writing an article about CGT exemptions so we might include the answer to your question in that post.
Thank you so much, will be appreciated! I will watchout for your CGT exemption article.
Hi Don, In the case of the Tax forclosure auction in Marikina, the COS will be annotated at the registry of deeds without the need to pay for the CGT. In contrast, it seems that for Tagaytay, the COS can only be annotated when the CGT has been paid and then the 1 year redemption period starts. We also share the same question, what happens if the property is redeemed? I am sure that any taxes already paid will not be returned so the question is really whether or not it is correct for the Tagaytay RD to require the payment of CGT before they will annotate the COS.
Dear Jay,
About capital gains tax. Granted it has to be paid. But who pays if the seller was the SSS through their foreclosure bidding process?
One year has elapsed and I am trying to have the lot titled to me. When I brought the title for annotation to the provincial register of deeds they wrote subject to payment of CGT. Am I required to pay this as the buyer?
Thank you for your response.
Hi Jay,
When one participates in public auction of tax delinquent properties and successfully bidded and won. And he wants to annotate the certificate of sale on the title, will the CGT necessarily be paid to the BIR in order for the Register of deeds to annotate the certificate of sale? What was your experience on this situation.
Will the tax delinquent owner of the property reimburse the payment once he redeems within the one year period? the rate of interest is only 2 percent a month and yet the capital gains tax is already 6% and doc stamps of 1.5%. And what if only one or two months, the registered owner redeems the property from the city treasurer?
I understand the one year redemption periods runs only from the time of annotation on the title. And if we do not annotate then what will be the basis for the redemption period to start?
Thank you. don
Hi Grace, the CGT will be due once the sale is consumated and the Deed of Sale is executed, which is once the property has been fully paid in this case. CGT will either either be 6% of the Selling Price that will appear on the deed of absolute sale or 6% of the Fair Market Value(FMV=Zonal Value x Floor Area), whichever is higher. Congratulations on your purchase! Let me know if you need further clarifications.
Hi Jay,
Please help.
I bought a 1BRM 41sqm condo for investment purpose. I will try the ‘rent-to-own’ scheme and has read the books of Larry Gamboa as a model. My scheme is similar to his – 30% to 50% downpayment (buyer can choose depending on one’s budget) 0% interest payable in 3 years which is also the option period. The Balance is payable in 7-10 yrs 10.95% and 12 yrs at 11.20%. The unit is fully furnished. Rent is exclusive of condo dues.
How do I compute for the CGT??? Since there is no sale yet…how can I factor in the CGT? Also, what is the basis of the CGT? I arrived at the contract price of P3,250,000.00. The zonal valuation of the condo (2004) is at P33,500 /sqm.
This is the first time I’m venturing into real estate. My initial plan was to just rent it out. However, I would like to try the rent-to-own scheme as this is both win-win for me and the renter.
Thanks and more power to your blog.
Grace
Hi Anonymous, the answer for this actually comes from my mom who related to me that CREBA required her to consistently sell at least 6 properties a year in order to be considered as someone habitually engaged in real estate and be eligible to join them. My broker also mentioned that unless you are consistently selling more than 6 properties per year, you need not worry that you will be classified as one habitually engaged in real estate. If that time comes however, you should let the BIR handle the situation and have yourself assessed.
Greetings sir Jay. I just have a follow up question regarding to this matter. So will the 6th property already be considered as an ordinary asset or does it still fall under the capital asset?
Your website is really informative and I want to thank you for sharing the knowledge. Godbless to you and more power!
hi jay. any update on my inquiry?
thanks jay. i would be looking forward to your reply once you’ve consulted with the experts.
God bless.
@Anonymous, I believe a tax refund is out of the question as what the BIR would normally give is just a tax credit which can be used on the next round of tax payments. For this situation however, let me research first and ask some opinions from tax experts.
hi jay. just read this post and hope you could still answer my question:
if the buyer paid for cgt based on the assurance that the seller is not habitually engaged in real estate but it turns out later on that the seller is actually and is considered by the bir to be habitually engaged in real estate, what happens to the cgt paid by the buyer?
@LL Corp, If one is habitually engaged in the real estate business, he does not pay CGT as the property is treated as an ordinary asset.
As for your 2nd question, according to RR7-2003, ordinary assets are automatically converted into capital assets upon showing of proof that the same have not been used in business for more than two (2) years prior to the consummation of the taxable transactions.
Thanks for dropping by!
Hi jay,
I just read this post. I’m a bit late but I hope you can still answer this.
according to your post:
“when a seller is engaged in the real estate business but the property ….was idle for a long time– this is one of the instances when the property may be considered a capital asset.”
This means that if you’ll be flipping the property you don’t have to pay CGT right?
For how long before the property will be considered as capital assest and will be subjected to CGT?
Thanks.
Hi Lemuel, I’m really glad you found this blog informative, and thanks again for visiting. At least now you know, pwede mo na apply sa next property, it could save you a lot of money. =)
Hi Jay,
This blog of yours is very informative….keep informing bro…
I bought a land in my place 5 years ago about 500 sq.m and just recently transfered the title to me (separated from 1000sq.m) if i should have known this before, dapat naghati kami sa bayad ng tax….lessons learned though…
Hi teamchi, it really is hard sometimes to reach someone at the BIR and we really have no choice but to keep on redialing, I guess that’s better than going there.
Thanks for posting this, Jay. When I check BIR’s website for zonal values, they are not updated. Like in Makati, the latest value they have there is 1998 pa. How do I know the current zonal value of the place? I’ve been trying to call BIR Makati but either the line is busy or nobody answers 🙁