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The Basic Taxes Involved in a Sale of Real Estate Property

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Call Us: (02) 906 6835 The Taxes Involved in a Sale of Real
Call Us: (02) 906 6835 The Taxes Involved in a Sale of Real

Call Us: (02) 906 6835 (02) 906 6835

The Taxes Involved in a Sale of Real Estate Property Posted by: Joanne Almaden in
The Taxes Involved in a Sale of Real Estate Property Posted by: Joanne Almaden in
The Taxes Involved in a Sale of Real Estate Property Posted by: Joanne Almaden in

The Taxes Involved in a Sale of Real Estate Property

Posted by: Joanne Almaden in Real Estate Financing, Real Estate Laws On:September 20, 2015 Last updated: April 1, 2018

It has been said that one can only be sure about two things in this life – death and taxes. But we’re gonna have to talk about first one some other time. In this post, we’ll be talking about taxes. More specifically, the taxes involved in a sale of real estate property.

the taxes involved in a sale of real estate property . Responsibility : The usual arrangement

Responsibility:

The usual arrangement on which party pays what taxes, in a sale transaction is as follows:

Seller’s

1. Income tax, if the property to be sold is an ordinary asset

Income tax, if the property to be sold is an ordinary asset LET’S SOCIALIZE! Watc 2.

LET’S SOCIALIZE!

Watc
Watc
to be sold is an ordinary asset LET’S SOCIALIZE! Watc 2. Value-added tax/Percentage tax, if the

2. Value-added tax/Percentage tax, if the property to be sold is an ordinary asset

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SOCIALIZE! Watc 2. Value-added tax/Percentage tax, if the property to be sold is an ordinary asset

URCE

The Basic Taxes Involved in a Sale of Real Estate Property

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y tua y engage 4. Capital Gains Tax, if the property to
y tua y engage 4. Capital Gains Tax, if the property to

y

tua y engage

4. Capital Gains Tax, if the property to be sold is a capital asset

5. Documentary Stamp Tax

Buyer’s Responsibility: :

1. Transfer Tax

2. Registration Fee

CondominiumsResponsibility : 1. Transfer Tax 2. Registration Fee Homemaking Houses and Lots Real Estate Documentation Real

Homemaking: 1. Transfer Tax 2. Registration Fee Condominiums Houses and Lots Real Estate Documentation Real Estate

Houses and Lots1. Transfer Tax 2. Registration Fee Condominiums Homemaking Real Estate Documentation Real Estate Financing Real Estate

Real Estate2. Registration Fee Condominiums Homemaking Houses and Lots Documentation Real Estate Financing Real Estate Investing

Documentation

Real Estate FinancingHomemaking Houses and Lots Real Estate Documentation Real Estate Investing Real Estate Laws Real Estate Rentals

Real Estate Investingand Lots Real Estate Documentation Real Estate Financing Real Estate Laws Real Estate Rentals Now let’s

Real Estate LawsDocumentation Real Estate Financing Real Estate Investing Real Estate Rentals Now let’s define these things…

Real Estate RentalsReal Estate Financing Real Estate Investing Real Estate Laws Now let’s define these things… Warning: What

Now let’s define these things…

Warning: What follows may get a little too technical for most people but there’s just
Warning:
What follows may get a little too technical for
most people but there’s just no better way to
explain and describe these things accurately. So
just bear with us.

INCOME TAX

The proceeds from the sale of real properties held primarily for sale to customers in the ordinary course of trade or business or sale of real properties classified as ordinary assets of the seller who is not habitually engaged in real estate business, shall be included in the seller’s global income. This forms part of the seller’s other income subject to 30% regular income tax or 2% minimum corporate income tax if the seller is a corporation or a graduated tax rate at a maximum rate of 32% if the seller is an individual.

Ordinary assets are assets which qualify in any of the following types of property:

included in the stock of trade or inventory of the taxpayer in a normal business operation at the close of the taxable year.which qualify in any of the following types of property: real estate properties primarily sold to

real estate properties primarily sold to customers by the taxpayer in normal course of businessnormal business operation at the close of the taxable year. RECENT RESOURCES REAL ESTATE CASE STUDY:

RECENT

RESOURCES

the taxpayer in normal course of business RECENT RESOURCES REAL ESTATE CASE STUDY: HOW TO EASILY

REAL ESTATE CASE STUDY: HOW TO EASILY MAKE ₱1,019,795 IN 2 YEARS

CASE STUDY: HOW TO EASILY MAKE ₱1,019,795 IN 2 YEARS REAL ESTATE INVESTING: READ THESE TIPS

REAL ESTATE INVESTING: READ THESE TIPS BEFORE BUYING CONDOS IN THE PHILIPPINES

READ THESE TIPS BEFORE BUYING CONDOS IN THE PHILIPPINES BUSTING THE MYTH ABOUT RESELLING USED CONDO

BUSTING THE MYTH ABOUT RESELLING USED CONDO PROPERTIES IN PHILIPPINES

real estate properties used in business which are subject to the allowance for depreciationTHE MYTH ABOUT RESELLING USED CONDO PROPERTIES IN PHILIPPINES real estate properties which are used for

real estate properties which are used for normalIN PHILIPPINES real estate properties used in business which are subject to the allowance for depreciation

business which are subject to the allowance for depreciation real estate properties which are used for

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business which are subject to the allowance for depreciation real estate properties which are used for

The Basic Taxes Involved in a Sale of Real Estate Property

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There shall be imposed a 12% value-added tax (VAT) on real estate sales of those who are engaged in the business of selling, developing, leasing or sub-leasing of real property and those licensed to engage in real estate brokerage business based on their commission. However, in pursuance to RR No. 4-07, even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business.

In determining the transactions subject to VAT, the following threshold must be considered:

ONLY A PHOTOCOPY OF THE CERTIFICATE OF TITLE?

considered: ONLY A PHOTOCOPY OF THE CERTIFICATE OF TITLE? HOW TO DEAL WITH DELINQUENT TENANTS Type

HOW TO DEAL WITH DELINQUENT TENANTS

CERTIFICATE OF TITLE? HOW TO DEAL WITH DELINQUENT TENANTS Type of Property Sold VAT-exempt THE POWER

Type of Property Sold

VAT-exempt

THE POWER AND RESPONSIBILITY OF ISSUING CHECKS

Residential Vacant lot

₱1,919,500 and below

Residential Vacant lot ₱1,919,500 and below

Residential House & lot

₱3,199,200 and below

Residential Condominium unit

₱3,199,200 and below

Commercial properties are subject to VAT

 

THINGS YOU WANT

Please note that real estate sales that are exempt from VAT based on the above threshold shall be subject to 3% percentage tax. However, if the seller is a VAT- registered person, the sale of his ordinary asset shall be subject to VAT even if the sales made are within the prescribed threshold.

TO AVOID WHEN APPLYING FOR A HOME LOAN

threshold. TO AVOID WHEN APPLYING FOR A HOME LOAN Further, a person should register as a

Further, a person should register as a VAT entity if his gross annual sales and/or receipts exceed ₱1,919,500.00 in a year.

DEFAULTING PAYMENTS – KNOW YOUR RIGHTS UNDER REPUBLIC ACT 6552 (MACEDA LAW)

The tax base of 12% output VAT is the highest among the (1)selling price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value by the provincial/city assessor and the time of payment will depend whether the sale is an installment sale or a cash sale.

CAPITAL GAINS TAX

assessor and the time of payment will depend whether the sale is an installment sale or

SALE WITH ASSUMPTION OF MORTGAGE: HOW DOES IT REALLY WORK?

Capital gains presumed to be realized from the sale of a real property not categorized as ordinary asset is subject to a tax of six percent (6%) based on the

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e prov nc a c ty assessor. Conditionally exempt from
e prov nc a c ty assessor. Conditionally exempt from
e prov nc a c ty assessor. Conditionally exempt from

e prov nc a c ty assessor.

Conditionally exempt from paying Capital Gains Tax:

The sale of a principal residence is exempt from capital gains tax. The said principal residence pertains to the seller’s family home or the dwelling house, including the land on which it is situated, where the husband and wife or an unmarried individual, whether or not qualified as head of family, and members of his family reside. In order for the sale to be qualified as exempt, the following conditions should be met:

1. The entire proceeds from the sale of the principal residence should be fully utilized in acquiring or constructing a new principal residence within 18 calendar months.

2. This exemption can only be exercised once every 10 years

3. The BIR commissioner should be duly notified through a prescribed return 30 days from the date of sale or disposition of the tax payer’s intention to avail of the tax exemption.

4. If the proceeds from the sale have not been fully utilized, the portion of the gain from the sale is subject to 6% capital gains tax.

HOW TO TRANSFER REAL ESTATE TITLES IN THE PHILIPPINES (FROM A SALE)

TRANSFER REAL ESTATE TITLES IN THE PHILIPPINES (FROM A SALE) WHY TODAY IS NOT THE BEST

WHY TODAY IS NOT THE BEST TIME TO INVEST IN REAL ESTATE IN THE PHILIPPINES

THE BEST TIME TO INVEST IN REAL ESTATE IN THE PHILIPPINES CONTRACT “TO SELL” VS. CONTRACT

CONTRACT “TO SELL” VS. CONTRACT “OF SALE”

5. The buyer of the principal residence should withhold from the seller of the principal residence the supposed 6% capital gains tax. This amount should be placed in an escrow agreement between the concerned Revenue District Office and the seller.

For the last condition above, the 6% equivalent amount shall only be released once all the preceding conditions are met. The escrow agency shall require the seller of the principal residence a certification before it can release the amount to the seller of the principal residence.

Further, the following are also exempted from paying capital gains tax:

Dealer in securities re ularl

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Further, the following are also exempted from paying capital gains tax: Dealer in securities re ularl

ed in the

The Basic Taxes Involved in a Sale of Real Estate Property

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An entity exempt from the payment of income tax under existing investment incentives and other

An entity exempt from the payment of income tax under existing investment incentives and other special laws

An individual or non-individual exchanging real property solely for shares of stocks resulting in corporate

An individual or non-individual exchanging real property solely for shares of stocks resulting in corporate control

A government entity or government-owned or  

A

government entity or government-owned or

 

controlled corporation selling real property

the disposition of the real property is gratuitous in nature If

the disposition of the real property is gratuitous in nature

If

Where the disposition is pursuant to the CARP law

Where the disposition is pursuant to the CARP law

 

from BIR

DOCUMENTARY STAMP TAX

 

The documentary stamp tax is an excise tax levied on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or property incident thereto.

The amount of tax is either fixed or based on the par or face value of the document or instrument. In the case of the sale of real estate properties, the rate shall be 1.5% based on the highest among the (1)selling price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value by the provincial/city assessor.

TRANSFER TAX

 

Transfer tax is the tax imposed on any mode of conveying the ownership of a real property, either through sale, donation, barter, or any other mode. The tax rate varies depending on the location of the real property as presented below:

the property is located in the province, tax must not exceed 50% of the 1%

the property is located in the province, tax must not exceed 50% of the 1% of the tax base stated above.

If

If the property is located in Metro Manila or any

If

the property is located in Metro Manila or any

cities in the Philippines, tax must not exceed 75%

of

the 1% of the tax base state above.

 
Penalty of the failure to pay is 25% of the amount

Penalty of the failure to pay is 25% of the amount

 

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. Further, the tax is based on the highest among the property’s (1)selling price, (2)Bureau
. Further, the tax is based on the highest among the property’s (1)selling price, (2)Bureau

.

Further, the tax is based on the highest among the property’s (1)selling price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value by the provincial/city assessor.

 

CREDITABLE WITHHOLDING TAX

 

Creditable withholding tax (CWT) is the tax which is withheld by the buyer/withholding agent from his payment to real estate dealers, developers, operators and persons or entities who are considered to be habitually engaged in real estate business, and which tax is creditable against the income tax payable of the seller.

 

Thus, when the real estate sold is a capital asset to the seller, no creditable withholding tax shall be imposed and his income from the sale of real estate will be subject to capital gains tax.

Under the tax rules, the following are the percentages to be withheld:

Seller

Tax

Threshold

rate

The seller/transferor is habitually engaged in the real estate business as per proof of registration with the HLURB or the HUDCC or other satisfactory evidence (for example, he/it consummated during the preceding year at least six taxable real estate transactions, regardless of amount)

1.5%

₱500,000

and below

3.0%

Over ₱500,000 but not more than

₱2,000,000

5.0%

Over

₱2,000,000

 

The seller/transferor is not habitually engaged in the real estate business (but the real estate sold is an ordinary asset)

6.0%

Any amount

The seller/transferor is exempt from creditable withholding tax in accordance with Section 2.57.5 of Revenue Regulations No. 2-98

In summary:

 

Exempt

Not

 

applicable

 
 

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The Basic Taxes Involved in a Sale of Real Estate Property

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ABOUT THE AUTHOR Joanne Almaden Joanne is a licensed real estate broker and appraiser. She
ABOUT THE AUTHOR
Joanne Almaden
Joanne is a licensed real estate broker
and appraiser. She founded Phil.
Property Expert, Inc. – a top-notch real
estate services company whose vision is
being the most trusted company when it
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Edwin R. Aquino • a year ago
Good day sir and ma'am, ask ko lng po kasi po ang lupa donate
sa bilas ko ng byanan ko, pero dpa nilipat sa name nya, if ililipat
po s name nya ang lupa ano po ba ang mga dapat bayaran, ang
lupa po ay nasa 545Sq. Mtr.
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Georgia • 2 years ago
I purchase the lot in 2012 in Provence 320sqm with value of 700k
and got date of sale. I pay land tax for five years . Land title was
not transfer to my name . I want to Sale the lot now . Some one
ask me to pay BIR for this prior to transfer the title to the buyer .
Can you please advise is there is law to pay BIR on vacant
residential lot . Thanks in advance to give me information on this
subject .
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Nimrod Flores
Mod
Georgia • 2 years ago
The land tax you said you were paying, is the tax from
your local government. The tax you were supposed to pay
to BIR is the Capital Gains Tax that is required to be paid
within 30 days after your purchase.
Kailangan po mabayaran itong CGT bago kayo mabigyan
ng BIR ng Certificate Authorizing Registration. Itong CAR
naman, ay yung kailangan nyo from BIR para
mapatransfer nyo sa pangalan nyo ang titulo ng lupa.
Kung ibebenta nyo yang lote na yan ngayon, hindi yan
pwedeng mapatransfer ng buyer sa pangalan nya kung
ang transaction ay between lang sa inyong dalawa. Kasi
hindi pa nakapangalan sa inyo yung lupa in the first place.
Kaya po kelangan nyo muna itransfer sa pangalan nyo
yan bago nyo ibenta. Otherwise, yung bagong buyer ang
mamomroblema nyan sa pagpapatransfer sa pangalan
nya.
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Jf • 4 months ago
However, if the seller is a VAT-registered person, the sale of his
ordinary asset shall be subject to VAT even if the sales made are
within the prescribed threshold. - May I ask po kung anong basis
ng statement na to?
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