CHAPTER 9 – DEALINGS IN PROPERTY

 Refer to the “disposal of assets (ordinary or capital assets)” – eliminating of assets that require the
record of gain or loss through sale or exhanges
ORDINARY ASSET – used in the business ; here are its following description:
1. Stock in trade of the taxpayer or other property of a kind which would properly be included in the
inventory of the taypayer if on hand at the close of taxable year (ex. Supplies on hand, merchandise
inventory, raw materials, goods in process, and finished goods)
2. Property used in trade or business subject to depreciation
3. Real property held by the taxpayer primarily for sale to customers
4. Real property used in trade or business of the taxpayer
**Properties classified as ordinary asset will be converted to capital asset upon showing of proof that the same
have not been used in business for more than 2 years
APPLICABLE INCOME TAXES FOR CAPITAL GAINS AND ORDINARY GAINS
1. CAPITAL GAIN on:
a. Sale of shares of DOMESTIC CORPORATIONS
directly sold to a buyer -------- 15% CGT
b. Sale of shares of FOREIGN CORPORATIONS -------- 5% on first 100k + 15% of excess
c. Sales of shares through LSE -------- subject stock transaction tax/
business tax 6/10 of 1% of gross
selling price
d. Sale of real properties classified as capital assets in PH --------- 6%CGTwhichever is higher:
Selling price/FMV/Zonal values
e. Sale of real properties classified as capital assets in PH
to the government, its agencies/GOCCs --------- 6% CGT/ Basic Tax (option of
taxpayer)
f. All other types of capital gains --------- BASIC TAX
2. ORDINARY GAIN --------- BASIC TAX
RULES IN THE RECOGNITION OF CAPITAL GAINS AND LOSSES
1. The transacton must involve property classified as capital asset
2. The transaction must arise, generally from sale or exchange
3. Net capital gains are added to ordinary gains. Net capital loss such loss can only be deducted from the capital
gain
4. HOLDING PERIOD – applicable only to individual taxpayers, estates and trusts.
- refers to the length of time the asset was held by the taxpayer.
- DATE OF ACQUISITION --- DATE OF SALE OR EXCHANGE
- Holding Period Percentage to be recognized
 12 months or less 100%
 More than 12 months 50%
** the entire amount of capital gain and lossed incurred by corporations shall be recognized regardless of the holding
period
5. NET CAPITAL LOSS CARRY-OVER (NOLCO) – applicable only to individual taxpayers
COST BASIS OF PROPERTY SOLD OR EXCHANGED
1. Property acquired by purchase
2. Property would be included in inventory
3. Property acquired by devise. Bequest, or inheritance
4. Property acquired by gift or donation
5. Property (other than capital asset) acquired for
Less than an adequate consideration in money’s
Worth
its cost(purchase price plus expenses of acquisition)
its latest inventory value
Its fair market value as to acquisition
same as if it would be in the hands of the donor or at last
Preceding owner by whom it was not acquired by gift,
except that if such basis is greater than he FMV of the
property at the time of the gift then
the amount paid by the transferee for the property or
the transferor’s adjusted basis at the e of the transfer
whichever is greater