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Last Updated on September 27, 2021 by Lamudi
After a thorough search for the property you want to invest in, you are ready to finalize your transactions and close the sale. But wait—the price of the property you want to buy is just one factor in the equation.
Owning property includes some level of financial obligation. It’s best to inform yourself of the fees and taxes that come with being a property owner before you make a significant financial decision. Taxes, transfer of title fees, and other costs are just a few of the essential things every real estate investor should be aware of. Every property owner has a civic duty to know how much tax must be paid each year.
Sometimes, these technicalities are not explained by your seller in the rush of wanting to make a sale. After all, you would not want to get into a conflict later on with the seller or broker because they did not clarify some of the details on taxes and fees immediately.
This article will discuss the taxes you must pay when buying a house in the Philippines. Here is a list of the taxes and fees you should know this 2023 to be a well-informed buyer:
Capital Gains Tax
CGT refers to tax paid for gains in the capital you invested. It assumes that the seller earns from the sale of the property by offering it at a cost higher than the acquisition cost. The CGT tax is 6% of the selling price, zonal value or fair market value—whichever is higher. It is important to note that this tax should be on the seller’s account.
To illustrate how to compute for CGT, for instance, the selling price of the property you are buying is PHP 2M. If this price is higher than the fair market value as determined by the City Assessor, or higher than the zonal value as declared by the Bureau of Internal Revenues, then the basis of the 6% CGT will be PHP 2M. The CGT, in this case, is PHP120,000, to be paid by the seller within 30 days of the consummation of the sale.
Documentary Stamps Tax
The DST tax applies to the Deed of Absolute Sale executed between the seller and buyer. The DST is 1.5% of whichever is higher between the selling price or the fair market value or the zonal value of the real estate property. The DST is an excise tax that is one of the taxes that you need to pay when buying a house in the Philippines. The DST is set for documents, papers, and instruments that evidence the property’s acceptance, sale, and transfer. The buyer pays for the DST tax. For a PHP 2M property, the DST is P30,000.
Transfer Tax
The transfer tax is paid when the property title is transferred from the seller to the buyer’s name, which will signify the property’s new ownership through its sale. The amount involved varies according to the property’s location, but generally between 0.5 % to 0.75% of the selling price or the zonal or fair market value, whichever value is higher.
Title Registration Fee
The final step is the registration of the title under the new owner, paid to the Register of Deeds where the property is located. Prior to this, a buyer must secure the necessary tax clearances from the Bureau of Internal Revenue. The amount to be paid varies and registration fees are usually specified in a published table, but generally around 0.25% of the selling price.
The bottom line is that you as a buyer should spare a considerable amount of cash on top of what you paid for the property, to ensure that the processing of documents for what you purchased will proceed smoothly.
Real Property Tax
Under the Local Government Code of 1991 or Republic Act 7160, homeowners for residential properties or property administrators for commercial properties are obliged to pay an annual real property tax to their Local Government Unit as determined based on a fixed proportion of the value of the property. There are some exemptions to the real property tax include government properties, charitable institutions, churches, cooperatives, and schools.
For most cities and municipalities in Metro Manila, the real property tax rate is 2%, and 1% for the provinces. The assessed property value, or the property’s taxable value, is the fair market value multiplied by the assessment level. The maximum assessment level for residential properties is 20%, while the commercial and industrial property is 50%. Some cities have different tax rates, so it’s best to check with your city’s treasury office personally.
Buying a home is a dream all of us want to achieve. But purchasing is just half the battle, as the law requires supplementary taxes for your purchase to contribute to the country’s national income. This shows that buying and owning a home is a commitment you must be prepared to take and face.
Sources: Inquirer, Pinoy Money Talk
Read our previous journal for more tips.
