Taxes Associated with Buying, Selling, and Inheriting Real Estate in the Philippines

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Whether you’re a current homeowner or homeowner to be, you have to be familiar with the taxes associated with owning a property here in the Philippines.

Buying a house must be one of the most exciting moments in every Filipino’s life. But owning a house doesn’t stop with choosing which one to buy, it’s a series of overwhelming responsibilities. And one of which is paying your taxes.

Taxes are critical aspects in owning property. It’s vital for homeowners not only to pay these dues but also to understand them in order to keep their money safe and secure. To help potential property buyers become familiar with the taxes associated with real estate, Lamudi Philippines has listed these common taxes.

Capital Gains Tax

A capital gain occurs when you sell something at a price higher than you spent to buy it.

Capital gains tax or CGT is a type of tax levied on the earnings gained from selling capital assets. In order to determine whether a property is a capital asset, it should not fall under any of the following definitions: (a) stocks held by the taxpayer in trade or inventory; (b) properties for sale in the ordinary course of business; (c) any property used in business that the taxpayer claims for depreciation; and (d) real property used in trade or business.

Capital gains tax is equivalent to six percent of the fair market value based on Bureau of Internal Revenue(BIR) zonal value or fair market value as appraised by the provincial or city assessor, whichever is higher. These values are currently being updated by BIR in line with the Tax Reform for Acceleration and Inclusion” (TRAIN) Law.

To know how CGT is computed, check out this article from Lamudi.

Real Property Tax

Real  Property Tax or RPT is simply an annual due for owning a real property (land, building, improvements, and machinery). RPT is imposed by Local Government Units (LGUs) as a way to increase their revenue to fund basic public services.

The base of the tax is only a fraction of the actual market value of the property, and the taxable fraction or the assessment level depends on the use of the property(whether commercial, residential, agricultural, etc.). For example, a residential property has an assessment level of 20 percent (which means only 20 percent of the property’s value is taxable), while for a commercial property, it is 50 percent.

To know how RPT is computed, check out this article from Lamudi. These values are currently being updated by BIR in line with the Tax Reform for Acceleration and Inclusion” (TRAIN) Law.

Documentary Stamps Tax

Documentary stamps tax or DST is tax charged on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale, or transfer of an obligation, right, or property.

When a property is transferred through sale, DST is imposed on the Deed of Absolute Sale, whose tax rate is 1.5 percent or Php15 for every Php1,000 of the property’s selling price, zonal value, or fair market value, whichever is higher. For example, if a property’s selling price is Php3 million (and if this amount is higher than the property’s zonal value or fair market value), the DST will be Php45,000.

Transfer Tax

The Bureau of Internal Revenue defines Transfer Tax as the tax imposed on any mode of transferring the ownership of a real property, either through sale, donation, barter, or any other mode. The rate varies from 0.5 percent to 0.75 percent of the zonal value or selling price of the property, whichever is higher and depending on the municipality where the property is located.

Donor’s Tax

Donor’s Tax is a tax on a donation or gift (in this case real property) and is imposed on the free transfer of property between two or more persons (whether strangers or related) who are living at the time of the transfer.

The donor’s tax for each calendar year is now at a uniform rate of 6 percent under the Tax Reform for Acceleration and Inclusion” (TRAIN) Law.

Estate Tax

Estate Tax (or more colloquially known as Inheritance Tax) is a tax imposed on the privilege of transferring a property upon the death of the owner to the lawful heirs. In addition, Estate Tax is based on the net estate, which is the difference between the gross estate and allowable deductions. Ownership of a real property cannot be transferred from the decedent to his or her heirs without the filing and payment of the estate tax.

To know how to compute for Estate Tax, visit the BIR website. These values are currently being updated by BIR in line with the Tax Reform for Acceleration and Inclusion” (TRAIN) Law.

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