REVENUE REGULATIONS NO. 8-98
INCOME TAXATION OF SALE, TRANSFER OR EXCHANGE OF REAL PROPERTY
Q: Should a taxpayer pay an income tax if he selss a piece of real property?
A: Yes, a taxpayer should pay an income tax if he sells a piece of real property. This is because the disposal of his property through sale, transfer or exchange gives him an income.
The income from the sale of a real property which is not used in the trade or business of a taxpayer is called capital.
Q: How are capital gains from the sale of real property taxed?
Capital gains from the sale of a real property is subject to a tax of six percent (6%) based on the gross selling price or fair market value of the real property. The Bureau of Internal Revenue Commissioner is empowered by law (Sec. 6 (E) of the Tax Code) to establish market values for different zones or areas in the country. He consults the private community and the local assessors in determining zonal value which serve as the basis for the capital gains tax. The zonal value serves as the floor price in determining the value of the real property.
Q: Is the sale of real property to government subject to capital gains tax?
A: Yes, the sale of a real property to government or any of its political subdivisions or agencies or to government-owned or controlled corporations is subject to a capital gains tax. The taxpayer may choose either the six percent (6%) final tax or the gains frrom the sale may be subject to the regular or normal income tax rate.
Q: When should the tax be paid?
A: The capital gains tax of 6% must be paid within thirty (30) days following each sale or disposition. The Capital Gains Tax Return shall be filed by the seller in the BIR Revenue District office (RDO) where the property is located. The tax paid to an "Authorized Agent Bank (AAB)" within the same district.
The capital gains tax is a final because the taxpayer is not required to include the capital gains as part of his other income when he files an income tax in Marchor in April. The full amount due from such income had already been paid.
Q: If the property being sold is an ordinary asset, what is the applicable tax?
A: A creditable withholding tax is imposed based on the gross selling price or total amount of consideration or the fair market value, whichever is higher, paid to the seller for the sale, transfer or exchange of real property considered as ordinary asset. The buyer is constituted as the withholding agent, and thus, is liable to deduct such tax from his payment to the seller of the property, and remit these taxes to the BIR.
The following withholding tax rates will apply:
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Where the seller/transferor is habitually engaged in the real estate business as per proof of registration with the HLURB or HUDCC, if the selling price is |
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P500,000 or less |
1.5% |
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More than P500,000 but not more than P2.0 Million |
3.0% |
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More than P2.0 Million |
5.0% |
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Where the seller/transferor is not habitually engaged in the real estate business |
7.5% |
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Where the seller/transferor is exempt from creditable withholding tax |
Exempt |
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Q: When should the buyer remit these creditable withholding taxes to the BIR?
A: Creditable withholding taxes deducted and withheld by the buyer on the sale, transfer or exchange of real property classified as ordinary asset should be paid upon the filing of the return with the Authorized Agent Bank (AAB) located within the BIR Revenue District Office having jurisdiction over the place where the property being transferred is located. Payment must be made within ten (10) days following the end of the month in which the transaction occurred. However, taxes withheld in December shall be filed on or before January 25 of the following year.
In the case of Large Taxpayers, the creditable withholding tax shall be remitted twenty five (25) days after the close of the month in which the transaction occurred.
Q: Can a taxpayer avoid paying the capital gains tax or creditable withholding tax on the sale, transfer or exchange of property?
A: No. Presentation of the Capital Gains Tax Return or Creditable Withholding Tax Return with a bank validation evidencing full payment of the capital gains tax or the creditable withholding tax due, as the case may be, is required before the BIR Revenue District Office where the property being transferred is located can issue the corresponding Tax Clearance (TCL) or Certificate Authorizing Registration (CAR).
The Registry of Deeds will not register the real property in favor of the transferee without the TCL or CAR.
(Implementing Sec. 24 (D) (1) and Sec 27 (D) (5) of the 1997 Tax Code, as amended by RA No. 8424; Date of Issue: August 25, 1998; Effective 15 days after publication in news paper of general circulation_.