Real estate-related taxes are something every property owner and seller cannot avoid; paying the correct taxes is necessary to assure the transaction is official and ownership legal. After all, tax returns are one of the requirements before a property title is transferred from the name of one person to another.
To help potential property buyers to become familiarized with the taxes associated with real estate, Lamudi Philippines has listed these common taxes and how to compute for them.
- Capital Gains Tax
Capital gains tax or CGT is a type of tax imposed on earnings presumed that the seller has gained from the sale of 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.
To know how CGT is computed, check out this article from Lamudi.
- Real Property Tax
Philippine local government units (such as provinces and Metro Manila cities) are allowed to create their own revenue sources. One of these revenue sources is the Real Property Tax or RPT—the tax imposed on all forms of real property (land, building, improvements, and machinery).
The base of the tax is only a fraction of the actual market value of the property, although this is compounded by the different assessment levels depending on the property’s use (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.
- Documentary Stamps Tax
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Documentary stamps tax or DST is a tax levied 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 tax base is the total value of the net gifts during the taxable year. In case of real property, the tax base shall be the BIR zonal value or fair market value based on latest tax declaration, whichever is higher. If there is a structure (like a house or building sitting on the property), the fair market value of the structure will be the construction cost based on the building permit and/or occupancy permit plus 10 percent per year after the year of construction. Alternatively, the fair market value can also be based on the real property plus structure’s latest tax declaration.
- Estate Tax
Most people (mistakenly) assume that Estate Tax or (or more colloquially known as Inheritance Tax) is a tax imposed on the property itself. This is not the case. Estate Tax is the tax imposed on the privilege of transferring the property upon the death of its owner to his or her lawful heirs. In addition, Estate Tax is based on the net estate, which is the difference between the gross estate and allowable deductions. 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.
source: http://www.lamudi.com.ph/journal/taxes-associated-buying-selling-inheriting-real-estate-philippines/
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