Tags: Capital Gains Tax Philippines, BIR Form 1706, Documentary Stamp Tax, BIR Form 2000-OT, CGT computation example, real estate tax deadlines, capital asset sale, zonal value vs tax declaration
Selling real property in the Philippines brings both opportunity and responsibility. One essential responsibility is paying taxes—specifically the Capital Gains Tax (CGT) and the Documentary Stamp Tax (DST). Whether you’re a property owner, broker, or buyer, understanding how these taxes work is crucial to ensure smooth and legal property transfers.
This guide explains how to compute CGT and DST, clarifies the deadline for filing, the correct BIR forms to use, and how fair market value (FMV) is determined based on tax declarations and BIR zonal values.
1. What is Capital Gains Tax (CGT)?
Capital Gains Tax is a final tax of 6% imposed on the presumed gain derived from the sale, exchange, or other disposition of real properties located in the Philippines and classified as capital assets.
A capital asset refers to property not used in trade or business. This includes personal-use properties like residential homes, vacant lots not being sold for business purposes, or inherited properties not part of an estate’s regular trade activity.
Capital Gains Tax Rate:
6% of the gross selling price or fair market value, whichever is higher.
2. Understanding Fair Market Value (FMV)
One of the most misunderstood concepts in CGT computation is fair market value. In BIR computations, FMV is the higher of:
- The FMV as shown in the Tax Declaration (issued by the city or municipal assessor), or
- The Zonal Value set by the BIR for that location and classification of property
Why Two Values?
- The Tax Declaration FMV is the local government’s assessed value used for real property tax computation.
- The Zonal Value is the BIR’s estimate of the market value per square meter, published for tax assessment purposes.
You must compare both and choose the higher value between them and the selling price to compute your CGT and DST.
3. CGT Computation with Examples
Formula:
CGT = 6% × [Higher of (Selling Price, Tax Declaration FMV, Zonal Value)]
Example 1:
Property Type: Residential Lot in Davao City
Lot Area: 200 square meters
Selling Price (SP): Php 2,000,000
FMV in Tax Declaration: Php 1,800,000
BIR Zonal Value: Php 12,000 per sqm × 200 sqm = Php 2,400,000
Step 1: Determine the tax base.
Compare SP (2,000,000), Tax Declaration FMV (1,800,000), and Zonal Value (2,400,000).
The highest is Php 2,400,000 (Zonal Value)
Step 2: Compute CGT
CGT = 6% × Php 2,400,000 = Php 144,000
Example 2:
Property Type: Vacant Lot in Cebu City
SP: Php 1,500,000
FMV (Tax Declaration): Php 1,600,000
Zonal Value: Php 1,400,000
Tax base: Higher of SP (1.5M), Tax Declaration (1.6M), Zonal (1.4M)
Use Tax Declaration FMV of Php 1,600,000
CGT = 6% × Php 1,600,000 = Php 96,000
4. Documentary Stamp Tax (DST) Computation
DST is governed by Section 196 of the NIRC. It applies to the same transaction but uses a different rate.
Rate:
Php 15.00 per Php 1,000.00, or fractional part thereof, of the higher of SP or FMV.
Example 1 (from earlier):
SP: Php 2,000,000
Tax Declaration FMV: Php 1,800,000
Zonal Value: Php 2,400,000
Tax base: Php 2,400,000
DST = (2,400,000 ÷ 1,000) × Php 15 = Php 36,000
Example 2:
SP: Php 1,500,000
Tax Declaration FMV: Php 1,600,000
Zonal Value: Php 1,400,000
Tax base: Php 1,600,000
DST = (1,600,000 ÷ 1,000) × Php 15 = Php 24,000
5. What BIR Forms Should You Use?
To file CGT and DST, use the following forms:
- CGT: BIR Form No. 1706 – For the payment of capital gains tax from the sale, exchange, or disposition of real property.
- DST: BIR Form No. 2000-OT – For one-time payment of documentary stamp tax for real estate transactions.
These must be submitted together with supporting documents:
Requirements:
- Notarized Deed of Absolute Sale
- Tax Declaration (Land and Improvement)
- Certificate of Title
- TIN of seller and buyer
- Valid government-issued IDs
- Sworn Declaration of No Improvement (if vacant lot)
- Special Power of Attorney (if applicable)
- BIR Zonal Value Certification (if needed)
6. When Are the Deadlines for Filing?
Time is crucial when filing taxes. Here are your key deadlines:
-
CGT (Form 1706):
Due within 30 days after the notarization of the Deed of Sale
-
DST (Form 2000-OT):
Due within 5 days after the close of the month the Deed was executed
Scenario:
Deed of Sale executed and notarized on April 10:
- CGT deadline: May 10
- DST deadline: May 5
Late filings incur:
- Surcharge: 25% of the tax due
- Interest: 12% per annum
- Compromise penalty: Fixed depending on the amount and period
7. Where to File and Pay
You can file and pay at:
- The Revenue District Office (RDO) where the property is located
- Authorized Agent Banks (AABs) assigned to the RDO
- eFPS or eBIRForms (for qualified taxpayers)
After validation and payment, the BIR will issue:
- BIR Payment Confirmation Forms
- Certificate Authorizing Registration (CAR) – This document allows the property to be transferred to the buyer’s name.
8. Special Case: Principal Residence Exemption
Under Section 24(D) of the Tax Code, a seller may be exempt from CGT if:
- The property is the principal residence of the seller
- Proceeds will be fully utilized to acquire or construct a new principal residence within 18 months
- The exemption is claimed only once every 10 years
- The seller notifies the BIR within 30 days from sale
Important:
Even when exempt from CGT, the DST must still be paid.
9. Common Mistakes to Avoid
- Using outdated FMV or zonal values: Check the latest values with the BIR or assessor’s office.
- Missing the correct deadline: Remember the DST deadline is sooner than CGT.
- Assuming selling price is always used: The law clearly says whichever is higher among SP, Tax Declaration FMV, or Zonal Value.
- Filing incomplete documents: This delays the issuance of CAR, delaying title transfer.
Conclusion: File Right, File Smart
Whether you're a first-time seller or a seasoned investor, understanding how to properly compute and file Capital Gains Tax and Documentary Stamp Tax is essential. The Philippine tax code is clear—you pay based on the highest value between the selling price, tax declaration, and BIR’s zonal valuation.
Know your deadlines, file the correct BIR forms, and don’t forget the supporting documents. Doing this ensures smooth issuance of the Certificate Authorizing Registration (CAR), which is key to transferring the property title legally and properly.
If you're uncertain, consult a CPA, real estate professional, or your local BIR office. It’s always best to be equipped with knowledge and guidance than to face costly delays or penalties later.
0 Comments