How to Compute Capital Gains Tax on Sale of Real Property in the Philippines

When you sell a property, the Philippine Government is requiring you to pay Capital Gains Tax for the purpose of paying money in the form of tax for the transfer of the property in the Philippines.

Please take note that you only pay capital gains tax when the property sold was not use for business such as rental property. This exclusively covers tax out of capital assets from land and/building transactions.

To compute for the capital gains tax, here is a list of things to remember:

1. The tax rate of the capital gains tax is 6% of the gross amount of the value of the deed of sale or the zonal value of the place wherein the property is located whichever is higher. The zonal value refers to the value wherein the government is determining the value of the land common to that place of location of the property.
2. When there is a building located on the land that is included in the sale, the value of the building is added for the value of the land to get the zonal value of everything.
3. The capital gains tax is paid 30 days after the notarization of the deed of sale. Late payments are subject to 25% penalty.
4. The government always consider the higher zonal value as determined by the local government unit to pay the tax.

To understand the rules clearly, here is an illustrative problem to help you compute your capital gains tax.

For example, Gil was able to sell his 100 square meters lot in Dumaguete City for 2.5 million pesos to Andrew. The zonal value of his 100 square meters lot is 10,000 per square meter and the fair market value of his house is 1 million pesos.

So, to compute for the zonal value of his lot, multiply the total area in square meters with the value per square meters. Thus, 100 (lot area) x 10,000 (zonal value per square meter) = 1,000,000 pesos. Adding this to the value of the house, it equals to 2, 000,000 pesos.

Therefore, since the value of the deed of sale of 2.5 million pesos is higher than the zonal value plus the amount of the house of 2 million pesos, then the basis of the computation of the capital gains tax would be the deed of sale. So six percent of 2.5 million pesos is 150,000 capital gains tax.

As you notice, you are paying a substantial amount on the capital gains tax out of the sale of your property. This may even be bigger if you fail to pay the amount on time,   within 30 days after the notarization of the deed of sale. Failure to pay would mean a substantial 25% penalty. In the example mentioned above, 25% of 150,000 is already 37,500 pesos. So it is advisable to pay promptly before you spend the sale of your money for anything that may be not so important.