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CAPITAL ASSETS
CAPITAL ASSETS means property held by the taxpayer whether or not connected with his
business but does not include:
a. Stock in trade
b. Property which would be included in the inventory if on hand at the close of taxable year.
c. Property primarily for sale in in the ordinary course of business of his trade his business
d. Personal property used in business and subject to allowance for depreciation
e. Real property used in trade or business.

A. Basic rules on sale or exchange of personal property, capital asset
a. Capital losses, deductible only from capital gain
b. Corporations, no holding period, no carry over
c. Holding period, not applicable on corporations
i. Short term, not more than 12 months,100%
ii. Long term, more than 12 months, 50%
d. Carry over
i. The amount allowed is limited to the net income during the year in which the
loss was sustained
ii. Carry over is good only for one year
B. Sale of real property, capital asset
a. Sale of real property, capital asset, By individual, 6% final tax
i. Tax base, whichever is highest among
1. Selling price
a. Fair market value by c.i.r. or zonal value
b. Fair market value by the city or provincial assessor or assessed
value
Exemption: capital gains realized from sale of principal residence if
- The proceeds are utilized in acquiring new residence within 18
calendar months from the date of sale
- Commissioner is notified within 30 days from sale or disposition.
- The exemption can be availed of once every 10 years
- The 6% capital gains tax due on the presumed capital gains shall be
deposited in interest bearing account with an authorized bank
under an escrow agreement.
b. Sale of real property, capital asset, By corporation, 6% final tax on sale of lands and/or
building not used in the business
C. Sale of share of stocks
a. Not traded shares
i. Tax base: net capital gain
ii. Tax rates: 5% on not over 100,000
iii. 10% on any amount in excess 100,000
b. Traded shares, directly to buyers, the sale is exempt from income tax, but subject to
other percentage taxes.
D. Transactions resulting to capital gains or losses even if there is no sale of capital assets
a. Retirement of bonds, etc.
b. Short sales of property
c. Option gains or losses
d. worthless securities
e. liquidating dividend
f. liquidation of partnership
E. Wash sales, wash sales occur when substantially identical securities are acquired within a 61-day
period beginning 30 days before the sale and ending 30 days after sale. Wash sales are not
deductible from gross income, however, the wash sales provisions do not apply to
a. Dealers in stocks or securities if the sale or disposition is made in the ordinary course of
trade or business
b. Short sale transaction, a sale of stock which the seller does not own, he merely borrows
the stock certificate through or from the broker, and subsequently buys or covers the
stock to complete the transaction.