You are on page 1of 3

1) What is meant by capital asset?

7) Who are considered engaged in the real estate


business?
Capital asset means property held by the taxpayer
(whether or not connected with his trade or business),
but does not include – Taxpayers who are considered engaged in the real
estate business refer collectively to real estate dealers,
real estate developers and/or real estate lessors. A
a) stock in trade of the taxpayer or other property of a
taxpayer whose primary purpose of engaging in
kind which would properly be included in the inventory
business, or whose Articles of Incorporation states that
of the taxpayer if on hand at the close of the taxable
its primary purpose is to engage in the real estate
year; or
business shall be deemed to be engaged in the real
estate business.
b) property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or
business; or
8) Who are considered not engaged in the real estate
business?
c) property used in the trade or business of a character
which is subject to the allowance for depreciation
Taxpayers who are considered not engaged in the real
provided in subsection (F) of Sec. 34 of the Code; or
estate business refer to persons other than real estate
dealers, real estate developers and/or real estate
d) real property used in trade or business of the lessors.
taxpayer.

2) What is meant by ordinary asset? 9) Who are considered habitually engaged in the real
estate business?
Ordinary asset refers to all properties specifically
excluded from the definition of capital assets under Sec. Real estate dealers or real estate developers who are
39 (A)(1) of the NIRC. registered with the Housing and Land Use Regulatory
Board (HULRB) or HUDCC

3) What is meant by real property?


10)How can you determine whether a particular real
property is a capital asset or an ordinary asset?
Real property shall have the same meaning attributed to
that term under Article 415 of Republic Act No. 386,
otherwise known as the “Civil Code of the Philippines. a) Real properties shall be classified with respect to
taxpayers engaged in the real estate business as
follows:
4) What does a real estate dealer refer to?
i) All real properties acquired by the real estate dealer
shall be considered as ordinary assets.
A real estate dealer refers to any person engaged in the
business of buying and selling or exchanging real
properties on his own account as a principal and holding ii) All real properties acquired by the real estate
himself out as a full or part-time dealer in real estate. developer, whether developed or undeveloped as of the
time of acquisition, and all real properties which are held
by the real estate developer primarily for sale or for
lease to customers in the ordinary course of his trade or
5) What does a real estate developer refer to? business or which would properly be included in the
inventory of the taxpayer if on hand at the close of the
Real estate developer refers to any person engaged in taxable year and all real properties used in the trade or
the business of developing real properties into business, whether in the form of land, building, or other
subdivisions, or building houses on subdivided lots, or improvements, shall be considered as ordinary assets.
constructing residential or commercial units, townhouses
and other similar units for his own account and offering iii) All real properties of the real estate lessor, whether
them for sale or lease. land, building and/or improvements, which are for
lease/rent or being offered for lease/rent, or otherwise
for use or being used in the trade or business shall
6) What does a real estate lessor refer to? likewise be considered as ordinary assets.

Real estate lessor refers to any person engaged in the iv) All real properties acquired in the course of trade or
business of leasing or renting real properties on his own business by a taxpayer habitually engaged in the sale of
account as a principal and holding himself out as a real property shall be considered as ordinary assets.
lessor of real properties being rented out or offered for
rent.
Note: Registration with the HLURB or HUDCC as a real corporation which declared the real property dividends is
estate dealer or developer shall be sufficient for a engaged in real estate business.
taxpayer to be considered as habitually engaged in the
sale of real estate.
iii) The real property received in an exchange shall be
treated as ordinary asset in the hands of the case of a
If the taxpayer is not registered with the HLURB or tax-free exchange by taxpayer not engaged in real
HUDCC as a real estate dealer or developer, he/it may estate business to a taxpayer who is engaged in real
nevertheless be deemed to be engaged in the real estate business, or to a taxpayer who, even if not
estate business through the establishment of substantial engaged in real estate business, will use in business the
relevant evidence (such as consummation during the property received in exchange.
preceding year of at least six (6) taxable real estate sale
transactions, regardless of amount; registration as
g) In the case of involuntary transfers of real properties,
habitually engaged in real estate business with the Local
including expropriations or foreclosure sale, the
Government Unit or the Bureau of Internal Revenue,
involuntariness of such sale shall have no effect on the
etc.)
classification of such real property in the hands of the
involuntary seller, either as capital asset or ordinary
b) In the case of taxpayer not engaged in the real estate asset as the case may be.
business, real properties, whether land, building, or
other improvements, which are used or being used or
have been previously used in trade or business of the
11) What is the basis in the valuation of property?
taxpayer shall be considered as ordinary assets.

The value of the real property will be based on the


c) In the case of taxpayers who changed its real estate
selling price, fair market value as determined by the
business to a non-real estate business, real properties
Commissioner (zonal value) or the fair market value as
held by these taxpayer shall remain to be treated as
shown in the schedule of values of the Provincial or City
ordinary assets.
Assessor, whichever is higher.

d) In the case of taxpayers who originally registered to


If there is no zonal value, the taxable base is whichever
be engaged in the real estate business but failed to
is higher of the gross selling price per sales documents
subsequently operate, all real properties acquired by
or the fair market value that appears in the latest tax
them shall continue to be treated as ordinary assets.
declaration.

e) Real properties formerly forming part of the stock in


If there is an improvement, the FMV per latest tax
trade of a taxpayer engaged in the real estate business,
declaration at the time of the sale or disposition, duly
or formerly being used in the trade or business of a
certified by the City/Municipal Assessor shall be used.
taxpayer engaged or not engaged in the real estate
No adjustments shall be added on the said value,
business, which were later on abandoned and became
provided that the tax declaration bears the upgraded fair
idle, shall continue to be treated as ordinary assets.
market value of the said property pursuant to Section
Provided however, that properties classified as ordinary
219 of R.A. No. 7160, otherwise known as the Local
assets for being used in business by a taxpayer engaged
Government Code of 1991 and the last paragraph of the
in business other than real estate business are
Local Assessment Regulations No. 1-92 dated October 6,
automatically converted into capital assets upon showing
1992.
proof that the same have not been used in business for
more than two years prior to the consummation of the
taxable transactions involving said properties In case the tax declaration being presented was issued
three (3) or more years prior to the date of sale or
disposition of the real property, the seller/transferor
f) Real properties classified as capital or ordinary asset
shall be required to submit a certification from the
in the hands of the seller/transferor may change their
City/Municipal Assessor whether or not the same is still
character in the hands of the buyer/transferee. The
the latest tax declaration covering the said real
classification of such property in the hands of the
property. Otherwise, the taxpayer shall secure its latest
buyer/transferee shall be determined in accordance with
tax declaration and shall submit a copy thereof duly
the following rules:
certified by the said Assessor. (RAMO 1-2001)

i) Real property transferred through succession or


For shares of stocks, it will be based on the net capital
donation to the heir or donee who is not engaged in the
gains realized from the sale, barter, exchange or other
real estate business with respect to the real property
disposition of shares of stocks in a domestic corporation,
inherited or donated, and who does not subsequently
considered as capital assets not traded through the local
use such property in trade or business, shall be
stock exchange.
considered as a capital asset in the hands of the heir or
donee.

12) What are the applicable tax rates of Capital Gains


ii) Real property received as dividend by the
Tax under the National Internal Revenue Code of 1997?
stockholders who are not engaged in the real estate
business and who do not subsequently use such
property in trade or business, shall be considered as a a) Real Properties - 6 %
capital asset in the hands of the recipients even if the
b) For Shares of Stocks not Traded in the Stock  The Commissioner has been duly notified, through
Exchange, on the net Capital Gains a prescribed return, within thirty (30) days from the
date of sale or disposition of the person’s intention
to avail of the tax exemption;
- Not over P100,000 - 5%
 Exemption was availed only once every ten (10)
years; and
- Any amount in excess of P100,000 - 10%  There is no full utilization of the proceeds of sale
or disposition. The portion of the gain presumed to
have been realized from the sale or disposition will
be subject to Capital Gains Tax.
13) Who are required to file the Final Capital Gains Tax
 In case of sale/transfer of principal residence, the
return?
Buyer/Transferee shall withhold from the seller and
shall deduct from the agreed selling
Every person, whether natural or juridical, resident or price/consideration the 6% capital gains tax which
non-resident, including estates and trusts, who sells, shall be deposited in cash or manager’s check in
transfers, exchanges or disposes real properties located interest-bearing account with an Authorized Agent
in the Philippines classified as capital assets, including Bank (AAB) under an Escrow Agreement between
pacto de retro sales and other forms of conditional sales the concerned Revenue District Officer, the Seller
or shares of stocks in domestic corporations not traded and the Transferee, and the AAB to the effect that
through the local stock exchange classified as capital the amount so deposited, including its interest
assets. yield, shall only be released to such Transferor
upon certification by the said RDO that the
proceeds of the sale/disposition thereof has, in fact,
been utilized in the acquisition or construction of
14) What is the procedure in the filing of Final Capital the Seller/Transferor’s new principal residence
Gains Tax return? within eighteen (18) calendar months from date of
the said sale or disposition. The date of sale or
File the Final Capital Gains Tax return in triplicate (two disposition of a property refers to the date of
copies for the BIR and one copy for the taxpayer) with notarization of the document evidencing the
the Authorized Agent Bank (AAB) in the Revenue District transfer of said property. In general, the term
where the seller or transferor is registered, for shares of “Escrow” means a scroll, writing or deed, delivered
stocks or where the property is located, for real by the grantor, promisor or obligor into the hands
property. In places where there are no AAB, the return of a third person, to be held by the latter until the
will be filed directly with the Revenue Collection Officer happening of a contingency or performance of a
or Authorized City or Municipal Treasurer. condition, and then by him delivered to the
grantee, promise or obligee.

15) Who/what are considered exempt from the payment  17) What is a Certificate Authorizing
of Final Capital Gains Tax? Registration?

 Dealer in securities, regularly engaged in the Certificate Authorizing Registration (CAR) is a


buying and selling of securities certification issued by the Commissioner or his duly
 An entity exempt from the payment of income tax authorized representative attesting that the transfer and
under existing investment incentives and other conveyance of land, buildings/improvements or shares
special laws of stock arising from sale, barter or exchange have been
 An individual or non-individual exchanging real reported and the taxes due inclusive of the documentary
property solely for shares of stocks resulting in stamp tax, have been fully paid.
corporate control
 A government entity or government-owned or
CARs shall now have a validity of one (1) year from date
controlled corporation selling real property
of issue. In case of failure to present the same to the
 If the disposition of the real property is gratuitous
Registry of Deeds (RD) within the one (1) year period,
in nature
the same shall be presented for revalidation to the
 Where the disposition is pursuant to the CARP law
District Office where the CAR was issued. The
revalidation, evidenced by stamping the phrase
16) Who are conditionally exempt from the payment of "revalidated on __________ to expire on ___________"
Final Capital Gains Tax? in a conspicuous space in the CAR, shall be good for
another one-year period, after which the CAR losses its
validity. (RMO 15-2003)
Natural persons who dispose their principal residence,
provided that the following criteria are met:

 The proceeds of the sale of the principal residence


have been fully utilized in acquiring or constructing
new principal residence within eighteen (18)
calendar months from the date of sale or
disposition;
 The historical cost or adjusted basis of the real
property sold or disposed will be carried over to the
new principal residence built or acquired;

You might also like