Capital Gains Tax

Persons subject to capital gains tax

1. Individuals
2. Domestic corporations

Disposition of Real Property

Tax base:
Selling price, FMV as determined by
the commissioner (zonal value) or
FMV as shown in the schedule of
values of the Provincial or City
Assessor, whichever is higher
Tax rate: 6%

A residential lot with an area of 1,000

square meters was sold at P1,500 per
square meter. At the time of sale, the
FMV (zonal value) as determined by the
Commissioner of the BIR was P2,000
per square meter while the assessed
value per latest tax declaration of the
said lot was P800 per square meter of
P800,000. Compute capital gains tax.

Capital gains tax :

2,000,000 x .06 = P120,000

Sale by a natural person of a

principal residence
Full utilization of proceeds from sale
Mr. AA acquired his principal residence in 1997 at
a cost of P1,000,000. He sold the property on
January 1, 2010, with a fair market value of
P5,000,000 for a consideration of P4,000,000.
Within 18-month reglementary period, he
purchased his new residence at a cost of
P7,000,000.
compute: 1. adjusted cost basis of new principal
residence
2. capital gains tax

1. Historical cost
1,000,000
Add: additional cost to acquire new principal residence
Cost to acquire new principal res. P 7,000,000
GSP of old
4,000,000
3,000,000
Adjusted cost basis of new principal residence
4,000,000

2. Mr. AA shall be exempt from the capital gains tax since the
entire proceeds of the sale has been fully utilized to acquire
his new principal residence.

 There is no full utilization of proceeds from sale

If Mr. AA acquired his new principal residence within 18
month reglementary period but did not however
utilize the entire proceeds of the sale in acquiring
new principal residence because he only used
P3,000,000 in acquiring the new principal residence;
the portion of the gross selling price not utilized in
the acquisition shall be subject to capital gains tax.
Historical cost
P 1,000,000
Gross selling price
4,000,000
FMV of old
5,000,000
Cost to acquire
3,000,000

Compute : 1. capital gains tax due

2. cost basis of new principal
residence

1. 4M-3M/4M x5M x.06 = 75,000

2. Basis of new residence=
3,000,000/4,000,000 x 1,000,000 =
750,000

Exercise: Janet sold her principal residence

for P5M when its FMV was P6M. The
house was purchased 5 years ago for
P3M. Out of the proceeds of P5M, Janet
utilized P4M for the purchased of a new
residential house.
The capital gains tax on the sale is: _____
The cost basis of the new residence
is:____

Solution:
1. 1M/5M x6M x 6%= 72,000
2. 4,000,000/5,000,000 x 3,000,000=
2,400,000

Installment Payment of
Capital Gains Tax by an
Individual

An individual who sells real property

may elect to pay capital gains tax on
installment basis if the initial
payment does not exceed 25% of
selling price.

Exercises
1. On Oct. 1, 2009, AA, an individual taxpayer,
sold a piece of real property for P1,000,000
under the ff. terms: P200,000 down
payment; balance in 5 equal installments
beginning 2010. Taxpayers elects and is
qualified to pay the tax in installment.
Compute: 1. total capital gains tax
2. portion of capital gains tax payable
in the year of sale
3. installment capital gains tax

1. Total capital gains tax

SP
1,000,000
x
6%
tax due
60,000
2. Portion of capital gains tax payable in
the yr of sale
initial payment/contract price x capital
gains tax
= 200,000/1,000,000x60,000 = 12,000

3. Installment payment = 800,000/5=

160,000
Installment payment/contract price x
total capital gains tax=
160,000/1,000,000 x 60,000= 9,600

2. In 2009, BB, an individual taxpayer sold

for P1M a piece of real property which
she bought in 2004 for P400,000. Prior
to sale, the property was mortgaged for
P600,000. The terms of sale are as
follows: Down payment, P100,000;
assumption of unpaid mortgage,
P500,000; balance of P400,000 payable
in 4 annual payments beg. Jan 15, 2010.
Taxpayers elect to pay the tax in
installment.

1. Compute total capital gains tax

2. Portion of capital gains tax payable
on the year of sale
3. Installment capital gains tax

1. SP
1,000,000
x
6%
tax due
60,000
2. Initial payments:
down payment
100,000
excess of mortgage assumed
over cost (500,000-400,000) 100,000
total initial payments
200,000

Total contract price:

SP P1,000,000
Less: mortgage assumed
500,000
Total
500,000
Add: excess of mortgage over cost
100,000
Total contract price
600,000
initial payments/CPx total capital gains tax
=200,000/600,000x60,000 = 20,000

 Installment payment= 400,000/4 =

100,000
Installment capital gains tax:
installment payment/CP x total
capital gains tax
= 100,000/600,000 x 60,000 =
10,000