Tuesday, December 18, 2012

Sample computation of capital gains tax (CGT) on sale of real property

Mr. Santos sells a residential lot in Pasig City with a floor area of 200sqm on cash with Selling Price of P3 Million. Mr. Santos is not engaged in a real estate business. The proceeds from the sale will be used by Mr. Santos for his trip to US and other personal expenses.  The following are the fair market value information of the real property:

1. Fair Market Value as determined by BIR Commissioner (Zonal Value/BIR Rules):

1a. Land: P1,600,000 (let us say BIR Zonal value is P8,000/sqm [200 x 8,000=1,600,000])

1b. Improvement: P1,200,000
2. Fair Market Value as determined by Provincial/City Assessor’s (per latest Tax Declaration):

2a. Land: P1,400,000

2b. Improvement: P1,300,000
How much is the Capital Gains Tax?
Answer/solution:
Step 1. Determine the highest fair value (FMV):
Total FMV1 (1a + 1b): P2,800,000
Total FMV2 (2a + 2b): P2,700,000
Total FMV3 (1a + 2b): P2,900,000
Total FMV4 (2a + 1b): P2,600,000
The Highest FMV is FMV3: P2,900,000. This is the FV we will use in the step 2.
Step 2. Determine the higher between FMV and Selling Price:
FMV = P2,900,000
Selling Price = P3,000,000
The higher value is the selling price P3,000,000. This is our tax base for computing Capital Gains Tax.
Step 3. Calculate Capital Gains Tax.
CGT = P3,000,000 x 6%
CGT = P180,000

For more info on CGT check http://www.bir.gov.ph/taxinfo/tax_capgin.htm
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Source:http://businesstips.ph/how-to-compute-capital-gains-tax-on-sale-of-real-property/

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  3. Do you have an example if the proceeds were utilized rather for the construction or purchase of new residential property but was not fully utilized? Thanks

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