by Jeanette Uy Iglesias, REB #0004029 | June 9, 2025 8:22 PM
Navigating the world of real estate transactions can feel complex, especially when it comes to taxes. One of the most common questions both buyers and sellers ask is: “Who is responsible for the Capital Gains Tax?”
Whether you’re selling your family home or an investment property, understanding this crucial tax is key to a smooth and legally compliant transaction. This guide breaks down everything you need to know about Capital Gains Tax (CGT) in the Philippines.
The Straight Answer: The Seller is Legally Responsible
Let’s get straight to the point. According to the National Internal Revenue Code (NIRC) of the Philippines, the seller of the property is legally responsible for paying the Capital Gains Tax.
The tax is calculated on the “presumed gain” you make from the sale. Even if you and the buyer privately agree that they will cover the cost, the Bureau of Internal Revenue (BIR) will always hold the seller liable for any payment, deficiencies, or penalties.
Key Takeaway: A contractual agreement can shift the cost, but it cannot shift the legal responsibility from the seller.
How to Calculate the Capital Gains Tax
The CGT is a fixed rate of 6%. This rate is applied to whichever of the following three amounts is the highest:
- The Gross Selling Price (the amount stated in the Deed of Sale).
- The Zonal Value (the fair market value determined by the BIR).
- The Assessor’s Fair Market Value (the value found on the property’s tax declaration).
Let’s see an example:
Imagine you sell a condominium unit with the following values:
- Selling Price: ₱5,000,000
- Zonal Value: ₱6,000,000
- Assessed Value: ₱4,500,000
The BIR will use the highest value, which is the Zonal Value of ₱6,000,000.
Calculation: CGT=₱6,000,000×0.06=₱360,000
In this case, the seller is responsible for paying ₱360,000 in Capital Gains Tax.
The Process: Filing and Paying on Time
Meeting the deadline is crucial to avoid hefty penalties.
- Deadline: The CGT must be filed and paid within 30 days from the date on the notarized Deed of Sale.
- Form to Use: File your return using BIR Form 1706.
- Penalties for Late Payment: Failing to pay on time can result in a surcharge of 25% to 50% of the tax due, plus 12% annual interest and other administrative penalties.
Is It Possible to Be Exempt from Capital Gains Tax?
Yes, but only under specific circumstances. The most common exemption is the sale of your principal residence. You may be exempt from CGT if you meet all the following conditions:
- The property sold was your primary home.
- You notify the BIR of your intention to use this exemption within 30 days of the sale.
- You use the entire proceeds from the sale to purchase or construct a new principal residence within 18 months.
- You have not availed of this tax exemption within the last ten years.
If you only use a portion of the proceeds to buy a new home, the unused portion will be subject to the 6% CGT.
Don’t Forget the Other Transaction Costs
While CGT is the seller’s main tax liability, several other taxes and fees are involved in a real estate sale. These are often negotiated between the buyer and seller.
- Documentary Stamp Tax (DST): Typically 1.5% of the property’s value (whichever is highest).
- Transfer Tax: A local government tax, usually 0.50% to 0.75% of the property value.
- Registration Fees: Paid to the Registry of Deeds to issue a new title under the buyer’s name.
- Real Property Tax (RPT): The seller must ensure the RPT is paid up to the date of the sale.
The successful transfer of the property title to the buyer’s name hinges on the payment of these taxes, especially the CGT. The BIR will only issue the crucial Certificate Authorizing Registration (CAR) after you have settled your tax obligations.
Best Practices for a Smooth Transaction
- Clarify Everything in the Deed of Sale: Clearly state who will shoulder the cost of each tax (CGT, DST, etc.) to avoid future disputes.
- Verify Property Values: Before the sale, check the current zonal and assessed values to accurately estimate your tax liability.
- File Promptly: Mark your calendar for the 30-day deadline to avoid penalties.
- Keep All Documents: Retain copies of all receipts, forms, and transaction documents.
- Seek Professional Advice: When in doubt, consulting a qualified tax professional or real estate lawyer is a wise investment that can save you time and money.
Disclaimer: This article provides general information about Capital Gains Tax in the Philippines and is not intended as legal or tax advice. For guidance on your specific situation, it is best to consult with a professional.