RULES IN HOLDING

PERIOD IN CAPITAL GAINS

HOLDING PERIOD

 This rule is applicable only to individual taxpayers,

estates and trusts
 Refers to the length of time the asset was held by the
taxpayer
 It covers the period from the date of acquisition to
the date of sale or exchange
 Holding period Percentage to be recognized

 12 months or less 100%

 More than 12 months 50%
Case A
Individual taxpayer, single, has the following data for the taxable year:

Ordinary income P240,000

Ordinary loss 40,000
Capital gain on capital asset held for six months 10,000
Capital gain on capital asset held for three years 40,000
Capital loss on capital asset held for 15 months 10,000

How much is the net taxable income?

Answer: P225,000

Ordinary income
P240,000
Ordinary loss
(40,000)
Short-term capital gain (100%) 10,000
Long-term capital gain (50%) 20,000
Long-term capital loss (50%) (5,000)
25,000
Taxable income P225,000
Case B
Assume the same data in case A, except that the taxpayer is a
corporation. Determine the taxable income of the corporation

Ordinary income P240,000

Ordinary loss 40,000
Capital gain on capital asset held for six months 10,000
Capital gain on capital asset held for three years 40,000
Capital loss on capital asset held for 15 months 10,000

How much is the net taxable income?

Answer: P240,000

Ordinary income
P240,000
Ordinary loss
(40,000)
Short-term capital gain (100%) 10,000
Long-term capital gain (100%) 40,000
Long-term capital loss (100%) (10,000)
40,000
Taxable income P240,000

Note: Holding period is not applicable to corporate taxpayers.

Case C
Individual taxpayer, single, has the following data for the taxable
year:

Ordinary income P240,000

Ordinary loss 40,000
Capital gain on capital asset held for six months 10,000
Capital gain on capital asset held for three years 40,000
Capital loss on capital asset held for 15 months 80,000

How much is the net taxable income?

Answer: P200,000

Ordinary income
P240,000
Ordinary loss
(40,000)
Short-term capital gain (100%) 10,000
Long-term capital gain (50%) 20,000
Long-term capital loss (50%) (40,000) -
Taxable income P200,000

Note: Capital loss is deductible only to the extent of capital gain.

NET OPERATING LOSS
CARRY-OVER (NOLCO)
NOLCO

 This rule is applicable only to individual taxpayers

 If an individual taxpayers sustains in any taxable
year and net capital loss , such loss shall be treated
in the succeeding year as a short-term capital loss
 It can be deducted against net capital loss in the
year immediately following the year when a net
capital loss was incurred
 The amount that can be deducted from the net
capital gain of the succeeding year should not be in
excess of the net income at the time the capital loss
was incurred
Case D
Net capital loss carryover - Individual Taxpayer
Given the following data during the calendar year(2020) determine the taxable income
assuming the taxpayer is a citizen of the Philippines without a dependent child.

Business income P800,000

Business expenses 500,000
Compensation income 500,000
Capital gain on sale of bonds held for 20 months P60,000
Capital gain on direct sale to a buyer of shares of
domestic corporation held for six months 150,000
Capital loss on sale of a car held for 10 months 50,000
Capital loss on sale of land in the Philippines held for two years 100,000
Capital loss in 2019 (net taxable income in 2019 was P100,000) 200,000
Answer: P800,000

Business income P800,000

Business expenses (500,000)
Compensation income 500,000
Net capital gain:
Gain on sale of bonds (50%) 30,000
Capital loss - sale of car (100%) (50,000) -
Net capital loss carryover -
Taxable income P800,000
Case E
Net capital loss carryover - Individual Taxpayer
Given the following data during the calendar year(2020) determine the taxable income
assuming the taxpayer is a citizen of the Philippines without a dependent child.

Business income P800,000

Business expenses 500,000
Compensation income 500,000
Capital gain on sale of bonds held for 2 months P60,000
Capital gain on direct sale to a buyer of shares of
domestic corporation held for six months 150,000
Capital loss on sale of a car held for 2 years 10,000
Capital loss on sale of land in the Philippines held for two years 100,000
Capital loss in 2019 (net taxable income in 2019 was P50,000) 200,000
Answer: P805,000

Business income P800,000

Business expenses (500,000)
Compensation income 500,000
Net capital gain:
Gain on sale of bonds (100%) 60,000
Capital loss - sale of car (50%) (5,000)
Net capital gain 55,000
Net capital loss carryover (50,000) 5,000
Taxable income P805,000

Note: The net capital loss carry-over should not be more than the net taxable income at the
same time the net capital loss was incurred.
The remaining 150,000 (P200,000 - P50,000) net capital loss incurred in 2019 is no longer
allowed as a net capital loss carry-over after 2020
Case F
Taxpayer - Domestic Corporation
Given the following data during the calendar year(2020), determine the taxable income
assuming the taxpayer is a domestic corporation

Business income P800,000

Business expenses 500,000
Capital gain on sale of bonds held for 2 months P70,000
Capital gain on direct sale to a buyer of shares of
domestic corporation held for six months 150,000
Capital loss on sale of a car held for 2 years 10,000
Capital loss on sale of land in the Philippines held for two years 100,000
Capital loss in 2019 (net taxable income in 2019 was P50,000) 200,000
Answer: P360,000

Business income P800,000

Business expenses (500,000)
Net capital gain:
Gain on sale of bonds (100%) 70,000
Capital loss - sale of car (100%) (10,000)
Net capital gain 60,000 60,000
Taxable income P360,000

Note: Rules on holding periods and capital loss carry-over are not applicable to corporate
taxpayers.
 REQUISITES
1. Limited to operating losses accumulated beginning January 1, 1998
2. Any net loss incurred in a taxable year during which the taxpayer is exempt from
income tax shall not be allowed as a deduction or as part of NOLCO
3. Allowed only if there has been no substantial change in the ownership of the business
or enterprise
A. Not less than 75% in nominal value of the outstanding issued shares, if the
business is in the name of corporation, is held by or on behalf of the same persons
or;
B. Not less than 75% of the paid-in capital of the corporation, if the business name
is in the name of the corporation, is held by or on behalf of the same person
4. Not applicable against MCIT
5. Applied on a First-in First-out (FIFO) basis
6. Not applicable under Optional Standard Deduction
By or on behalf of the same persons shall never to
maintenance of ownership despite change as when:

A. No actual change in the ownership is involved in the case that

transfer involves change from direct ownership to indirect
ownership or vice versa
B. No actual change in the ownership is involved in the case of the
merger of the subsidiary into the parent company
 TAXPAYERS NOT ALLOWED TO CLAIM NOLCO

A. Taxpayer who are exempt from income tax (either by provision of the NIRC or
special laws) at the same time the net operating loss was incurred
B. Offshore Banking Units of a foreign banking corporation and Foreign Currency
Deposit Unit of a domestic or foreign banking corporation, duly authorized as such
by the Bangko Sentral ng Pilipinas
C. Entities registered with the Bureau of Investments enjoying Income Tax Holidays
with respect to the net operating losses incurred or sustained during the period of
such Income Tax Holiday
D. Entities registered with the Philippine Economic Zone Authority (PEZA)
E. Enterprises registered under RA 7227 (Bases Conversion Development Act)
F. Foreign corporations which international shipping or air carriage in the Philippines
NET OPERATING LOSS FOR MINES OTHER THAN OIL AND
GAS WELLS

 A net operating loss incurred in any of the first 10 years of

the operation may be carried over as a deduction from the
taxable income for the next 5 years immediately following
the year of such a loss.
 The entire amount of the loss shall be carried over to the
first five taxable years following the loss, and any portion
of such loss which exceeds the taxable income of such first
year shall be deducted in like manner from the taxable
income of the next remaining four years
Case A
The following are the records of ABC company:

2016 2017 2018

Gross sales P3,300,000 P2,640,000

P1,025,000
Cost of sales 2,400,000 1,200,000 350,000
Dividend resident foreign corporation 140,000 - 32,000
Interest income on notes receivable 28,000 16,400 -
Capital gain - 13,000 18,500
Capital loss 20,000 - 22,000
Operating expense 1,475,000 1,115,000 400,000

Determine the following:

 Taxable income (loss) for 2016, 2017, 2018
 2016 2017 2018

Gross sales P3,300,000 P2,640,000

P1,025,000
Cost of sales (2,400,000) (1,200,000) (350,000)
Operating expense (1,475,000) (1,115,000) (400,000)
Dividend resident foreign corporation 140,000 - 32,000
Interest income on notes receivable 28,000 16,400 -
Capital gain - 13,000 18,500
Capital loss - 18,500

_____________________________________________________
Net operating income loss (407,000) 354,400 307,000
NOLCO (354,400) (52,600)
Taxable income (407,000) 0 P254,400