GAINS AND

LOSSES
UNIT:IX FROM
DEALINGS IN
PROPERTY
 SOURCES OF INCOME

Business or Passive
Compensation Professional Capital Gains
Income – Income –
Income – –
Sole proprietorship
business, from the Income generated
Remuneration
practice of without any active Arising from the
received under an
profession, or share conduct (Interest, sale of capital
employee-employer
in the income of a Royalties, Dividends assets
relationship
GPP etc.)
 GAINS FROM DEALINGS IN PROPERTY
a. Gains derived from dealings in property
b. In sale or exchange of real or personal property, distinguish first between
ordinary versus capital assets because capital assets have special rules
governing them

ORDINARY ASSETS CAPITAL ASSETS

1. Stock in trade of the taxpayer or other property of a All assets not classified under ordinary shall be
kind which would properly be included in the classified as capital assets
inventory of the taxpayer if on hand at the close of the
taxable year;
2. Property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or
business;
3. Property used in the trade or business, of a character
which is subject to the allowance for depreciation;
4. Real property used in trade or business of the
taxpayer.
Ordinary Assets - those arising from the sale of ordinary assets will form
part of the taxable income subject to the graduated/basic/regular
income tax. Likewise, losses arising from such sale may be claimed as
deductible expense, without any limitation as to amount, unlike in
capital losses.

Capital Assets - those arising from the sale of capital assets shall be
taxed depending on the nature of the property, the gains derived from
sale or disposition of capital assets may be subject to Capital Gains Tax
or Ordinary Income Tax – Will be further discussed in UNIT IX
CAPITAL GAINS TAX IS APPLICABLE ONLY TO:

1. Sale of shares of stock of a

domestic corporation NOT listed
or traded through a local stock
exchange held as a capital asset

2. Sale of real property located

in the Philippines held as a
capital asset
 CGT ON
INDIVIDUALS
Sale of shares of stock of a domestic corporation NOT
listed or traded through a local stock exchange held as
a capital asset

Capital Gains Tax Rate: 15%

Capital Gains Tax Base: Net capital gain, which is the excess of the selling
price/fair market value (less cost to sell) over the cost of the shares
Capital Gains Tax is not applicable to:
1. The sale is made through the local stock exchange
2. The shares of stock are of a foreign corporation (not domestic corporations)
3. The shares are NOT held as capital assets, e.g., the seller is a dealer in
securities
4. The sale resulted in a capital loss
 Stock
Transactions
Listed in LSE Tax - 6/10 of
Sale of 1%
shares of
Stocks Shares of CGT- 15%
Not listed in
DC of CG
LSE
Shares of Basic
FC Income Tax
ILLUSTRATION: Mr. F sold his shares of stock from JFC Corporation, a domestic corporation
at P 3,500,000 which he bought for only P2,000,000. How much is the CGT due on the sale?

Gross Selling Price 3,500,000

Cost 2,000,000
Capital Gain 1,500,000
CGT Rate 15%
CGT 225,000
Sale of real property located in the Philippines held as
a capital asset
Real Property: LANDS and BUILDINGS. Sale of machineries, even though
classified as a capital asset, shall be subject to the regular corporate income
tax.

Capital Gains Tax Rate: 6%

Capital Gains Tax Base: Gross Selling Price vs. Zonal Value vs. Fair Market
Value, whichever is higher
IMPORTANT NOTE FOR CGT ON REAL PROPERTY:
Sale of real property to government or any of its political subdivisions or
agencies or GOCCs may be treated as subject to capital gains tax or ordinary
income tax, at the option of the taxpayer.
 Located Basic Income Tax
Abroad
Sale of Real
Property CGT- 6% of GS vs.
Buyer is ZV vs. FMV
Located in not Gov’t
whichever is
higher
PH
Buyer is Basic Income Tax
or CGT
Gov’t
EXEMPTION FROM CGT:

Sale of principal residence of natural persons, the proceeds of which is fully

utilized in acquiring or constructing a new principal residence within 18
calendar months from the date of sale or disposition. Subject to the following
requirements:

a. The historical cost or adjusted basis of real property sold or disposed is

carried over to the new principal residence;
b. The exemption can only be availed once every 10 years;
c. The BIR is notified by the taxpayer within 30 days from the date of sale or
disposition of his intention to avail of the tax exemption.
WHAT IF NOT UTILIZED?
ILLUSTRATION: Mr. F sold his land located in Pangasinan which is considered as his capital
asset. He acquired it at P1,000,000 and now selling it at P3,000,000. At the time of sale, the
fair market value is P2,500,000 while Zonal Value is P1,500,000.

Gross Selling Price 3,000,000

CGT Rate 6%
CGT 180,000
ILLUSTRATION: Mr. F sold his principal residence which he acquired for P1,000,000 for
P3,000,000. At the time of sale, the fair market value is P2,500,000. After 1 year, Mr. F
bought a house and lot for P3,200,000. Assuming all other requisites are present, how much
is the CGT due on the sale?

P0. The proceeds of P3,000,000 was fully utilized to acquire a new principal residence.
ILLUSTRATION: Mr. F sold his principal residence which he acquired for P1,000,000 for
P3,000,000. At the time of sale, the fair market value is P2,500,000. After 1 year, Mr. F
bought a house and lot for P2,000,000. Assuming all other requisites are present, how much
is the CGT due on the sale?
ILLUSTRATION: Mr. F sold his principal residence which he acquired for P1,000,000 for
P3,000,000. At the time of sale, the fair market value is P3,300,000. After 1 year, Mr. F
bought a house and lot for P2,000,000. Assuming all other requisites are present, how much
is the CGT due on the sale?
 CGT ON
CORPORATIONS
Sale of shares of stock of a domestic corporation NOT
listed or traded through a local stock exchange held as
a capital asset

Capital Gains Tax Rate: 15%

Capital Gains Tax Base: Net capital gain, which is the excess of the selling
price/fair market value (less cost to sell) over the cost of the shares
Applicability:
• Shares of Stock of a Domestic Corp (Closely held), Non-Listed

DOMESTIC RESIDENT FOREIGN NON-RESIDENT FOREIGN

CORPORATION CORPORATION CORPORATION

Shares of Stock 15% of CG

CREAT Act – Effective Apr 11, 2021 15% of CG

ILLUSTRATION: ABC Company a Domestic Corp sold it’s shares of stock from JFC
Corporation, a domestic corporation as well at P 3,500,000 which it bought for only
P2,000,000. How much is the CGT due on the sale?

Gross Selling Price 3,500,000

Cost 2,000,000
Capital Gain 1,500,000
CGT Rate 15%
CGT 225,000
ILLUSTRATION: ABC Company a Resident Foreign Corp sold it’s shares of stock from JFC
Corporation, a domestic corporation as well at P 3,500,000 which it bought for only
P2,000,000. How much is the CGT due on the sale?

Gross Selling Price 3,500,000 Gross Selling Price 3,500,000

Cost 2,000,000 Cost 2,000,000
Capital Gain 1,500,000 Capital Gain 1,500,000
CGT Rate 15%
First P100,000 @ 5% 5,000 CGT 225,000
Excess of P100,000 @ 10%
140,000
(1,500,000-100,000)
CGT 145,000
Sale of real property located in the Philippines held as
a capital asset
Real Property: LANDS and BUILDINGS. Sale of machineries, even though
classified as a capital asset, shall be subject to the regular corporate income
tax.

Capital Gains Tax Rate: 6%

Capital Gains Tax Base: Gross Selling Price vs. Zonal Value vs. Fair Market
Value, whichever is higher
EXEMPTION FROM CGT:

Sale of principal residence of natural persons, the proceeds of which is fully

utilized in acquiring or constructing a new principal residence within 18
calendar months from the date of sale or disposition. Subject to the following
requirements:

a. The historical cost or adjusted basis of real property sold or disposed is

carried over to the new principal residence;
b. The exemption can only be availed once every 10 years;
c. The BIR is notified by the taxpayer within 30 days from the date of sale or
disposition of his intention to avail of the tax exemption.
Applicability:
• Real Property is located in the Philippines, classified as Capital Asset

DOMESTIC RESIDENT FOREIGN NON-RESIDENT FOREIGN

CORPORATION CORPORATION CORPORATION

Real Property 6% of SP, FMV or NA

ZV
ILLUSTRATION: ABC Company a Domestic Corp sold it’s vacant land which is considered as
their capital asset. It was acquired at P1,000,000 and now selling it at P3,000,000. At the
time of sale, the fair market value is P2,500,000 while Zonal Value is P1,500,000.

Gross Selling Price 3,000,000

CGT Rate 6%
CGT 180,000
ILLUSTRATION: ABC Company a Foreign Corp sold it’s vacant land which is considered as
their capital asset. It was acquired at P1,000,000 and now selling it at P3,000,000. At the
time of sale, the fair market value is P2,500,000 while Zonal Value is P1,500,000.

Gross Selling Price 3,000,000

CGT Rate 0%
CGT 0