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 P 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 P 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