Capital Gains Tax

Persons subject to capital gains tax1. Individuals2. Domestic corporations

Disposition of Real PropertyTax 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 higherTax 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 residenceFull utilization of proceeds from saleMr. 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 costP 1,000,000Add: additional cost to acquire new principal residenceCost to acquire new principal res. P 7,000,000 GSP of old 4,000,000 3,000,000Adjusted cost basis of new principal residenceP 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 saleIf 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 1,000,000Gross selling price 4,000,000FMV of old 5,000,000Cost to acquire 3,000,000Compute : 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%= 72,0002. 4,000,000/5,000,000 x 3,000,000= 2,400,000

Installment Payment of Capital Gains Tax by an IndividualAn 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.

ExercisesOn 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 sale3. installment capital gains tax

Total capital gains taxSP1,000,000 x6%tax due60,000Portion 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= 160,000Installment 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.

Compute total capital gains taxPortion of capital gains tax payable on the year of saleInstallment capital gains tax

SP1,000,000x 6%tax due 60,0002. Initial payments: down payment100,000excess of mortgage assumedover cost (500,000-400,000) 100,000total initial payments200,000

Total contract price:SPP1,000,000Less: mortgage assumed 500,000Total 500,000Add: excess of mortgage over cost 100,000Total contract price 600,000 initial payments/CPx total capital gains tax=200,000/600,000x60,000 = 20,000

Installment payment= 400,000/4 = 100,000Installment capital gains tax: installment payment/CP x total capital gains tax = 100,000/600,000 x 60,000 = 10,000