Capital Gains Tax and BIR Form 1706

One thing you have to remember about the disposition or transfer of real estate in the Philippines is Capital Gains Tax. It is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale.

Within 30 days after the sale, exchange, transfer or other disposition of real property, remember that you are required to file BIR Form 1706 entitled Final Capital Gains Tax Return (For Onerous Transfer of Real Property Classified as Capital Assets -Taxable and Exempt, and pay the tax amounting to 6 percent of the net capital gain based on the selling price, fair market value or zonal value, whichever is higher.

In filing the return, the following documents are required to be attached:

1. One original copy and one photocopy of the Notarized Deed of Sale or Exchange
2. Photocopy of the Transfer Certificate of Title; Original Certificate of Title; or Condominium Certificate of Title
3. Certified True Copy of the tax declaration on the lot and/or improvement during nearest time of sale
4. “Certificate of No Improvement” issued by the Assessor’s office where the property has no declared improvement, if applicable or Sworn Declaration/Affidavit of No Improvement by at least one (1) of the transferees
5. Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable
6. Duly approved Tax Debit Memo, if applicable
7. “Sworn Declaration of Interest” as prescribed under Revenue Regulations 13-99, if the transaction is tax-exempt
8. Documents supporting the exemption

For more information, visit this page of the BIR website. You may also download BIR Form 1706 here.

Prepare Deed of Absolute Sale by yourself

In the Philippines, when we sell or purchase real estate unconditionally, we use a document entitled Deed of Absolute Sale. The "deed" is usually prepared and must be notarized by a lawyer-notary public and thus considered a public document.

Having your lawyer prepare the document usually means you pay more. Nothing actually prevents the parties from preparing the document themselves, and there are quite a few guides available on the net. One such guide is available at this website entitled Philippine Legal Forms.

As you will see, all you need to prepare in order to complete the form are as follows: the names, civil status and addresses of the buyer and seller; the original or transfer certificate of title (OCT or TCT) number, the address, land area in square meters, and technical description of the property; and the amount of consideration as well as community tax certificate (CTC) numbers of the buyer and seller.

Of course, to know the technical description of the property, you will need a copy of the OCT or the TCT. In fact, it is a good practice for the buyer to ask the seller to show his or her owner's copy of the OCT or TCT in order to ensure the legitimacy of the sale.

By the way, print the document on 8.5 by 13 inch paper in at least 5 copies. Sign all the copies and proceed to a notary public for the notarization. Chances are, you end up saving a few hundreds if not thousands of pesos.

Advertise for free

I think it is now time to put this blog to good use. First, I intend to develop this as a true real estate blog where people interested in buying properties can get useful information.

Second, I am opening this to everyone by allowing free property advertisements. Who knows. the 5 or so visitors of this site daily may just turn out to be your "lucky" buyer.

Just send me your spiel on the property with one nice picture and I will gladly post them here. Make sure to indicate the lot and floor area, the location, the selling price and your contact information. Trust me, this site is going to be the next big thing in real estate marketing. :)