People are always on the lookout for something better. It may be the latest mobile device on the market, a higher position at work, or even a new luxury house. Whatever it is, there is always a time in one’s life to transition to bigger and better opportunities. Moving to a new address in a new residential real estate property is a milestone worth remembering—for families and individuals.
Selling one’s home can be a rollercoaster adventure for homeowners because of its upsides and downsides. Homeowners who acquired their personal property as one of their real estate investments are more likely to be excited about the profit they will get from the sale of their house and lot for sale.
On the other hand, before getting to the part of these real estate deals that involves making a profit, there are a ton of legal processes that need to be taken care of, one of which is the ramifications of one’s income tax situation.
Are you thinking of selling a real estate property? The taxing authority in the country where the property is located will require income taxes—for vacant land, undeveloped property, single-family homes, or commercial real estate such as multi-unit building and multi-story detached buildings. These fees differ for each country, so it is best to research before hiring real estate professionals to put the property on sale officially.
In the Philippines, sellers only have to pay taxes on their sales money and any other fees that come up during the process. But to provide a more extensive discussion on the taxes and fees required when selling or buying a real estate property, here is the list of the tax consequences that need to be settled before fully closing the transaction—regardless of the financial position both parties are in. This should serve as an essential guide for homeowners and homebuyers alike.
The capital gains tax is the income tax that must be paid on the money from selling a property. This tax is 6 percent or higher of the gross selling price, the fair market value, or the zone value. This is what the seller pays to the Internal Revenue Service (BIR).
Before finalizing the property’s total price, it is best to factor in this particular tax since it is a significant amount that will be taken from the seller’s earnings. Most of the time, the capital gains tax is the only tax consequence that the sellers are required to pay. The following items on this list are usually the buyers’ responsibility unless there is an agreement between the two parties that states differently.
The mere act of transferring a real estate property from one owner to another is taxable by the city or municipal government where the property is located. Depending on their agreement, this particular tax can be settled by either the seller or the buyer. The rate varies from one city or municipality to another, but the range goes from 0.50% to 0.75% of the gross selling price, fair market value, or zonal value—whichever is higher.
The documentary stamp tax is the payment required for any legal document, contract, instrument, or other paper that certifies that an obligation, right, or property has been accepted, assigned, sold, or transferred. Like the transfer tax, the documentary stamp tax can be settled by either the seller or the buyer, depending on their agreement.
The rate varies for different kinds of documents. For example, the rate for the deed of sale of a property is 1.5% of the gross selling price, fair market value, or zonal value—whichever is higher.
Aside from the tax consequences of any real estate transaction, there are several fees that sellers must anticipate and prepare for. Without the correct information and planning, these fees may make a considerable dent in the profit that the sellers are expecting from the sale.
Once the property’s ownership transfer has been processed and finalized, issuing a new title entails a title registration fee. As the name suggests, registering the new title is like a processing fee. This fee is determined using a standard table of prices based on the property’s value.
Most sellers hire an agent or broker for the sale because, once again, real estate transactions involve processing many legal documents that require time and expertise. Although, the convenience of having a real estate professional do this comes with a cost—usually in the form of a commission fee, a fixed percentage of the seller’s earnings. Sellers need to incorporate this into the final property price.
To provide prospective vendors with some context, the commission fee charged by an agent or broker typically varies from 5 to 10 percent of the property’s total sales price. Of course, sellers have the option to handle the selling as well as the document processing on their own, but doing so will involve a significant investment of both time and effort.
If the property is a condo for sale, the condominium developer may assign an in-house agent or broker to help process the sale. This will require the seller to pay an additional commission fee to the developer, generally 3% of the total price.
The only required tax for the sellers is the capital gains tax, assuming that all the property taxes have already been settled. In the Philippines, there is an annual Real Property Tax (RPT) which must be paid up to date to the Treasurer’s Office of the city or municipality where the property is located. It is a condition to consider the property “clean” for selling. It is one of the first things buyers should check before officially starting a transaction with a seller.
Any outstanding RPTs on the property must be paid before closing the sale. The debt cannot be transferred from the seller to the buyer as it can be used as a legal ground to consider the transaction void.
Most legal documents require a visit to the notary services. The back and forth of these documents from the buyer to the city or municipality office to the tax office will cost money. Hence, it is best to be informed about these miscellaneous expenses to ensure the homeowner will not suffer loss from selling the property.
Suggested Read: Taxes When Buying A House In The Philippines
Suggested Read: Consider These Points Before You Sell Your House
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