Real Estate Tax Tips for Property Investors: KMC Expert Talks

Atty. Nancy Martinez-Arce, KMC MAG Group's in-house corporate lawyer, shares some tips on how you can save money on real estate taxes in the Philippines. Check the video below for more tips.

VIDEO TRANSCRIPT:

Hi there! Thank you for joining us in today's episode of KMC Expert Talks.

I am Atty. Nancy Martinez-Arce, KMC MAG Group's in-house corporate lawyer, and today I will be sharing with you some tips on how you can save money on real estate taxes in the Philippines.

Tip no. 1: Make sure you know whether or not value added tax or VAT applies to your real estate transactions.  This is important because knowing the exceptions can actually help you save money on taxes.

Before I go into detail about how you can save money on tax, let's review what VAT is. As a general rule, 12% VAT is imposed on sale of goods and services. This rate is based on the gross selling price or gross value in money of anything you sell, barter or exchange.

If you're the seller or transferor or a landlord, you are required to pay this tax. But there are exceptions to this rule, and this is where you get to save money on tax.

For Landlords

If you lease out your unit at Php 10,000 per month and below, you are not required to pay VAT.

For example, if you have a four-door apartment building and you lease out each unit at Php 8,000 a month, your gross receipts are below Php 400,000, then you won't be subject to VAT.

For Sellers

On the other hand, if you're the seller, you won't have to pay for VAT if a. you sell your house and lot for Php 3.199-million and below or b. sell your lot for Php 1.91-million and below.

Tip no. 2: Pay your real property taxes early. And when we say early, before this year ends.  Local governments appreciate early bird payors and give as much as 20% discount on taxes for those who pay before the set deadline.

For example, in Parañaque, you just have to pay before Dec. 15 to avail the 20% real property tax discount. In Marikina City and Antipolo City, they also give discounts if you pay next year's taxes in full (which is on or before December 31).

Check with your local municipal office to find out how to avail real property tax discounts.

Tip no. 3: Take advantage of the Capital Gains Tax exemption. However, to be exempted, you'd have to do a lot of paperwork, so it would be smart to check first if the effort is worth it.

Capital Gains Tax is usually computed at 6% of the highest among the BIR zonal value, tax, declaration value, or gross selling price, so savings could be pretty significant for multi-million peso properties.

How to qualify:

To qualify for exemption, you have to declare the property you're selling as your principal residence. This means that the residential address written on your latest income tax return should be the property you're trying to sell, so it can be treated as your true residential address. But it doesn't end there. You also have to fit this criteria:

1. The proceeds from the sale should be used in acquisition or construction of the new home within 18 calendar months.

2. The historical cost or adjusted basis of the real property sold or disposed will be carried over to the new principal residence built or acquired.

3. You must notify the Commissioner within 30 days from the date of sale or disposition.

4. Remember, this may only be availed once every 10 years.

5. Lastly, you have to fill out the Certificate Authorizing Registration (CAR) and Tax Clearance from the BIR before anything else.

Last minute roundup
Unfortunately, taxes in real estate are inevitable and you can't always enjoy exemptions, especially for large-scale transactions. However, it would still be advantageous to know what your options are.

So before you sell or dispose of any property, make sure you consult a reliable real estate broker who can help you navigate through the complex bureaucracy and processes.

KMC MAG Group has a team of real estate professionals who can answer all your questions about real estate in the Philippines, whether ownership or tax-related.

Just head to our website kmcmaggroup.com to find complete investment guides and research as well as other information on Philippine real estate.

You may also reach us at 403-5519 or by sending us an email at [email protected].

And that is it. Again, this is Atty. Nancy and it has been a pleasure being with you today.

Thank you for watching and I hope you join us again in our upcoming KMC Expert Talks episode. Bye!