Real estate taxes & BIR rules.

Philippine real estate transactions involve multiple taxes at the national (BIR) and local (LGU) levels. Here's the full picture, with current 2026 rates:

Total transaction cost (typical): Buying or selling property usually costs 8–10% of property value in combined taxes and fees. The seller's CGT is the largest single line item; the buyer's combined fees (DST + Transfer Tax + Registration + Notarial) typically run 2.5–3.5%.

Capital asset vs ordinary asset: The 6% CGT applies to capital assets (personal residences, idle land, properties not used in business). For ordinary assets (developer inventory, properties in the seller's regular business), the seller pays Creditable Withholding Tax (CWT) at 1.5–6% plus 12% VAT plus regular income tax instead.

Most ordinary buyers don't pay VAT on residential property — but the rules depend on the property type, the price, and the seller's status.

Current VAT-exempt thresholds (BIR Revenue Regulation No. 1-2024, effective January 1, 2024):

• House and lot or other residential dwellings: VAT-exempt if selling price is ₱3,600,000 or less
• Residential lots: Lower threshold applies (varies under different rulings)
• Socialized housing (per RA 7279): VAT-exempt

The threshold was raised from ₱3,199,200 to ₱3,600,000 by BIR RR 1-2024, pursuant to Section 109(P) of the National Internal Revenue Code, which mandates a CPI-based adjustment every 3 years. The next scheduled adjustment is January 1, 2027.

What this means in practice:

• If you buy a house and lot at ₱3,500,000 from a developer, the sale is VAT-exempt.
• If you buy a house and lot at ₱5,000,000 from a developer, the developer must charge 12% VAT on the full amount (the threshold is a cliff, not a deduction).
• Sales by individuals not in the real estate business are not subject to VAT regardless of price (capital asset sales).
• Lease of residential units with rent ₱15,000/month or less per unit is VAT-exempt.

Note for buyers: Most developers price their units to either stay below the threshold (for marketing) or absorb VAT into the listed price. Always confirm whether the price you see is VAT-inclusive or VAT-exclusive before signing.

Source: BIR RR 1-2024 (Grant Thornton summary).

Rental income from real estate is taxable as part of the owner's gross income. The exact tax treatment depends on whether you operate as an individual lessor, what your gross annual income is, and whether you're VAT-registered.

For individual lessors (most small landlords):

• Rental income is reported as part of gross income on your annual income tax return (BIR Form 1701 / 1701A)
• Subject to graduated income tax rates: 0% on the first ₱250,000, then 15–35% on income above that
• If gross annual rental + other gross sales is ₱3,000,000 or less, you can opt for the 8% flat tax on gross income (in lieu of graduated rates and percentage tax)
• Allowed deductions: Real Property Tax, depreciation on the building, repairs and maintenance, association dues, interest on the mortgage, and other ordinary business expenses (if you itemize)

VAT or Percentage Tax:

• If gross rental + sales exceeds ₱3,000,000 annually: 12% VAT applies to commercial leases and to residential leases where rent per unit exceeds ₱15,000/month
• If under the threshold: 3% Percentage Tax on gross receipts (for non-VAT lessors)
• Lease of residential units with monthly rent ₱15,000 or less per unit is VAT-exempt regardless of total income

Withholding tax for tenants: If your tenant is a corporation or top withholding agent, they are required to withhold 5% Expanded Withholding Tax (EWT) on the rent and remit it to BIR on your behalf. You receive a BIR Form 2307 from the tenant, which you use as a credit against your income tax due.

Common myth: “Rental income has a 5% final tax” — this is incorrect. The 5% figure is the EWT (a creditable withholding, not a final tax). Your actual tax liability depends on your full income picture and is settled annually.

The default split in Philippine real estate transactions follows custom and law — but most items are negotiable and many sellers pass costs to buyers in hot markets.

What this means for budgeting:

• Buyer's typical out-of-pocket on top of property price: 2.5–3.5% (DST 1.5%, Transfer Tax 0.5–0.75%, Registration ~0.25%, plus notarial fees and miscellaneous)
• Seller's typical out-of-pocket: 6% CGT plus broker's commission of 3–5%, totaling roughly 9–11% of selling price

Critical legal point: Even if the buyer agrees in writing to pay the seller's CGT, the BIR will hold the seller liable for any deficiency. This is why CGT remains the seller's responsibility under the Tax Code regardless of contractual arrangement.

Capital Gains Tax (CGT) on Philippine real estate sales is a flat 6% on the highest of three values:

1. Gross Selling Price (the actual price in the Deed of Absolute Sale)
2. BIR Zonal Value (set by the BIR for the property's location)
3. Assessed Fair Market Value per the LGU's Tax Declaration

Worked example:

• You sell a condo for ₱5,000,000 (Gross Selling Price)
• BIR Zonal Value for the area: ₱4,800,000
• LGU Assessed FMV: ₱3,200,000
• Highest of the three: ₱5,000,000
• CGT = 6% × 5,000,000 = ₱300,000

If the BIR zonal value were ₱5,500,000 (higher than the selling price), the CGT would be computed on ₱5,500,000 instead, even if you actually sold for less.

Filing and payment:

• File BIR Form 1706 (Capital Gains Tax Return) within 30 days from the date of notarization of the Deed of Absolute Sale
• Pay at any Authorized Agent Bank (AAB) of the BIR Revenue District Office (RDO) where the property is located
• BIR will issue an electronic Certificate Authorizing Registration (eCAR) — you cannot transfer the title without it

Penalties for late payment:

• 25% surcharge (50% if willful neglect or fraud)
• 12% interest per annum on the unpaid amount (per TRAIN Law)
• Compromise penalties

Principal residence exemption: If you sell your principal residence and use the proceeds to acquire or construct a new principal residence within 18 months, you can claim a CGT exemption. You must notify the BIR within 30 days of the sale and meet specific documentation requirements. This exemption can only be used once every 10 years.