In Philippine real estate transactions, a Deed of Assumption of Mortgage is a legal instrument used when a property owner (the mortgagor) transfers their rights and obligations over a mortgaged property to a buyer (the assignee). Under this arrangement, the buyer not only pays for the owner's equity but also "assumes" the remaining balance of the existing loan with the financing institution.

From a taxation standpoint, the Bureau of Internal Revenue (BIR) treats this as a multi-layered transaction. It is viewed both as a sale of real property and a transfer of debt liability, triggering specific obligations for Capital Gains Tax (CGT) and Documentary Stamp Tax (DST).

1. Capital Gains Tax (CGT)

Despite the presence of an existing mortgage, the BIR views the transfer of ownership as a taxable sale.

Applicable Rate: A final tax of 6% is imposed on the presumed capital gains from the sale of real property classified as a capital asset.
Tax Base: The 6% tax is applied to the Gross Selling Price or the Fair Market Value (FMV), whichever is higher.
Crucial Note: The "Gross Selling Price" includes the total consideration. In an assumption of mortgage, this is the sum of the cash paid to the seller (equity) plus the outstanding balance of the mortgage assumed by the buyer. * Responsibility: While the seller is legally liable for the CGT, the contract may stipulate who actually bears the cost.
Deadline: The CGT return (BIR Form 1706) must be filed and the tax paid within thirty (30) days from the date of notarization of the Deed of Assumption of Mortgage.

2. Documentary Stamp Tax (DST) on the Transfer

The DST is an excise tax on the exercise of a right or the execution of a document. In this transaction, DST is triggered on two fronts: the conveyance of the property and the assumption of the debt.

A. DST on the Sale (Section 196, Tax Code)

This is the tax on the transfer of the real property itself.

Rate: 1.5% (or P15 for every P1,000) of the consideration or value of the property.
Tax Base: Similar to CGT, it is based on the Gross Selling Price (Equity + Assumed Mortgage) or the FMV, whichever is higher.
Deadline: BIR Form 2000-OT must be filed and paid on or before the fifth (5th) day of the month following the date of notarization.

B. DST on the Assumption of Mortgage (Section 198, Tax Code)

This is a often-overlooked aspect. When a buyer assumes a mortgage, they are essentially entering into a "promise to pay" the debt of another.

Nature: The BIR may treat the assumption of the mortgage as a new obligation or a transfer of the debt instrument, which carries its own DST implications separate from the sale of the land.
Rate: Generally P1.50 for every P200 (or 0.75%) of the face value of the mortgage debt being assumed.

3. Determining the Tax Base: An Example

If a property has an FMV of P5,000,000, and the buyer pays the seller P1,000,000 in cash while assuming a P3,000,000 bank mortgage:

Total Consideration: P4,000,000 (1M + 3M).
Taxable Base: P5,000,000 (since FMV is higher than the total consideration).
CGT (6%): P300,000.
DST on Sale (1.5%): P75,000.

4. Essential Documentary Requirements for BIR Clearance

To secure a Certificate Authorizing Registration (CAR)—which is necessary to transfer the Title—the following must be submitted to the Revenue District Office (RDO) having jurisdiction over the property:

Original and notarized Deed of Assumption of Mortgage.
Certified True Copy of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT).
Certified True Copy of the latest Tax Declaration (Land and Improvement).
Certificate of No Improvement (if the property is bare land).
Certification from the Bank/Mortgagee consenting to the assumption of mortgage.
Official Receipts/Deposit Slips for the payment of CGT and DST.

5. Common Pitfalls and Legal Risks

Bank Consent: Most mortgage contracts contain a "Due on Sale" clause. Transferring the property without the bank’s written consent via a Deed of Assumption can lead to a foreclosure of the mortgage, even if taxes are paid.
Valuation Errors: Computing taxes only on the "cash out" or equity paid to the seller is a common mistake. The BIR will assess penalties and surcharges if the assumed mortgage balance is excluded from the tax base.
Double DST: Parties should be wary of whether the bank requires a new mortgage contract (triggering another 0.75% DST) versus a simple substitution of the party in the existing mortgage.