When you sell a house and lot, condominium unit, or parcel of land in the Philippines, several national and local taxes automatically come into play. These taxes affect how much net cash you receive as seller and how quickly the buyer can secure clean title. The most significant is Capital Gains Tax, but Documentary Stamp Tax, local transfer tax, registration fees, and sometimes Value-Added Tax also apply. Understanding exactly how each tax is computed, who is legally responsible, the strict deadlines, and the full sequence of steps from notarized deed to new title helps you avoid penalties, title transfer delays, and unnecessary disputes with the buyer.

The Main Taxes on the Sale of Real Property

Capital Gains Tax (CGT)

Capital Gains Tax is a final tax of 6% imposed on the seller for the sale, exchange, or other disposition of real property classified as a capital asset. It is considered a final tax, meaning the gain from the sale is not added to your regular taxable income.

The tax base is the higher of:

The gross selling price stated in the Deed of Absolute Sale, or
The fair market value, which is the higher of the BIR zonal value or the local assessor’s schedule of market values.

This means even if you sell below your original purchase price or at a loss, you still pay 6% on the government-determined fair market value.

Example: You sell your house and lot for ₱4,200,000. The BIR zonal value is ₱5,000,000 and the assessor’s value is ₱4,800,000. The CGT base is ₱5,000,000. Your capital gains tax is ₱300,000 (6% × ₱5,000,000).

Documentary Stamp Tax (DST)

Documentary Stamp Tax is levied on the deed of sale or conveyance itself at 1.5% (₱15 for every ₱1,000 or fraction thereof) of the higher of the gross selling price or fair market value. It must be paid before the deed can be registered. While the law imposes it on the person who makes, signs, or issues the document, in practice the buyer often shoulders DST as part of the negotiated deal. Both CGT and DST now use the same higher-of-GSP-or-FMV base.

Local Transfer Tax and Registration Fees

Your city or municipality imposes a local transfer tax (sometimes called real property transfer tax) on the sale or transfer. Rates are set by local ordinance and are typically 0.50% in provinces and around 0.75% in Metro Manila and many cities, applied to the higher of selling price or fair market value. This is paid at the Treasurer’s Office and is usually a buyer’s cost in practice.

After the BIR issues the electronic Certificate Authorizing Registration (eCAR), you pay registration fees at the Registry of Deeds. These are based on a schedule tied to the property value and usually amount to a fraction of a percent plus fixed charges. The buyer almost always pays these.

Value-Added Tax (VAT)

VAT at 12% applies only when the property is an ordinary asset and the seller is VAT-registered and selling in the course of trade or business (for example, a real estate developer selling subdivision lots or a corporation regularly flipping properties). For an individual selling a personal house, family home, or investment property held as a capital asset, VAT is generally not due.

Capital Asset vs. Ordinary Asset: Why Classification Matters

The distinction between capital asset and ordinary asset determines which tax regime applies.

A capital asset is real property not used in your trade or business and not held primarily for sale to customers in the ordinary course of business (e.g., your family home, a vacant lot you bought years ago for appreciation, or a condo unit you personally use). CGT at 6% applies.

An ordinary asset includes real property used in business (depreciable improvements) or held for sale by developers or dealers. In this case there is no CGT. Instead the seller pays regular income tax on the actual gain (graduated rates for individuals or corporate income tax for corporations), possible VAT at 12%, and the buyer may be required to withhold creditable withholding tax.

The BIR looks at factors such as frequency of similar transactions, holding period, and primary purpose. Misclassifying a property as capital when it should be ordinary can lead to a later audit, deficiency assessments for income tax and VAT, plus substantial penalties and interest.

Legal Basis Under Philippine Law

These taxes rest on the National Internal Revenue Code of 1997, as amended by Republic Act No. 10963 (TRAIN Law). Key provisions include Section 24(D) for individuals and Section 27(D)(5) for domestic corporations regarding the 6% CGT on capital assets. Documentary Stamp Tax is governed by Title VII of the NIRC. Local transfer taxes are authorized by the Local Government Code (Republic Act No. 7160) and implemented through city or municipal ordinances. The Civil Code governs the contract of sale and notarization requirements, while the Family Code rules on spousal consent for conjugal or community property. The Property Registration Decree and Land Registration Authority rules govern title transfer after BIR clearance.

Step-by-Step Process for Paying Taxes and Completing the Transfer

Here is the practical sequence most sellers and buyers follow:

Negotiate and execute the Deed of Absolute Sale
Clearly state the agreed price and who will shoulder which taxes. Have the deed notarized. If the property is conjugal or community property, both spouses must generally sign or one must have proper authority.
Determine the correct classification and compute the taxes
Obtain the latest BIR zonal value (available at the Revenue District Office or through BIR resources) and the assessor’s schedule of market values. Decide whether the property is a capital or ordinary asset.
File and pay at the BIR (One-Time Transaction / eCAR process)
Within 30 days from notarization of the deed, the seller (or authorized representative) files at the Revenue District Office with jurisdiction over the property. Submit BIR Form 1706 for CGT, pay the tax (and DST if included), and apply for the electronic Certificate Authorizing Registration (eCAR). The BIR reviews documents, verifies valuation, and issues the eCAR once satisfied. Payment is made through an Authorized Agent Bank or electronic channels.
Pay the local transfer tax
Bring the eCAR and supporting documents to the City or Municipal Treasurer’s Office. Pay the local transfer tax and obtain the official receipt or clearance.
Register the transfer at the Registry of Deeds
Submit the eCAR, original notarized Deed of Absolute Sale, owner’s duplicate copy of title, updated tax declarations or payment proofs, transfer tax receipt, and valid IDs (or apostilled Special Power of Attorney if the seller is abroad). Pay registration fees. The Registry of Deeds processes the transfer and issues the new title or annotates the existing one in the buyer’s name.
Update the tax declaration at the Assessor’s Office
Present the new title or Registry of Deeds documents. The assessor issues a new tax declaration in the buyer’s name. Any unpaid real property taxes up to the date of sale should be settled beforehand.

Common Pitfalls and Real-Life Scenarios

Many ordinary sellers encounter these issues:

Undervaluation in the deed: The BIR will recompute using the higher fair market value. The difference may be treated as a taxable donation, triggering additional donor’s tax and penalties.
Missing the 30-day deadline: A 25% surcharge plus interest (currently 6% per annum or as updated) applies. Title transfer is blocked without the eCAR.
Disputes over who pays what: CGT is legally the seller’s obligation. DST, local transfer tax, and registration fees are often shifted to the buyer in the contract, but clear stipulations prevent last-minute conflicts.
Heirs selling inherited property: Estate tax must have been paid or settled first. The BIR treats the sale as a separate taxable event; proper documentation of the extrajudicial settlement or court proceedings is required.
OFWs or sellers abroad: A Special Power of Attorney must be executed and apostilled (or authenticated through the Philippine Embassy/Consulate) before a representative can sign documents or file returns in the Philippines.
Foreigners selling property: Foreigners generally cannot own private land under the 1987 Constitution, but they may own condominium units (subject to the 40% foreign ownership limit in the building). CGT still applies to the sale of a capital asset they legally own. Land owned through a Philippine corporation follows corporate tax rules.
BIR reclassification risk: Frequent sales or business-like activity can cause the BIR to treat the property as ordinary, resulting in higher overall taxes and possible VAT.
Principal residence sales: Natural persons may qualify for exemption from CGT if they sell their principal residence and reinvest the full proceeds in a new principal residence within 18 months, provided they have not availed of this benefit in the preceding 10 years. Proper documentation and timely filing are essential.

Documents, Fees, and Realistic Timelines

Typical documents for BIR eCAR application (capital asset sale):

TIN of seller(s) and buyer(s)
Notarized Deed of Absolute Sale (original for verification)
Certified true copy of Transfer Certificate of Title or Condominium Certificate of Title
Certified true copy of latest Tax Declaration(s) for land and improvements
Updated real property tax receipts or clearance from the Treasurer’s Office
Valid government-issued IDs of the parties (or apostilled SPA and IDs of representative)
Accomplished BIR Form 1706
Board resolution and SEC documents if the seller is a corporation
Location or vicinity plan when required by the RDO

Typical taxes and who usually pays (actual allocation is negotiable):

Tax	Rate	Computation Base	Usually Paid By	Notes
Capital Gains Tax	6%	Higher of GSP or FMV	Seller	Final tax; 30-day deadline
Documentary Stamp Tax	1.5%	Higher of GSP or FMV	Buyer (practice)	Required for registration
Local Transfer Tax	0.5%–0.75% (typical)	Higher of GSP or FMV	Buyer	Varies by LGU ordinance
Registration Fees (RD)	Schedule-based	Property value	Buyer	Paid after eCAR
VAT (if applicable)	12%	Gross selling price	Seller	Only for ordinary assets by VAT-registered sellers

Timelines: The 30-day window for BIR filing is strict. Actual eCAR processing after complete submission can take several days to a few weeks depending on the RDO’s workload and document completeness. Registry of Deeds and Assessor’s Office steps usually add another two to eight weeks. Complex cases involving heirs, corporations, or sellers abroad take longer.

Frequently Asked Questions

Who pays the capital gains tax when selling real property in the Philippines?
The seller (transferor) is legally liable for the 6% capital gains tax on capital assets. The buyer does not withhold it.

How is capital gains tax calculated if I sell below the zonal value?
The tax is always based on the higher of your stated selling price or the fair market value (BIR zonal value or assessor’s value, whichever is higher). You cannot use a lower contract price to reduce the tax.

Is there an exemption when selling my family home or principal residence?
Yes. A natural person may be exempt from CGT on the sale of a principal residence if the entire proceeds are reinvested in a new principal residence within 18 months and the seller has not claimed this exemption in the last 10 years. You must meet strict documentation requirements.

What is the difference between capital gains tax and documentary stamp tax?
Capital Gains Tax is a 6% tax on the presumed gain from the sale of a capital asset and is paid by the seller. Documentary Stamp Tax is a 1.5% tax on the deed document itself and is usually shouldered by the buyer in practice. Both are required before title can transfer.

Do I need to pay VAT when selling my residential house and lot?
Usually no, if the property is a capital asset and you are an individual not engaged in real estate dealing as a business. VAT at 12% applies mainly to ordinary assets sold by VAT-registered persons or developers in the course of trade or business.

What documents do I need to file capital gains tax and obtain an eCAR?
You will need the notarized Deed of Absolute Sale, certified copies of the title and tax declarations, updated tax receipts or clearance, TINs and valid IDs of seller and buyer, BIR Form 1706, and a Special Power of Attorney (apostilled if executed abroad) if someone is representing you. Requirements can vary slightly by RDO.

How long does the whole process usually take?
From notarization to new title in the buyer’s name, expect one to three months in straightforward cases, assuming documents are complete and there are no backlogs or disputes. The strict 30-day BIR deadline is the first critical milestone.

Can a foreigner sell property in the Philippines?
Foreigners may sell condominium units they legally own. They generally cannot own private land. Capital gains tax and other applicable taxes still apply to the sale. Proper corporate or inheritance documentation is required in more complex ownership structures.

What happens if capital gains tax is not paid on time?
You incur a 25% surcharge plus interest. The BIR will not issue the eCAR, blocking title transfer at the Registry of Deeds. The buyer cannot obtain clean title until all taxes are settled.

How does selling inherited property affect the taxes?
You must first ensure estate tax has been paid or the estate settled. The subsequent sale is treated as a separate transaction subject to capital gains tax (or ordinary income tax rules if classified as ordinary asset). Complete documentation of the settlement or probate proceedings is essential.

Key Takeaways

Capital Gains Tax at 6% on the higher of selling price or fair market value is the seller’s primary obligation for capital assets and must be paid within 30 days of notarization.
Documentary Stamp Tax (1.5%) and local transfer tax are separate and usually negotiated to the buyer, but both must be paid for registration.
Distinguish carefully between capital and ordinary assets — misclassification can lead to much higher taxes and penalties later.
The eCAR from the BIR is the key document that unlocks title transfer at the Registry of Deeds and updating of the tax declaration.
Special rules exist for principal residence sales (possible exemption with reinvestment) and for sellers who are abroad or foreigners owning condos.
Clear tax allocation in the Deed of Absolute Sale, complete documentation, and meeting strict deadlines prevent the most common and costly problems ordinary sellers face.
Always verify current zonal values and requirements directly with the BIR Revenue District Office having jurisdiction over the property, as procedures and values are updated periodically.

Understanding these rules in advance lets you plan the sale realistically, negotiate confidently with the buyer, and complete the transfer without last-minute tax shocks or title delays.