In the Philippines, the transfer of real estate can be executed through various legal instruments. When a property is transferred out of "love and affection" or without any monetary consideration, it is classified as a donation. Such transfers are subject to Donor’s Tax, a simplified yet often misunderstood aspect of the National Internal Revenue Code (NIRC).

Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963), the rules governing donor's tax were significantly streamlined to encourage compliance and simplify the transfer of assets.

1. The General Rule and Tax Rate

Since January 1, 2018, the donor’s tax is no longer based on a graduated scale. It is now a flat rate of 6% based on the total value of the gifts made during the calendar year.

This tax is imposed on the privilege of the donor to transfer property; hence, the liability to pay the tax rests primarily on the donor (the giver), not the donee (the recipient).

2. Key Exemptions for Real Estate Transfers

While most donations are taxable, the Philippine tax code provides specific exemptions that can significantly reduce the tax burden during a real estate transfer.

A. The ₱250,000 Annual Threshold

The most common exemption is the exempt threshold of ₱250,000. If the total value of the donations made within a single calendar year does not exceed ₱250,000, no donor's tax is due.

Note: If a donor gives a property worth ₱1,000,000, only the remaining ₱750,000 will be subject to the 6% tax.

B. Gifts to the National Government

Donations made to the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government (e.g., Barangays, Municipalities, Cities), are fully exempt from donor's tax.

C. Gifts to Non-Profit Educational and Charitable Institutions

Donations to qualified non-stock, non-profit organizations are exempt, provided they fall under these categories:

Educational
Charitable
Religious
Cultural
Social Welfare
Accredited Non-Government Organizations (NGOs)

The 30% Rule: For this exemption to apply, no more than 30% of said gifts shall be used by such donee for administration purposes.

D. Specific Statutory Exemptions

Certain laws provide exemptions for specific entities. For example, donations to the International Rice Research Institute (IRRI), the Philippine National Red Cross, or the Ramon Magsaysay Award Foundation are often exempt under their respective charters or specific tax regulations.

3. Valuation of Real Estate for Tax Purposes

For the purpose of calculating the 6% tax, the "Gross Gift" is determined by the fair market value of the real estate at the time of the donation. Under Section 88 of the NIRC, the value shall be whichever is higher between:

The Zonal Value as determined by the Commissioner of Internal Revenue (BIR).
The Fair Market Value as shown in the schedule of values of the Provincial and City Assessors (Tax Declaration).

If the property is encumbered by a mortgage assumed by the donee, the amount of the mortgage is deducted from the gross value to arrive at the "Net Gift."

4. Deemed Gifts: Transfers for Less Than Adequate Consideration

One critical area in real estate is the "Deemed Gift." If a property is sold for a price that is lower than its fair market value, the difference between the fair market value and the actual selling price is considered a gift and is subject to donor’s tax.

Exception: This does not apply to real property classified as capital assets subject to Capital Gains Tax (CGT). In such cases, the 6% CGT is paid regardless of the selling price, and the "deemed gift" rule is generally bypassed.

5. Procedural Requirements and Filing

To formalize the transfer and avail of exemptions, the following steps and documents are typically required:

The Deed of Donation

The donation of real estate must be in a public instrument (notarized). To be valid, the donee must also accept the donation, either in the same deed or in a separate document.

Filing the Return (BIR Form 1800)

Deadline: The Donor’s Tax Return must be filed within thirty (30) days after the date the gift (donation) is made.
Venue: It is filed with the Revenue District Office (RDO) having jurisdiction over the residence of the donor.

Documentary Requirements for Real Estate

To process the Certificate Authorizing Registration (CAR)—which is necessary to transfer the Title—the BIR usually requires:

Notarized Deed of Donation.
Certified True Copy of the Original/Transfer Certificate of Title (OCT/TCT).
Certified True Copy of the latest Tax Declaration (Land and Improvement).
Proof of payment of Real Property Tax (Tax Clearance).
Birth Certificates or Marriage Contracts (to prove relationship, though the rate remains 6% regardless of kinship under the TRAIN Law).

6. Important Reminders

Repeal of Dowries: Prior to 2018, there was an exemption for "dowries" or gifts on account of marriage. This has been repealed; such gifts now fall under the standard ₱250,000 threshold.
Strangers vs. Relatives: The distinction between "strangers" and "relatives" regarding tax rates has been abolished. Everyone pays the same 6% rate.
Splitting Donations: Since the ₱250,000 exemption is annual, some donors choose to donate portions of a property (undivided interest) over several years to maximize the tax-free threshold.