Donating real property, such as a house and lot, is a generous act often driven by familial love, philanthropy, or estate planning. However, in the Philippines, giving away real estate is not as simple as handing over the keys. The state treats a donation as a transfer of wealth, which triggers a distinct tax obligation: Donor’s Tax.

To successfully navigate this legal and financial process, one must understand how the Bureau of Internal Revenue (BIR) calculates this tax, how the law determines the "Fair Market Value" of your property, and the strict legal steps required to make the transfer valid.

1. What is Donor’s Tax and Who Pays It?

Donor’s Tax is a form of transfer tax imposed on the gratuitous (free) transfer of property between living persons, known legally as an inter vivos donation.

The Responsible Party: The donor (the person giving the property) is legally responsible for filing the return and paying the tax.
The Tax Rate: Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, Donor’s Tax is fixed at a flat rate of 6%.
The Exempt Threshold: The law provides a tax-exempt threshold of ₱250,000 per calendar year. This means the first ₱250,000 of the total net donations made by a donor within a single calendar year is completely exempt from tax. The 6% rate applies only to the amount exceeding this threshold.

2. Determining Fair Market Value (FMV)

Because a donation does not involve a selling price, the BIR cannot use a transaction value to calculate the tax. Instead, the tax base is determined using the Fair Market Value (FMV) of the house and lot at the time of the donation.

Under Section 88(B) in relation to Section 6(E) of the National Internal Revenue Code (Tax Code), the FMV of real property is defined as whichever is higher between:

The Zonal Value: The value established by the BIR Commissioner for properties within a specific zone or area.
The Assessed Value: The value determined by the Provincial, City, or Municipal Assessor’s Office, as reflected in the latest Real Property Tax Declaration.

Valuation of the "House and Lot" Split

A common point of confusion is how a house and lot are valued together. The BIR looks at them as two distinct components:

The Lot (Land): Valued by comparing its BIR Zonal Value against its Assessor's Value, taking the higher of the two.
The House (Improvement): Generally does not have a "zonal value" assigned by the BIR. Therefore, its valuation is typically based on the Assessed Value found in the Tax Declaration for Improvements, or its current replacement cost if evaluated by an appraiser during an audit.

The total gross value of the donation is the sum of the highest values of both the land and the improvements.

3. Calculating the Net Gift and Donor's Tax

To find the taxable amount (Net Gift), you subtract any legally allowable deductions from the Gross Gift (the FMV determined above).

Allowable Deductions

For a house and lot donation, the most common deduction is an encumbrance assumed by the donee. If the property is currently mortgaged to a bank, and the recipient (donee) legally agrees to take over the payment of that mortgage, the unpaid balance of the mortgage at the time of donation can be deducted from the property's FMV.

Sample Calculation

Assume a donor gives a house and lot to their child. The values are as follows:

BIR Zonal Value of Land: ₱2,000,000
Assessor's Value of Land: ₱1,500,000 (The BIR uses ₱2,000,000)
Assessor's Value of House: ₱1,000,000
Total Fair Market Value (Gross Gift): ₱3,000,000

$$\begin{array}{ll} \text{Gross Gift (FMV):} & \text{₱3,000,000} \ \text{Less: Annual Exempt Amount:} & \text{(₱250,000)} \ \hline \text{\textbf{Net Taxable Gift:}} & \text{\textbf{₱2,750,000}} \ \text{Multiplied by Donor's Tax Rate:} & \times \text{ 6%} \ \hline \text{\textbf{Donor's Tax Due:}} & \text{\textbf{₱165,000}} \end{array}$$

4. Crucial Legal Formalities

A donation of real property cannot be done via a simple handshake or a private letter. The Philippine Civil Code enforces strict formal requirements under Article 749. If these steps are not followed, the donation is considered null and void ab initio (from the very beginning), meaning ownership never legally transfers.

The Deed of Donation: The donation must be made in a public instrument, meaning a written Deed of Donation must be executed and notarized by a Notary Public. The deed must specifically describe the house and lot being donated.
Formal Acceptance: The donee must formally accept the donation. This acceptance can be written directly into the same Deed of Donation or in a separate public instrument. If done separately, the donor must be notified of the acceptance in an authentic form, and this step must be noted in both instruments.
Timing of Acceptance: The acceptance must be made during the lifetime of the donor. If the donor passes away before the donee signs the acceptance, the transfer becomes a matter of inheritance (subject to Estate Tax), not donation.

5. Filing, Payment, and Additional Transfer Costs

Paying the Donor's Tax is only the first step in the tax compliance pipeline required to transfer the title to the donee's name.

BIR Filing Deadline

The donor must file BIR Form 1800 (Donor’s Tax Return) and pay the tax within thirty (30) days after the Deed of Donation is executed and notarized. Failure to file on time triggers heavy penalties, including a 25% surcharge, 12% annual interest, and compromise penalties.

The Certificate Authorizing Registration (CAR)

Once the BIR processes the Donor’s Tax Return and verifies the property's FMV, it will issue a Certificate Authorizing Registration (CAR). This document is the golden ticket; the Registry of Deeds will not cancel the old title and issue a new one without it.

Other Transfer Fees

Apart from the 6% Donor's Tax, moving the title requires paying local and administrative fees, which are typically split between parties by mutual agreement:

Documentary Stamp Tax (DST): ₱15 for every ₱1,000 (or 1.5%) of the FMV, paid to the BIR.
Local Transfer Tax: Usually ranges from 0.5% to 0.75% of the FMV, paid to the City or Municipal Treasurer's Office.
Registration Fees: Paid to the Registry of Deeds for the issuance of the new Transfer Certificate of Title (TCT), calculated based on a graduated electronic table of fees.

6. Strategic Legal Nuances: Splitting Gifts

Because the ₱250,000 tax exemption resets every calendar year, some donors engage in "splitting" a donation across multiple years to legally minimize their tax exposure.

For instance, a donor can choose to donate a co-ownership share of 10% of the property in December, and another share in January of the following year. While this strategy is entirely legal, it requires executing separate, notarized Deeds of Donation for each slice of the property, which will incur separate notary and administrative processing fees. Donors must balance the tax savings against the added bureaucratic complexity and cost.