Taxes Due on the Sale of Real Property Exceeding PHP 3.2 Million in the Philippines

(Updated to July 2025)

1. Why the PHP 3.2 Million Threshold Matters

Under Section 109(V) of the National Internal Revenue Code (NIRC), as amended by the TRAIN Law (RA 10963) and CREATE Law (RA 11534), the sale of a residential dwelling with a gross selling price (or fair market value, whichever is higher) not exceeding PHP 3,199,200 (indexed every three years for inflation) is VAT-exempt. Once the price crosses that figure, the transaction generally ceases to enjoy the exemption and becomes subject to 12 % VAT, provided the seller is in the course of trade or business. The same sale still triggers several other taxes that apply regardless of VAT status.

2. Overview of Taxes & Fees on a Typical Sale

Tax / Fee	Rate / Basis	Usual Payer	Key Due Dates & Forms
Value-Added Tax (VAT)	12 % of highest between Gross Selling Price (GSP) & FMV; applies only if (a) residential unit > PHP 3.2 M and (b) seller is engaged in business (or habitually selling real property)	Seller (may be contractually passed to buyer)	File monthly/quarterly VAT returns (BIR Form 2550M/Q) within 20/25 days after close of the taxable period
Capital Gains Tax (CGT)	6 % of the higher of GSP or FMV	Seller (if the property is a capital asset of an individual or non-real-estate corporation)	BIR Form 1706; pay within 30 days from notarization of the Deed of Sale
Creditable/Expanded Withholding Tax (CWT/EWT)	1 %–6 %* of GSP or FMV, depending on zoning & seller type	Buyer (withheld from the amount due to the seller)	Remit on or before the 10th day of the following month via BIR Form 1606 (real property) In lieu of CGT when the property is an ordinary asset* of the seller*
Documentary Stamp Tax (DST)	₱ 15 for every ₱ 1,000 (≈ 1.5 %) of the higher of GSP or FMV	Buyer (customarily)	BIR Form 2000-OT; pay on or before the 5th day following the month of notarization
Local Transfer Tax (LTT)	Up to 0.50 % (provinces) or 0.75 % (cities/Metro Manila) of GSP or FMV, whichever is higher	Buyer	Pay at the City/Municipal Treasurer before the Registry of Deeds accepts the transfer
Registration Fees (RoD)	~0.25 % of selling price + filing fees/IT fees	Buyer	Pay upon presentation of eCAR at the Registry of Deeds
Notarial Fees	0.1 %–1 % of contract price, subject to caps	Buyer/Seller by agreement	Upon notarization
Real Property Tax (RPT) Arrears	Varies; seller must settle prior years	Seller	Must be cleared for BIR eCAR & title transfer

3. Capital vs. Ordinary Asset: The Fork in the Road

Seller’s Classification	Applicable Income-Based Tax	VAT Exposure
Capital Asset (e.g., a family home; not used in business nor held for sale)	CGT at 6 % (final, no deductions)	None; sale of capital assets by individuals not in the real-estate business is outside VAT even above PHP 3.2 M
Ordinary Asset (inventory, or property used in trade/business, or seller is a real estate dealer/developer)	Subject to regular Income Tax (graduated rates or 25 % corporate) via CWT/EWT	12 % VAT if PHP 3.2 M threshold exceeded

Tip: Even one prior sale could re-characterize the next as “in business” if done “in the course of trade.” Always examine seller history.

4. Step-by-Step Compliance Timeline

Notarization of Deed of Absolute Sale
Within 30 days:
- Pay 6 % CGT or file CWT/EWT remittance if ordinary asset.
Within same window:
- Pay DST (BIR Form 2000-OT).
Secure:
- BIR Electronic Certificate Authorizing Registration (eCAR)—proof all BIR taxes are paid.
- Tax Clearance for Real Property Taxes from LGU.
Pay Local Transfer Tax at LGU Treasurer.
Register title transfer at Registry of Deeds, paying registration fees.
If VAT-able:
- Seller issues VAT-official receipt; includes sale in monthly/quarterly VAT returns and pays any net VAT due.

Failure to observe deadlines triggers 25 % surcharge + 12 %-20 % interest p.a., plus compromise penalties.

5. Illustrative Computations (2025 figures)

Scenario A – Capital Asset Selling price & FMV: PHP 5,000,000 (exceeds threshold but seller is an individual not in business)

Item	Math	Amount
CGT	6 % × ₱ 5,000,000	₱ 300,000
DST	1.5 % × ₱ 5,000,000	₱ 75,000
LTT (0.75 %)	0.75 % × ₱ 5,000,000	₱ 37,500
VAT	N/A	—

Scenario B – Ordinary Asset by Developer Same price; seller is a real-estate developer

Item	Math	Amount
Output VAT	12 % × ₱ 5,000,000	₱ 600,000
CWT (creditable)	1.5 % × ₱ 5,000,000	₱ 75,000
DST	1.5 % × ₱ 5,000,000	₱ 75,000
LTT (0.75 %)	₱ 37,500	₱ 37,500
Net Income Tax	Calculated in quarterly/annual return after deductions, with CWT as credit	Variable

6. Document Checklist

For BIR eCAR	For Registry of Deeds
Notarized Deed of Sale	eCAR (original + photocopy)
BIR Forms 1706/1606 & 2000-OT with payment proofs	Original Owner’s Duplicate TCT/CCT
Certificate of Zonal/FMV (BIR or Assessor)	Updated Tax Declaration
Proof of RPT clearance	LTT Official Receipt

7. Special Rules & Nuances

Installment Sales: VAT & DST computed on agreed consideration; CGT may be paid per installment if expressly allowed and deed is conditional, but BIR generally requires CGT upfront.
Exemption for Principal Residence (Sec. 24(D)(2)): A natural person may escape CGT once every 10 years if the proceeds are fully used to acquire/build a new principal residence within 18 months and the BIR is properly notified within 30 days of sale. VAT and DST still apply if thresholds reached.
Expropriation Sales: Subject to 6 % CGT but DST-exempt; VAT depends on seller’s status.
Foreclosure or Dacion en Pago: Generally taxed as a sale; DST applies on transfer; CGT payable by mortgagor/debtor.
Related-Party & Below-FMV Deals: BIR may assess taxes on the higher fair market value to prevent tax avoidance.
Inflation Adjustment of VAT Threshold: Next CPI adjustment is set for January 1, 2027 (every three years). Keep track of BIR Revenue Regulations for the new figure.
Estate or Donor’s Tax: If the transfer is by succession or donation instead of sale, CGT/EWT & VAT do not apply; instead the relevant estate or donor’s tax is imposed.

8. Common Pitfalls & Best Practices

Pitfall	How to Avoid
Using zonal value lower than FMV in computations	Always pick the highest of: GSP, zonal value, or assessed FMV.
Late filing causing hefty surcharges	Calendar deadlines immediately after notarization; pay provisional amounts if valuation in dispute.
Treating capital asset as non-VATable but seller turns out to be “engaged in business”	Review seller’s prior transactions; secure BIR ruling if uncertain.
Overlooking CWT when buying from a developer	Buyer must withhold and remit or risk disallowance of expense and penalties.
Ignoring LGU LTT & RPT arrears until the last minute	Obtain tax clearance from Treasurer’s Office early to avoid registration delays.

9. Governing Laws, Regulations & Key Issuances

NIRC (as amended), Secs. 24, 27, 32(B), 57, 196, 199, 236, 237, 109(V)
TRAIN Law (RA 10963) — VAT threshold adjustment provisions
CREATE Law (RA 11534) — confirmed 2021 VAT thresholds
BIR Revenue Regulations:
- RR 4-2021 & RR 13-2021 (VAT & threshold mechanics)
- RR 14-2023 (streamlined eCAR)
- RR 6-2002, RR 7-2003 (withholding on real property)
Local Government Code (RA 7160) — Local Transfer Tax
Supreme Court decisions: Ferrer vs. BIR (G.R. 174007, 2010); CIR vs. AIC Realty (G.R. 215835, 2021) – interpret capital vs ordinary assets and VAT scope.

10. Take-Aways

Crossing the PHP 3.2 M line primarily triggers 12 % VAT if the seller is in business.
CGT (6 %) or Income Tax via CWT/EWT is always on deck, depending on asset classification.
DST and Local Transfer Tax apply regardless of price or seller status.
Deadlines are short (30 days for CGT, monthly for VAT, etc.), and penalties are steep.
Double-check seller classification, FMV vs. GSP, and the latest BIR issuances before closing any transaction.

This article is for general information only and does not constitute legal or tax advice. Consult a Philippine tax professional or lawyer for transactions with unique or complex facts.