Quick answer

As a rule, the seller pays the capital gains tax (CGT) on the sale, exchange, or other disposition of Philippine real property classified as a capital asset. The Supreme Court has confirmed that, as far as the government is concerned, CGT is the seller’s liability because it is imposed on the gain presumed to have been realized by the seller.

The parties may agree in the deed that the buyer will shoulder or reimburse the CGT. That arrangement determines who ultimately bears the cost between them, but it does not ordinarily change the seller’s status as the taxpayer liable to the Bureau of Internal Revenue (BIR).

The usual CGT is 6% of the highest of:

The property’s gross selling price;
The BIR zonal value; or
The fair market value in the provincial or city assessor’s schedule of values.

CGT is not automatically based on the seller’s actual profit. It may be due even if the seller breaks even or sells at a loss.

Before applying the 6% rule, determine whether the property is a capital asset in the seller’s hands. If it is an ordinary asset, the transaction follows the rules on ordinary income, expanded withholding tax, and possibly VAT or percentage tax—not the standard 6% CGT regime.

The seller is legally responsible for CGT

Sections 24(D) and 56 of the National Internal Revenue Code place the tax on the person disposing of the capital asset. This includes an individual seller and, where applicable, an estate, trust, or corporation.

In Spouses Benedicto v. Lacson, the Supreme Court explained that CGT on a real-property sale is generally for the seller’s account. It further stated that, as far as the government is concerned, the tax remains the seller’s liability even when the parties have their own agreement regarding transaction expenses. See the Supreme Court decision in G.R. No. 211666.

This distinction matters in practice:

Tax liability: The seller is generally the person whose presumed gain is taxed.
Filing: The instructions for BIR Form 1706 require participation by both seller/transferor and buyer/transferee.
Payment arrangement: The deed may require the buyer to advance, reimburse, or shoulder the amount.
Government enforcement: A private allocation normally does not prevent the BIR from treating the seller as the taxpayer.
Registration: The buyer has a strong practical interest in ensuring that the tax is correctly paid because the transfer generally cannot be registered without the appropriate BIR electronic Certificate Authorizing Registration, or eCAR.

A clause saying that the buyer will pay “all taxes and expenses” should not be assumed to cover CGT without reading the entire deed. The document should identify CGT, documentary stamp tax, local transfer tax, registration fees, and other charges separately.

When the 6% CGT applies

For an individual, estate, or trust, the usual 6% final CGT applies when all of the following are present:

There is a sale, exchange, or other onerous disposition.
The property is real property located in the Philippines.
The property is a capital asset in the seller’s hands.
No exemption or special tax treatment applies.

The rule also covers pacto de retro sales and other forms of conditional sale. For a domestic corporation, the 6% final tax generally applies to land or buildings that are not actually used in its business and are treated as capital assets. The Supreme Court discusses this corporate distinction in CIR v. Filinvest Development Corporation, G.R. Nos. 163653 and 167689.

How the tax base is determined

The basic computation is:

CGT = 6% × highest applicable property value

The values compared are generally:

The consideration or gross selling price stated in the deed;
The BIR zonal value; and
The fair market value shown in the applicable assessor’s schedule of values.

For example, suppose a property is sold for ₱4,000,000, its zonal value is ₱4,500,000, and its assessor’s fair market value is ₱3,800,000. The tentative CGT would be:

₱4,500,000 × 6% = ₱270,000

The seller cannot reduce this tax base by deducting the purchase price, renovation costs, broker’s commission, unpaid mortgage, or other expenses. Although it is called a capital gains tax, the law presumes the gain and applies the rate to the statutory value rather than to the seller’s actual net profit.

Valuation can become more complicated when a deed covers several properties, land and improvements have different declarations, only an undivided share is sold, or the transaction is an exchange rather than a cash sale. Obtain the applicable zonal and assessor’s values for the precise property and transaction date.

Capital asset or ordinary asset?

The classification depends primarily on the seller’s ownership and use of the property, not on how the buyer intends to use it.

A privately owned home, residential lot, inherited property, or investment property that the seller did not use in business is commonly a capital asset. But the label on the title or deed is not conclusive.

Real property is generally an ordinary asset if it is:

Stock in trade or inventory;
Held primarily for sale to customers in the ordinary course of business;
Used in the seller’s trade or business;
A depreciable business property; or
Owned or used under circumstances covered by the special rules for real-estate dealers, developers, lessors, or taxpayers habitually engaged in real-estate transactions.

For example, a condominium sold by its private owner may be a capital asset. A unit held for sale by a developer is ordinarily an ordinary asset. A building used in a seller’s operating business may also be an ordinary asset even if the seller is not a real-estate developer.

Property that was once used in business does not necessarily become a capital asset merely because it later became idle. Conversion and abandonment rules are fact-sensitive. The principal BIR guidance is Revenue Regulations No. 7-2003.

If the property is an ordinary asset, the seller generally reports the income under the regular income-tax rules. The buyer or other withholding agent may have to remit expanded withholding tax using BIR Form 1606, and VAT or percentage-tax consequences may also arise. Current guidance for taxpayers habitually engaged in real-estate business appears in the BIR digest of RMC No. 31-2025.

Do not file Form 1706 merely because the parties commonly call every property tax “capital gains tax.” A wrong classification can delay the eCAR and produce deficiency taxes and penalties.

Important exceptions and special situations

Sale of a principal residence

A natural person may claim exemption for the sale of a principal residence if the statutory conditions are satisfied, including:

The property sold was genuinely the seller’s principal residence;
The proceeds are fully used to acquire or construct a new principal residence;
Full utilization occurs within 18 calendar months from the sale or disposition;
The seller notifies the BIR through the prescribed return within 30 days from the sale or disposition;
The exemption has not been used during the preceding 10 years; and
The historical cost or adjusted basis of the old residence is carried over to the new one.

If only part of the proceeds is used, the exemption is only partial. The taxable portion is determined under the formula in Section 24(D)(2) of the Tax Code.

The exemption applies only to a natural person. In co-owned property, it may apply only to the proportionate share of a co-owner who actually used and occupied the property as a principal residence and otherwise satisfies the requirements.

Do not wait until the new house has been purchased before approaching the BIR. The 30-day notice requirement runs from the disposition of the old residence. The BIR may also require an escrow arrangement and supporting proof. Consult the current BIR ONETT checklist for principal-residence claims.

Sale to the government

When an individual sells or otherwise transfers a capital-asset property to the national government, a political subdivision, a government agency, or a government-owned or controlled corporation, the Tax Code permits an election between the regular income-tax treatment and the 6% final CGT treatment.

Government acquisition or expropriation can also involve withholding procedures. The taxpayer should compare the alternatives before signing or accepting payment, particularly where the acquisition cost and documented expenses are substantial.

Corporate sellers

A corporation’s sale should not automatically be treated like an individual’s sale. The 6% final tax applies to qualifying land or buildings treated as capital assets. Other property, including business assets and machinery, may fall under the regular corporate income-tax rules.

The corporation’s registration, primary and secondary purposes, actual use of the property, accounting records, depreciation history, leasing activity, and past transactions may all affect classification.

Co-owners and spouses

Where several persons own the property, the deed should identify every seller and each ownership share. Liability and any available principal-residence exemption may have to be allocated according to those interests.

For spouses, the title, marriage date, property regime, source of funds, and any settlement or judicial order may determine whether both must sign and how the transaction is reported. Do not assume that the name appearing on the title is the only relevant party.

Estates and inherited property

An estate can be a seller and may be liable for CGT when it disposes of a capital-asset property. This CGT is separate from any estate tax arising from the owner’s death.

Before a sale involving inherited property, verify whether the estate has been settled, whether the heirs are already registered owners, who has authority to sign, and whether estate-tax and eCAR requirements from the prior transfer remain outstanding.

Donation or simulated sale

A genuine donation is generally subject to donor’s tax, not CGT. However, calling a transaction a “donation” or declaring a nominal price does not by itself determine its tax treatment. The BIR may examine the deed, consideration, relationship of the parties, payments, and surrounding documents.

A sale for less than adequate consideration can also raise donor’s-tax issues, subject to statutory rules and exceptions. Have mixed, nominal, or family transfers reviewed before notarization.

Foreclosure and conditional transfers

Foreclosure sales, pacto de retro sales, and other conditional arrangements have specialized rules regarding the taxable event, redemption, filing, and eCAR processing. The tax treatment can depend on whether the redemption period has expired and whether ownership has been consolidated. Use the foreclosure-specific portion of the current BIR ONETT checklist instead of treating the transaction as an ordinary voluntary sale.

Filing and payment deadline

For a taxable transfer of real property classified as a capital asset, BIR Form 1706 must generally be filed and the tax paid within 30 days following the sale, exchange, or disposition.

The BIR’s current Form 1706 instructions state that the return is filed jointly by the buyer/transferee and seller/transferor. The general venue is the BIR Revenue District Office having jurisdiction over the property, subject to special rules for large taxpayers and authorized electronic or banking arrangements.

For an installment sale that legally qualifies for installment payment of CGT, the return and corresponding tax are generally due within 30 days after the first down payment and within 30 days after each subsequent installment. Not every deferred-payment contract qualifies. Do not divide the CGT informally without verifying the installment-sale requirements.

Payment methods and processing channels can change. Confirm the accepted filing and payment route with the responsible RDO or the BIR’s current forms page. The official BIR Form 1706 instructions explain the basic deadline, valuation, and filing rules.

Late filing or payment may result in a surcharge, interest, compromise penalties, or other consequences under the current Tax Code. The Register of Deeds will also ordinarily require an eCAR before registering the transfer.

Practical steps before signing the deed

1. Confirm the seller and the authority to sell

Match the seller’s identity against the owner shown on the title. For an estate, corporation, attorney-in-fact, guardian, or representative, verify the documents establishing authority.

Check whether spousal consent, board approval, an extrajudicial settlement, court approval, or a special power of attorney is required.

2. Determine the property’s tax classification

Document whether the property was:

Used as a home;
Leased or offered for lease;
Used as an office, shop, warehouse, farm, or other business site;
Claimed as a depreciable asset;
Recorded as inventory;
Acquired for resale; or
Held by someone engaged in real-estate business.

Resolve doubtful classification before fixing the tax allocation or closing date.

3. Obtain the relevant values

Secure the BIR zonal value and the assessor’s fair market value for both land and improvements, as applicable. Confirm the exact location, classification, lot area, condominium details, street or zone, and effective date.

Do not rely solely on a broker’s estimate, an old tax declaration, or the parties’ agreed price.

4. State the allocation of expenses clearly

The deed should separately address:

Capital gains tax or expanded withholding tax;
Documentary stamp tax;
Local transfer tax;
Registration and annotation fees;
Notarial fees;
Broker’s commission;
Unpaid real-property tax and association dues; and
Costs of discharging a mortgage or adverse annotation.

Avoid a vague clause stating only that “all taxes shall be for the buyer’s account.”

5. Build the filing deadline into the closing

Identify who will prepare Form 1706, obtain the valuation, submit the ONETT application, pay the tax, and follow up on the eCAR. If the buyer will advance the CGT, the deed or escrow instructions should explain how the amount will be released and documented.

6. File the ONETT documents and obtain the eCAR

The BIR’s current checklist generally requires, among other applicable documents:

TIN information for seller and buyer;
The notarized deed of sale or transfer;
Certified true copies of the title;
Certified true copies of the tax declarations for land and improvements;
A certificate of no improvement when applicable;
Authority documents for representatives or corporate signatories; and
Additional documents for exemptions, estates, corporations, foreclosures, tax-free exchanges, or antedated instruments.

Requirements vary by transaction. Use the BIR’s updated ONETT documentary checklist under RMO No. 17-2026 and confirm the responsible processing office.

7. Complete the local and registration requirements

CGT payment is only part of the transfer. Documentary stamp tax, local transfer tax, real-property-tax clearance, Registry of Deeds requirements, and assessor’s records must also be addressed. Their legal incidence, deadlines, and agreed allocation should be evaluated separately.

Evidence both parties should preserve

Keep original documents where required and organized copies of:

The signed and notarized deed and any contract to sell;
Official receipts, invoices, acknowledgments, bank records, checks, and proof of every payment;
The title and all pages showing annotations;
Tax declarations for land and improvements;
Zonal-value and assessor-value records used in the computation;
Filed tax returns and proof of filing and payment;
ONETT submission records, computation sheets, and the eCAR;
TIN verification documents;
Real-property-tax receipts and clearances;
Mortgage statements, release documents, and lender correspondence;
Powers of attorney, board resolutions, secretary’s certificates, and court or estate documents;
Proof of actual residential or business use;
Communications showing who agreed to shoulder each tax; and
For a principal-residence claim, proof of occupancy, the timely BIR notice, escrow documents, and proof that the proceeds were used within 18 months.

Retain evidence even after the new title is issued. It may be necessary in an audit, refund claim, contractual dispute, or later sale.

Common mistakes

Assuming that CGT is always paid by the buyer because the buyer needs the title transferred.
Treating every property sale as subject to 6% CGT without determining whether the property is an ordinary asset.
Computing the tax only from the deed price and ignoring a higher zonal or assessor’s value.
Believing that no CGT is due because the seller made no actual profit.
Signing a deed with an unclear “all taxes” clause.
Missing the 30-day filing deadline while waiting for the buyer’s loan proceeds.
Claiming the principal-residence exemption without timely notice to the BIR.
Using only part of the sale proceeds for the new residence but claiming a complete exemption.
Assuming that idle or formerly rented business property automatically became a capital asset.
Confusing CGT with documentary stamp tax, local transfer tax, estate tax, donor’s tax, or expanded withholding tax.
Paying money to an intermediary without obtaining BIR-acceptable proof of filing and payment.
Submitting outdated documentary requirements instead of checking the current ONETT checklist.

When professional help is urgent

Consult a Philippine tax lawyer, certified public accountant, or qualified tax practitioner before signing—or immediately after signing if a deadline is running—when:

The 30-day filing period is close to expiring or has already expired;
The property has been used, leased, depreciated, or recorded in a business;
The seller is a developer, dealer, lessor, corporation, estate, trust, or nonresident;
The transaction involves several properties, co-owners, installment payments, an exchange, foreclosure, expropriation, or a tax-free reorganization;
The seller intends to claim the principal-residence exemption;
The deed price is substantially below market value;
The property was inherited, donated, or transferred within the family;
The title, tax declaration, and actual property details do not match;
A party disputes who promised to shoulder the tax;
The BIR questions the classification, valuation, exemption, or authenticity of documents; or
The transfer cannot proceed because the eCAR has not been issued.

Frequently asked questions

Does the buyer ever pay the CGT?

Yes, the buyer may physically pay or economically shoulder it if the contract so provides. But the CGT is generally a tax liability of the seller as the person disposing of the capital asset. The deed should make the payment arrangement explicit.

Can the seller add the CGT to the selling price?

The parties may negotiate a price that considers transaction taxes. However, increasing the stated consideration may also increase the CGT base if the new selling price becomes the highest applicable value.

Is CGT based on the seller’s profit?

No. For a Philippine capital-asset real-property sale, the 6% tax is generally based on the highest of the gross selling price, zonal value, or assessor’s fair market value—not the seller’s actual net gain.

Is the sale of a family home automatically exempt?

No. The principal-residence exemption requires timely BIR notice, qualifying use of the property, acquisition or construction of a new principal residence within 18 months, compliance with the once-every-10-years limit, and full or proportionate utilization of the proceeds.

Who files BIR Form 1706?

The official form instructions call for joint filing by the seller/transferor and buyer/transferee. The seller remains the person generally liable for the tax, while both parties must cooperate because the buyer needs the eCAR for registration.

What if the seller is a real-estate developer?

The property is ordinarily an ordinary asset. The transaction generally involves regular income taxation and expanded withholding tax, with possible VAT consequences, instead of the standard 6% CGT.

What if the property was rented out?

Rental or business use may make the property an ordinary asset. The answer depends on the seller’s business, tax registration, accounting and depreciation treatment, duration and character of use, and the conversion rules in Revenue Regulations No. 7-2003.

Can the title be transferred before CGT is settled?

Ordinarily, the Register of Deeds requires the BIR’s eCAR before registering the transfer. The eCAR process requires the applicable tax returns, proof of payment or exemption, and supporting documents.

Is CGT the only tax due on the sale?

No. Documentary stamp tax, local transfer tax, registration fees, real-property-tax obligations, and—where the property is an ordinary asset—expanded withholding tax and possibly VAT or percentage tax may also apply.

Official legal sources

This article provides general legal information, not legal or tax advice for a particular transaction. Property classification, exemptions, contractual obligations, and filing requirements depend on the seller’s facts and documents. Official sources and procedures were checked as of July 27, 2026.