How to Compute Capital Gains Tax (CGT) in the Philippines — Simply Explained

If you’re planning to sell a piece of land, a house, or any real property in the Philippines, one of the key things you’ll have to deal with is the Capital Gains Tax (CGT).

It sounds intimidating, right? But don’t worry — once you understand how it’s computed; it’s really just a matter of a few numbers and knowing which value to use.

Let’s break it down step by step, the way you and I would talk it over coffee.

What Is Capital Gains Tax?

Capital Gains Tax is a 6% tax imposed on the profit (or “gain”) you earn from selling a real property classified as a capital asset — usually land, a house, or a condominium unit that’s not used in business.

In simpler terms:

The government takes 6% of the property’s value, whichever is higher between your selling price and the BIR’s zonal value.

Step-by-Step Computation

Here’s how you can compute it easily:

Step 1. Find the “Fair Market Value” (FMV)

The Fair Market Value is the higher of the following:

• Zonal value – the BIR’s assessed value per square meter for that location.

• Selling price – the actual amount on your Deed of Sale.

Use the higher value. That’s what the BIR bases the computation on.

Step 2. Multiply by 6%

Once you have the FMV, simply multiply it by 6% (0.06) to get the Capital Gains Tax.

Formula: CGT = FMV × 6%

Example: Let’s say you sold your property for ₱3,000,000. The BIR’s zonal value is ₱3,500,000.

Use the higher value (₱3,500,000):

₱3,500,000 × 6% = ₱210,000 Capital Gains Tax

That ₱210,000 is what you’ll pay to the BIR before the title transfer can be processed.

Step 3. File and pay the CGT

You’ll file BIR Form 1706 within 30 days after the sale. Payments can be made at:

• Any Authorized Agent Bank (AAB) of the BIR,

• Or at the BIR Revenue District Office (RDO) where the property is located.

Make sure to get the Certificate Authorizing Registration (CAR) after payment — it’s your golden ticket for transferring the title.

Optional: What If It’s a Corporate Seller?

If the seller is a corporation, CGT is not automatically 6%.It might instead fall under regular income tax rates (up to 30%), depending on the nature of the business.

For individual sellers, though, it’s always 6% — no more, no less.

What If It’s Your Family Home?

Good news! If the property you sold is your principal residence and you use the proceeds to buy or build a new one within 18 months, you can apply for CGT exemption under Section 24(D)(2) of the Tax Code.

You’ll just need to file a sworn declaration of intent to avail of this exemption with the BIR before the deadline.

Final Thoughts

Paying taxes is never fun but understanding how they’re computed makes the process smoother (and less stressful).So, when you sell a property next time, remember this simple rule: “Capital Gains Tax = 6% of the higher value between selling price and zonal value.”

It’s that easy — just make sure you file and pay on time to avoid penalties.

Author’s Note

Written by Cris Rosales Jr., founder of A Little Bit of Everything in Life — your go-to space for real-estate wisdom, investing tips, and everyday know-how made simple.