Tax Dealings on Properties Flashcards
What is the nature of Dealings on Properties?
Its about
-Gains from dealings in properties (Income from sale or exchange)
How do you determine gain/loss with sale of property vs exchange of property
Sale of property is Selling Price Minus the Cost = Gain/Loss
Exchange of property is Fair Market Value Minus the Cost = Gain/Loss
How do you determine the cost of property?
- By Purchase (Acquisition Cost - Cost Paid by Seller)
- By Inheritance (FMV at date of inheritance)
- By Donation (FMV at time of gift or in hand at the donor, whichever is lower)
- With Less Consideration (Amount paid for property)
For taxation purposes, assets are classified as?
Ordinary
Capital
What is an Ordinary Asset?
Stock in trade of the taxpayer or other property of a kind that would be included in the inventory of the taxpayer if on hand at the end of the year
Basically If its in your inventory
or if its subject to depreciation
or if its available for sale
or is used in trade or business
Then it is an ordinary asset
What is a Capital Asset?
All real properties held by a taxpayer that is not included among real properties that is considered an ordinary asset.
Considering how almost every real property is considered an ordinary asset, how do you get a capital asset?
Must be from someone not engaged in the real estate business
Must be idle/abandoned for 2 years
What type of asset are Real property received as dividend by the stockholders who are not engaged in the real estate business and who do not use such property in trade or business?
Capital Asset
When can someone be a taxpayer that is habitually engaged in the sale of real property
(Not Real Estate Broker, Developer, Lessor)
The requirements for that is
-Registered with HLURB, HLUDCC
-More than 6 real property transactions in the previous year
What type of asset are Real Properties formerly forming part of the stock in trade of a taxpayer not engaged in the real estate business, which were later on abandoned and became idle for more than 2 years prior to consummation of the sale or transaction.
Capital Asset
What is the tax treatment of Ordinary Gans/Losses
Ordinary Gains = 100% taxable (part of income)
Ordinary Losses = 100% Deductible (Allowable deductions)
What type of asset are Real property transferred through succession or donation to the heir or donee who is not engaged in the real estate business with respect to the real property inherited or donated, and who does not subsequently use such property in trade or business
Capital Asset
How is Net Capital Gain/Losses of a corporation treated?
Net Capital Gains are treated as gross income
Net Capital Losses is NOT Deductible (it’s forfeited)
What is the tax treatment of Capital Gains/Losses
Capital Gains that are subject to final tax
(On sale of domestic shares not on the Local stock exchange (15% Tax), sale of real properties Located in the PH (6% CGT))
Capital Gains that are subject to basic tax
(Basically the ones that aren’t subject to final tax)
For Capital Assets subject to basic tax, if its from a corp
100% of capital gains and losses are recognized
For individuals. 100% of SHORT term gains and losses are recognized and 50% for LONG term
If you acquire it for less than or equal to 1 year before selling it, then it is SHORT TERM
What can a Taxpayer do if the Net Capital Loss is non deductible
Corporations can suck it (Can’t do shit lmao)
Individuals can carry over net capital losses (NCLCO, Net capital loss carry over)
Rules:
Only lasts 1 year and doesn’t add up
There is a limit on how much you can carry and its whatever is lowest between your NCL, NCG of loss, Net Taxable income before NCL of the year the the NCL was incurred
Capital Assets that are subject to final tax
Real property located in Ph (If principal residence = 0% tax, if not 6% capital gain tax)
Domestic shares
Subject to basic tax- literally everything else
Real Properties in the Philippines can be classified into?
Principal Residence (Exempt From Taxes)
Non-Principal Residence (Capital Gains Tax of 6% of FMV or Selling price whichever is higher) This is only applicable to properties w/in PH
What is the exception to the 6% CGT? on Real Property Sale
An individual seller of the property can choose between 6% CGT or subject it to Basic Tax
Conditions:
-The seller is an individual
-The buyer is the government, its instruments, or agencies including GOCC
Principal Residences are exempt under tax code
-Only if its for the reacquisition of a new principal residence
-You have within 30 days of sale to notify the BIR of your intention of exemption
-Reacquisition must be within 18 months from date of sale
-Can only be used once every 10 years
and some properties are exempt under special laws
What is the tax treatment of the cost of new principal residence vs old principal residence?
If cost is equal = No tax
If cost of new residence is higher = No tax
If cost of new residence is lower = Unutilized portion is subject to 6% CGT
(Unutilized/Selling Price) x CGT
The CGT will be 6% of the FMV you have to deposit in the BIR as security (Escrow account
What is the tax treatment of the cost of new principal residence for taxation purposes
If cost of new is equal to old, then Cost is = Old
If cost of new is in excess to the old, then cost is = Old + Excess
(Excess is Utilized minus Selling Price)
If cost of new is less than the old, then
(Utilized/Selling Price) x Cost of Old
What are the classifications of domestic shares of stock?
Listed in the Philippine Stock Market = Exempt from income tax, subject to percentage tax of (0.6 x 1% x Selling Price)
Unlisted shares = 15% CGT (15% of Selling Price - Cost of Shares)
