5% Capital Gains Tax Imposed on the Sale of Real Property

August 22, 1990 BIR RULING NO. 161-90 21 e 000-00 161-90 S i r : In reply to your letter dated June 5, 1990, inquiring into the existence of a Revenue Memorandum Order totally disregarding the zonal valuation of real property as the basis other than the considerations in computing the capital gains tax on the sale of real property and instead, the prevailing market value of the property sold is used as basis in computing the same, please be informed that to date no Revenue Memorandum Order has been issued in that effect. Accordingly, in case of sale of real property located in the Philippines classified as capital assets by an individual, estate or trust, the 5% capital gains tax imposed under Section 21 (e) of the Tax Code is computed based on the consideration or the fair market value (zonal value) of the property at the time of sale, whichever is higher (Section 21 (e) Tax Code in relation to Section 16 (e) of the same Code). However, should the said property sold be classified as an ordinary asset as in the case of property being rented out, such sale is no longer subject to the 5% capital gains tax imposed under Section 21 (e) of the Tax Code but to the 5% creditable withholding tax imposed under Revenue Regulations No. 1-90 implementing Section 50 (b) of the same Code computed based on the gross selling price or the total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer or real property. Gross selling price means that the consideration stated in the sales documents, or fair market value/zonal value whichever is higher (par 5. RMC 7-90). aisadc Very truly yours, (SGD.) EUFRACIO D. SANTOS Officer-in-Charge