Capital Gains Tax Should be Paid After the Foreclosure Sale but Before the Registration of the Certificate of Sale Issued by the Auctioneer

August 3, 1987 BIR RULING NO. 223-87 21 (e) 138-87 223-87 Gentlemen : This refers to your letter dated July 13, 1987 requesting opinion as to whether the payment of capital gains tax and documentary stamp tax shall be required in the registration of a sheriff's certificate of sale in mortgage foreclosure sale although the property is still subject to redemption within a period of one year reckoned from the date of registration of the sale. In reply, I have the honor to inform you that on the promise that the amount representing the capital gains tax forms part or is tacked with the real property which is already under the control and custody of the financial institution, e.i., banks, finance companies and insurance companies as mortgagee-transferee, said mortgagee-transferee shall pay the 5% capital gains tax based on the selling price shown in the mortgage foreclosure sale (Revenue Memorandum Order No. 29-86). Moreover, the 5% capital gains tax is imposed on "capital gains" presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales by individuals, including Estates and Trusts [Sec. 21 (e), Tax Code as amended by Executive Order No. 37] A mortgage foreclosure sale is a form of conditional sale transaction (Revenue Memorandum Circular No. 41-86). Accordingly, the 5% capital gains tax is due on the selling price shown in the mortgage foreclosure sale. In other words, the tax should be paid after said foreclosure sale but before the registration of the certificate of sale issued by the auctioneer conducting the foreclosure sale. cdtech At the time for payment of the capital gains tax, the documentary stamp tax shall, likewise, be paid by the financial institution based on the selling price shown in the mortgage foreclosure sale or fair market value of the real property whichever is the higher amount. (RMO No. 29-86). Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner