Tax Consequences of Purchase of a Parcel of Land

September 14, 1987 BIR RULING NO. 285-87 21 (3) 103 & 102 000-00 285-87 S i r : This refers to your letter dated September 1, 1987 stating that on October 31, 1976 both of you bought a parcel of land situated at Bo. San Dionisio, Paraaque, Metro Manila for a consideration of P9,000.00. In connection therewith, you now request a ruling on the following: (1) Whether the sale is subject to the capital gains tax; (2) Whether the excess of the fair market value over the consideration of the sale is subject to the donor's tax; and (3) What is the rate of the donor's tax when the donation is below P10,000.00? In reply, please be informed as follows: (1) Considering that the seller in this case did not derive any capital gain from the transaction since her property was sold for less than its fair market value, the seller is not subject to income tax prescribed by Section 21 in relation to Section 34 both of the Tax Code prior to their amendment by Batas Pambansa Blg. 37; (2) Considering that the property was transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a gift subject to gift tax (Sec. 122 of the Tax Code prior to its amendment by Executive Order No. 37); (3) The tax for each calendar year shall be computed on the basis of the total net gift made during the calendar year. If the net gift is over P1,000.00 but not over P50,000.00 the rate is 1.5% (Section 102, Tax Code as amended). Since the excess of the fair market value of the property over the consideration of the sale is P5,200.00, said amount is subject to donor's tax at the rate of 1.5%. cdta Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner