Selling your house: the 6% tax and how to skip it

Sell a house in the Philippines and the BIR takes 6% up front, but if it is your family home you may owe nothing. Here is how the exemption works.

You finally found a buyer for the house. The price is agreed, the deed is ready to sign, and then the paperwork reminds you that the sale is not just between you and the buyer. Before the title can move to the new owner, the BIR wants its cut, and for most sellers that cut is six percent off the top.

Here is the good news that a lot of people never hear: if the house you are selling is your family home, the law may let you pay zero. You just have to know the rule and follow it to the letter.

The 6% that comes off the top

When you sell land or a house classified as a capital asset (property you own but do not sell as a business), the sale triggers capital gains tax. Under Republic Act No. 8424 (the National Internal Revenue Code) Section 24(D)(1), the rate is a flat 6 percent. It is not 6 percent of your profit. It is 6 percent of whichever is higher between the selling price in your deed and the property's fair market value.

Fair market value here is not a number you pick. Under Section 6(E) of the same Code, it is the higher of the BIR zonal value for the area or the market value in the assessor's schedule at the city or municipal hall. So even if you sell cheap to a relative, the tax is still measured against the government value.

By custom the seller shoulders this tax, but that is negotiable and should be spelled out in your deed so nobody is surprised later.

The exemption most sellers miss

Section 24(D)(2) carves out one big exception: sell your principal residence, the home you actually live in, and you can be fully exempt from the 6 percent. The conditions are strict, and missing any one of them loses the exemption:

- You use the entire proceeds of the sale to acquire or build a new principal residence within 18 calendar months from the date of sale.
- You notify the BIR of your intent to claim the exemption within 30 days of the sale, using the prescribed return.
- You claim this exemption only once every 10 years.

Two more things worth knowing. The historical cost of the old home carries over to the new one, which matters for the tax on a future sale. And if you only use part of the proceeds, only the unused portion is taxed. The BIR takes the taxable slice by multiplying the tax base by the fraction that the unused amount bears to the selling price.

## Do not forget the documentary stamp tax

The 6 percent is not the only line item. Under Section 196 of the Tax Code, selling real property also carries documentary stamp tax of P15 for every P1,000, which works out to 1.5 percent, again on the higher of the price or the fair market value. The principal residence exemption covers capital gains tax, not this one. On top of these national taxes, the local government charges its own transfer tax and registration fees before a new title is issued.

## The deadlines that trip people up

- Capital gains tax: file BIR Form 1706 and pay within 30 days after the sale.
- Documentary stamp tax: file BIR Form 2000-OT and pay on or before the 5th day of the month following the sale.

Selling your house: the 6% tax and how to skip it

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