Taxes and Fees in Home Ownership

taxes and fees

No less than the great Benjamin Franklin said this: “…but in this world nothing can be said to be certain, except death and taxes.”  Can we then say as well, that we should be at home with taxes?

If we can’t avoid them, we should learn about them: what they are and how much should they cost us.

1. Documentary Stamp Tax

The D.S.T. is an excise tax imposed and collected on documents, loan agreements, instruments, and papers evidencing the acceptance, assignment, sale or transfer of rights, obligation, or property. The amount of tax can be fixed or based on the face or par value of the document or instrument. This is equal to 1.5% of the highest value among the following: property’s selling price, zonal value, or fair market value. The documentary stamp tax is paid to the Bureau of Internal Revenue (BIR)

2. Transfer Tax

This tax is imposed on the sale, barter, or any mode of transfer of ownership or real property title. It’s computed at the maximum rate of 50% of 1% of the property’s value. If, however, the property is located within Metro Manila, it’s computed as 75% of 1 of the property’s value.

The Transfer Tax is paid to the local treasurer’s office.

3. Registration Fee

In registering the real estate property tile to the new owner, a Registration Fee needs to be paid to the Registry of Deeds. The amount to be paid varies depending on property type and where it is located. Most often, it is around 0.25% of the selling price.

4. Notarial Fees

All documents requiring notarization, will require the payment of Notarial Fess. The Deed of Absolute Sale when notarized, for example, requires a fee of typically 1% to 2% of the property’s selling price and no lower than P1,000.00.

5. Capital Gains Tax

Gains from the sale of capital assets are levied taxes called the Capital Gains Tax or C.G.T. It is computed as 6% of the selling price, zonal value or fair market value, whichever is higher. It is for the account of the seller of the capital asset.

What are capital assets? From accounting, we learned that Capital Assets are properties that are expected to generate value over a long period of time. They form the productive base of a company or an organization. From a legal definition: Capital Assets refer to all real properties held by a taxpayer, whether or not connected with his trade or business, and which are not included among the real properties considered as ordinary assets. Just as an added nugget of info, Ordinary Assets are another type of asset that is taxed differently. They include real properties that are really intended for sale in the course of one’s business.

6. Real Property Tax

R.P.T.s are one of the main sources of revenues for the local government units or L.G.U.s, as is mandated in the Local Government Code of 1991, R.A. 7150.

RPT is required to be paid yearly. It is imposed on all types of real properties including lands, buildings, improvements, and machinery. To avoid excessive use of such authority, limitations were established by setting specific percentages for the ceiling and base rates. It is computed by multiplying the assessed value of the property by the R.P.T. rate. For the cities and in Metro Manila, it is two percent (2%) while for provinces it is one percent (1%). The assessed value or taxable value of the property is the F.M.V. or Fair Market Value multiplied by the Assessment Level. For residential properties, the maximum assessment level is 20%, while for industrial and commercial properties, it is 50%. There are variations from locality to locality; hence, it’s best to check.

Let’s end with another quote from Mr. Franklin: “An investment in knowledge pays the best interest.” If you miss any of the above unavoidable taxes, the penalties and consequences of not paying, can increase in multiples; thus, taking knowledge and taking heed would be equivalent to making a wise investment.

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