Tax On Property Dealings.docx

PROPERTY DEALINGS Installment Payment of Capital Gain Tax: Capital Gain Tax X Installment Payment Received Contract Price

Steps:

(1) Initial Payment should not exceed 25% of the Selling Price (2) Compute the capital gain tax (3) Compute the Contract Price: Selling Price – Mortgage + Excess of Mortgage over Cost (4) Compute the installment payment

Legendary Co., a domestic corporation, on Jan 2, 2012, sold for P 2M (FMV of P 1.8M) a piece of land outside the Philippines held as capital asset, which had a cost to it of P 1M, payable at P 500,000 on the date of sale and the balance at P 1M on January 2, 2013, and P 500,000 on July 2, 2013. Compute for the capital gain tax and installment payments. Answer:

CGT: Initial Payments:

P 2,000,000 x 6% = P 120,000 P 500,000 (500,000/2,000,000 = 25%)

Installment Payments: Date of sale: Jan 2, 2013: Jul 2, 2013:

(120,000/2,000,000) x P 500,000 = P 30,000 (120,000/2,000,000) x P 1,000,000 = P 60,000 (120,000/2,000,000) x P 500,000 = P 30,000

Mr. Entei sold directly to a buyer on November 10, 2012 for P 210,000, when the FMV at the time of sale was P 230,000, shares of stock of a DC held as capital asset which had a cost to him P 100,000 two years before. The shares had an indebtedness of P 60,000, which was assumed by the buyer. Payments by the buyer on the cash requirement of P 150,000 were to be: P 15,000 on the date of sale, P 30,000 on Dec 10, 2012, and P 105,000 on June 10, 2013. Compute for the capital gain tax and installment payments. Answer:

CGT: Initial Payments: Contract Price:

P 230,000 – 100,000 = P 130,000 (Net capital gain); Tax = P 8,000 P 15,000 + P 30,000 = P 45,000 (45,000/210,000 = 21.4%) P 210,000 – 60,000 = P 150,000

Installment Payments: Date of sale: (8,000/150,000) x 15,000 = P 800 Dec 10, 2012: (8,000/150,000) x 30,000 = P 1,600 June 10, 2013: (8,000/150,000) x 105,000 = P 5,600 On Jan 2, 2012, Mr. Torchic, a citizen of the Philippines, sold for P 1,800,000 (FMV P 1.8M), land in the Philippines held as capital asset, which had a cost to him of P 600,000. The property was subject to a mortgage of P 700,000, which was assumed by the buyer. Of the remaining P 1,100,000 of the consideration, P 200,000 was payable on the date of sale, P 600,000 on Jan 2, 2013, and P 300,000 on Jan 2, 2014. Compute for the capital gain tax and installment payments. Answer:

CGT: Initial Payments: Contract Price:

P 1,800,000 x 6% = P 108,000 P 200,000 + P 100,000 (excess of mortgage over cost) = P 300,000 (300,000/1,800,000 = 16.7%) P 1,800,000 – 700,000 + 100,000 = P 1,200,000

Installment Payments: Date of sale: Jan 2, 2013: Jan 2, 2014:

(108,000/1.2M) x P 300,000 = P 27,000 (108,000/1.2M) x P 600,000 = P 54,000 (108,000/1.2M) x P 300,000 = P 27,000