Anda di halaman 1dari 7

CHAPTER 5 GAINS & LOSSES FROM DEALINGS IN

PROPERTY
Gains from dealings in property
-income derived from the sale or exchange of assets,
either ordinary or capital
-gains are taxable
-losses are deductible
Measurement of Gains & Losses
1.
Sale of Property
G or L = SP Cost & other expenses
2.

Exchange of Property
G or L = FMV of assets received Cost of
property issued

Determination of cost of property


1.
By purchased on or after march 1, 1913
Cost = acquisition cost
2.

If property was acquired by inheritance


Cost = FMV @ date of acquisition or inheritance

3.

If property was acquired as a gift


Cost = FMV @ time of donation OR Acquisition
cost of donor, whichever is lower

4.

With less consideration


Cost = Amount paid for the property

Preferential tax treatments of Capital


Gains or Losses are:
1.
Ordinary Losses are deductible from
Capital Gains
2.
Net Capital Losses cannot be
deducted from Ordinary Gains
3.
Capital Losses are deductible only
from Capital Gain
4.
A holding period is taken into
account in the computation of Capital G
or L.
The allowable % are:
a. 100& if Capital Assets are held 1
year or less
b. 50% if Capital Assets are held >
1 year
5.

Net capital loss carry-over is allowed


under the following conditions:
a. Amount of net capital loss to be
applied does not exceed the net
income before exemption on the
year when the capital was
incurred
b. Taxpayer is an individual
c. Holding period is not more than
12 months

Holding period
-span of time where asset is
under custody of the taxpayer
-period from the date of
acquisition to the disposal
-GR: applicable on to individual
taxpayer
-only applies to capital assets
*short term- if HP is 12 months or
less
*long term- more than 1 year

Net capital loss carry-over


-process of carrying forward the
net capital loss incurred in the
previous year as a deduction from
total capital gain in the

Capital Assets
-properties held by the taxpayer, whether connected
or not to his business, which are not classified as
ordinary assets
Ordinary Assets
1.
Stock in trade or property of a kind that would
probably included in the inventory if on hand at
the end of the taxable year
2.
Property used in trade or business of a
character which is subject to the allowance for
depreciation
3.
Real property used in trade or business of the
taxpayer

immediate succeeding taxable


year

Basic rules on Ordinary Gains & Losses


1.
If there is only an OG, included in
gross taxable income
2.
If there is on OL, it is included as part
of allowable deduction
3.
Net OG, included as part of gross
taxable income
4.
Net OL, included as allowable
deduction from gross income

3.

Sale of real property located


outside the Phil by a RC or
Domestic Corp.
- Proceeds are included as part of gross
taxable income & subject to normal tax
rate ranging from 5% to 32% for
individual taxpayer, & 30% for DC

4.

Sale of real property located in


the Phil by a NRFC
- Proceeds or SP are subject to 35% final
tax

5.

Sale of shares of stock, held as


capital assets of a DC thru local
stock exchange or initial public
offering
- Proceeds are tax exempt in relation to
income tax. However, sale is subject to
a percentage tax of or 1% of gross SP
or FMV

Basic rules on Capital Gains & Losses


1.

Sale of real property located in


the Phil & not considered as
principal residence
- Sale is subject to 6% final tax based on
Gross SP or FMV, whichever is higher

2.

Sale of real property located in


the Phil & considered as principal
residence
- Tax exempt; provided the requirements
set by law are fully complied with
If not complied: subject to capital gains
tax of 6%
Requirements:
a. Taxpayer constructs or acquires a
new principal residence within 18
months from the date of disposal
b. BIR Commissioner has been
notified within 30 days about the
disposition
c. Tax exemption applies only once
every 10 years

If silent, assumed all


requirements a to c have been
complied with
If Cost of New Principal Residence
< Proceeds from sale of Old
Principal Residence = Unutilized
Portion (UP)

Unutilized portion is subject to


6% final tax
Taxable amount = (UP / Gross SP
of Old) x Gross SP or Zonal Value
whichever is higher
In the absence of zonal value,
FMV may be used

Par Value Stock


-stock with a nominal or face
value
-indicated on the face of stock
certificate
-nominal value is stated in the
articles of incorporation

No-par Value Stock


-has no nominal amount stated
on the face of the stock
certificate
-can either be with stated or
without stated value

-if has stated value, nominal


value appears on articles of
incorporation, but not on the face

Local Stock Exchange


-any domestic corporation,
association or group of persons,
whether incorporated or
unincoporated, licensed or
unlicensed
-which constitutes, maintains or
provides a market place or
facilities for bringing together
purchasers and sellers of stocks

Exchange
-organized domestic marketplace
or facility
-brings together buyers & sellers
-executes trade of securities or
commodities duly registered with
SEC

Persons liable to Percentage


Tax
a. Individual Taxpayers,
whether citizen or alien
b. Corporate Taxpayers,
whether domestic or
foreign
c. Estate, Trust, Trust Funds,
and Pension Fund

Person not liable to the tax


a. Dealers in securities
- one who buys securities
and resell them

Sale of Capital Stock

Subsequent Sale

Thru LSE
or 1%
Of SP

Outside LSE
5% - first
100k
10%- amt in
excess of

Original
Sale

b. Investors in shares of stock


in a mutual fund company,
as defined in Section 22
(BB) of the tax code, as
amended, and section 2 of
RR 6-2008
c. All other who are
specifically exempt from
national internal revenue
taxes under existing
investment incentives and
other special laws
6.

Sales of shares of stock, held as


capital assets of DC outside the LSE
-Proceeds are subject to 5% final tax for
the first 100k of capital gain, & 10% for
over 100k
-capital gain shall not be included in the
gross taxable income
-any loss is non-deductible
Capital Gain = SP or FMV
whichever is higher Cost &
related expenses

7.

Sale of other capital assets other


than those listed from items 1 to 6
Tax procedure: Sale is subject to basic
tax by observing the ff guidelines:
a. There is only CG: included in the
gross taxable income
b. There is only CL: NOT deductible
from gross taxable income
c. Net CG: included in gross taxable
income
d. Net CL: NOT deductible from GTI

Cost of Shares of Stock


1.
By Purchase
a. if SoS can be identified
Cost = Purchase Price + all costs
of acquisition
b. if SoS cannot be identified
Cost shall be computed on the
basis of FIFO
c. if books of accounts is maintained
by the seller, moving average
method shall be applied rather
than FIFO
2.

By devise, bequest or inheritance


Cost = FMV @ the time of death of
decedent

3.

By gift or donation
Cost = FMV @ time of donation OR Acquisition cost
of donor, whichever is lower

4.

For inadequate consideration


Cost = amount paid by the transferee
for the stock

Sale or Issuance of Shares of Stock


through IPO
IPO - Initial Public Offering
-sale of SoS thru IPO of closely held corporation
is not subject to income tax but to percentage
tax
Applicable Tax Rate:
Tax rate
Proportion of Disposed
Shares
To Outstanding shares
1.
4%
up to 25%

2.

2%
over 25% but not over
33 1/3 %
3.
1%
over 33 1/3%
Installment Payment of Capital Gains Tax
Section 49 of NIRC allows an option to it on
installment basis subject to the ff conditions:
1.
Taxpayer is an individual
2.
Initial payment do not exceed 25% of
the gross SP
Initial Payment includes the following:
a. DP during the year of sale
b. Installment payment made during
the taxable year
c. Excess of mortgage assumed by
the buyer over the cost to the
seller
Contract Price may refer to the following:
a. The Gross SP
b. Gross SP mortgage assumed by
the buyer
c. Gross SP mortgage assumed by
the buyer + excess of mortgage
assumed over original cost of
property
Computation of installment amount of
capital gains tax
a. No mortgage or mortgage
assumed by buyer < cost of seller
Installment amount = (Collection /
Contract Price) x Capital Gains Tax
b. Mortgage assumed > cost of seller
For collection on the date of
sale:

IA = [(Collection + Excess) /
Contract Price] x Capital
Gains Tax

Limitation of Capital Losses


Losses on shares of stock held as capital assets
are subject to the ff limitation:
1.
Capital Loss is deductible only to the
extent of capital gain on the same type
of transaction. Thus losses on the sale
are non-deductible from capital gain
arising from capital assets other than
shares of stock
2.
Rule of holding period is not
applicable to both individual and
corporate taxpayer
3.
Principle of capital loss carry-over
shall not be applicable

Wash sale
- sale-purchase transaction of stock or other
similar securities that have identical
characteristics or attributes and the
transactions happened within a 61-day
period

For subsequent collection:


IA = (Collection / Contract
Price) x Capital Gains Tax

Effect of Stock Dividend


Stock Dividend distribution of earnings thru
issuance of shares of stock

-cover the 30 days before the sale and


30 days after the sale

Identical characteristics
-nature of securities dispose is
significantly similar like selling and
purchasing common stock of the same
kind or exchanging a preferred stock
with another preferred stock
61 day period

Characteristics of wash sale


a. Securities sold or purchased are
significantly identified
b. Securities are owned by the same
company
c. Period of acquisition and disposal
is within the 61- day period
Basic rule: Gains from wash sale are
taxable; Losses from wash sale are nondeductible
Rules on Losses from wash sales
a. Losses which are matched with
securities purchased within the 61
day period are non-deductible
b. Losses which cannot be matched
with securities acquired within the
61-day period are deductible loss
c. When securities sold within 61-day
period are > or < the securities
acquired, the securities sold will
be matched with an equal # of
securities acquired in accordance
with the order of acquisition
beginning with the earliest.

Shares of Stock becoming worthless

Losses from SoS held as capital asset


which have become worthless during the
taxable year shall be treated as capital
loss as of the end of the year

The said capital loss is not deductible


against the capital gain realized from
disposal of SoS, but must be claimed
against other capital gain to the extent
provided for under section 34 of the tax
code, as amended.

Real Property

- A permanent structure, immovable,


usually attached to the soil & have a lifespan
extending beyond 1 year
-may be subject to depreciation or not
-may be used in business or not
-RP used in business are classified as
ordinary asset
-RP not used in business are capital asset

1.

CWT- Creditable Withholding Tax


CREBA- Chamber of Real Estate &
Business Association
CWT is seller is member of CREBA
a. RP sold is for low-income people
with SP not more than 175k
CTW is 0%
b. RP sold with SP ranging:
350,000-375,000 = 0%
375,001-500,000 = 1.5%
500,001 2M = 3%
More than 2M = 5%

Real property classified as held for sale by


Real Estate Dealers
-classified as Ordinary Asset

RP- Real Property


2.
CWT if seller is not a member of CREBA
3. -CWT = 7.5%
4. -CWT is a deduction from income tax due
5. -final capital gains tax on sale of RP, is not a creditable tax
6.
7.
8.
Sale of housing unit to the government
9.
Taxpayer may opt for the following:
1.
Subject to 6% final tax
10.-basis of tax will be the SP or the Zonal Value,
11.whichever is higher
12.
2.
Subject to normal tax
13.-Proceeds is subject to 6% tax & the amount of tax withheld is
14.credited against the basic tax upon filing the income tax return
15.

16.
17.
18.
19.
20.