Capital Gains Tax: 6%, and Zonal Value Is Gone
Bureau of Internal Revenue · taxes
Quick answer
Capital gains tax on real property is a final tax of 6%, charged on the higher of the gross selling price or fair market value. RA 12001 repealed the old zonal value provision, so the comparison now uses the Schedule of Market Values. Selling a principal residence can be exempt.
Last verified
Where these figures come from
About these figures: the numbers below come from BIR's official published sources: Bureau of Internal Revenue | National Internal Revenue Code of 1997, as amended (https://www.bir.gov.ph/tax-code, retrieved 2026-09-01). Agencies change fees and rates without notice, so confirm with BIR before you rely on them. Last verified: 2026-09-01.
The rate, and what it is charged on
Capital gains tax on real property is a final tax of 6%.
The thing people get wrong is the base. It is not 6% of your profit. Section 24(D)(1) charges 6% of the gross selling price or the current fair market value, whichever is higher, on gains “presumed to have been realized”.
Presumed is doing real work in that sentence. The Code does not ask whether you actually made money. Sell at a loss and the 6% is still due on the full consideration.
| What it is | |
|---|---|
| Rate | 6%, final |
| Base | Gross selling price or fair market value, whichever is higher |
| Applies to | Real property in the Philippines classified as a capital asset |
| Taxpayers | Individuals, including estates and trusts |
| Also covered | Pacto de retro sales and other forms of conditional sales |
The zonal value rule has been repealed
Almost every explanation of capital gains tax you will read says the base is the highest of selling price, BIR zonal value, or assessor’s fair market value.
That is out of date.
BIR’s own consolidated Tax Code carries this note against Section 6(E), the provision that created zonal values:
Repealed by Section 38(c) of Republic Act (RA) No. 12001, otherwise known as the “Real Property Valuation and Assessment Reform Act”. Under Section 18 (a)(3) of RA No. 12001, the Commissioner of Internal Revenue shall use the Schedule of Market Values or the actual gross selling price in consideration, as stated in real property transaction documents, whichever is higher, in computing any internal revenue tax.
So the comparison is now between two figures, not three:
| Old rule, Section 6(E) | Current rule, RA 12001 Section 18(a)(3) |
|---|---|
| Higher of the Commissioner’s zonal value or the assessor’s schedule of values | The Schedule of Market Values |
| Compared against gross selling price | Compared against the actual gross selling price stated in the transaction documents |
If you are working from an older guide, a broker’s rule of thumb, or a template computation, check which valuation it is using. The 6% has not moved; what it is multiplied by has.
Selling your home: the exemption and its four conditions
A natural person selling a principal residence can be exempt from the 6% entirely. Section 24(D)(2) attaches four conditions, and all of them bind.
| Condition | Requirement |
|---|---|
| Full utilisation | The proceeds must be fully used to acquire or construct a new principal residence |
| Time limit | Within 18 calendar months from the date of sale or disposition |
| Notice | The Commissioner must be notified within 30 days of the sale, through the prescribed return, of your intention to avail |
| Frequency | Once every 10 years |
A fifth rule follows the exemption rather than gating it: the historical cost or adjusted basis of the property sold carries over to the new residence. The gain is deferred into the new home, not forgiven.
Partial reinvestment is partially taxed
If you do not use all of the proceeds, the Code does not simply disqualify you. It apportions.
The gross selling price or fair market value at the time of sale, whichever is higher, is multiplied by the fraction that the unutilized amount bears to the gross selling price. The 6% is then imposed on that portion.
Worked through, on a ₱5,000,000.00 sale where ₱4,000,000.00 is reinvested:
| Step | Figure |
|---|---|
| Gross selling price | ₱5,000,000.00 |
| Amount reinvested within 18 months | ₱4,000,000.00 |
| Unutilized amount | ₱1,000,000.00 |
| Taxable fraction | 1,000,000 / 5,000,000, so 20% |
| Taxable portion | ₱1,000,000.00 |
| Capital gains tax at 6% | ₱60,000.00 |
Reinvesting four fifths leaves one fifth exposed, not the whole sale.
Selling to the government
Section 24(D)(1) contains an option most sellers never encounter. Where the buyer is the government, a political subdivision or agency, or a government-owned or controlled corporation, the taxpayer may determine the liability either under Section 24(A), the graduated income tax rates, or under the 6% regime, at the taxpayer’s option.
Which is better depends on the gain. On a small gain the graduated rates can beat 6% of the full consideration, because 24(A) taxes actual income while 24(D) taxes presumed gains on the gross. Our BIR income tax table sets out those rates.
Filing it
The return is BIR Form 1706, the Capital Gains Tax Return for onerous transfer of real property classified as a capital asset. It carries a July 1999 (ENCS) revision and sits among the 51 forms the eBIRForms package covers, as listed in our eBIRForms guide.
Capital gains tax is one of several charges that land on a property transfer. The annual charge that follows ownership rather than sale is real property tax, which is computed on assessed value under an entirely separate law.
Where this goes wrong
Thinking 6% applies to your profit. It applies to the gross selling price or fair market value, whichever is higher, whether or not you gained anything.
Using zonal value as the comparator. Section 6(E) is repealed. RA 12001 puts the Schedule of Market Values in its place.
Missing the 30-day notice on a principal residence sale. The exemption requires notifying the Commissioner within 30 days of the sale, separately from the 18-month reinvestment window.
Assuming partial reinvestment forfeits the whole exemption. It does not. The tax falls only on the unutilized fraction.
Forgetting the 10-year limit. The principal residence exemption can only be availed once every 10 years.
Frequently asked questions
- How much is capital gains tax on property?
- A final tax of 6%. Section 24(D)(1) charges it on the gross selling price or the current fair market value, whichever is higher, for real property in the Philippines classified as a capital asset. It applies to individuals, estates and trusts.
- Is it 6% of my profit?
- No, and this is the most common misunderstanding. It is 6% of the gross selling price or fair market value, whichever is higher, not 6% of your gain. The Code describes the gains as presumed to have been realized, so you pay it even if you sold at a loss.
- Is the base still the zonal value?
- Not any more. BIR's consolidated Code records that Section 6(E), which gave the Commissioner authority to prescribe zonal values, was repealed by Section 38(c) of RA 12001, the Real Property Valuation and Assessment Reform Act. Under Section 18(a)(3) of that Act, the Commissioner uses the Schedule of Market Values or the actual gross selling price stated in the transaction documents, whichever is higher.
- Can I avoid it when selling my home?
- There is an exemption for a principal residence, with four conditions attached. The proceeds must be fully used to acquire or build a new principal residence within 18 calendar months, the historical cost or adjusted basis carries over to the new home, you must notify the Commissioner within 30 days of the sale through the prescribed return, and the exemption can only be used once every 10 years.
- What if I only reinvest part of the proceeds?
- Then part of it is taxable. The gross selling price or fair market value, whichever is higher, is multiplied by the fraction that the unutilized amount bears to the gross selling price, and the 6% is imposed on that portion.
- What if I sell to the government?
- You get a choice. Where the sale is to the government, a political subdivision or agency, or a government-owned or controlled corporation, Section 24(D)(1) lets the taxpayer determine the liability either under Section 24(A), the ordinary income tax rates, or under the 6% capital gains regime, at the taxpayer's option.
- Does it apply to every property sale?
- No. It applies to real property classified as a capital asset. Property held as an ordinary asset, such as inventory of a real estate dealer, is taxed differently. The Code expressly includes pacto de retro sales and other forms of conditional sales within the 6% regime.
- Which form do I file?
- BIR Form 1706 is the Capital Gains Tax Return for onerous transfer of real property classified as a capital asset. It carries a July 1999 (ENCS) revision and is among the 51 forms covered by the eBIRForms package.