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What Are the Types of Real Estate Property Taxes?

By: Marge Santos
What Are the Types of Real Estate Property Taxes

Just a bit of trivia, tax collection in the Philippines dates back to the Spanish era when the Datu ruled the barangay. Taxes then were paid in exchange for security and the protection of the residents of a barangay. The colloquial Filipino term “amilyar” was derived from the Spanish word “amillaramento” which means assessment of a tax. In the present times, the local government units, or as what is commonly known as LGUs are the ones authorized for the collection of the real property tax on properties within their jurisdiction for the purpose of raising funds for public services.

What Is Real Estate Tax?

A real estate tax is the tax paid by an owner of a property collected by the government. It is assessed on the value of immovable property, such as a house or land. Properties ranging from land, building, improvements made on land and building, and machinery are subjected to this tax. This is an obligation a property owner fulfills every year on top of mortgage payment (if the property is acquired through a housing loan) and association dues. The real estate tax is significant as it is primarily used by LGUs to help raise funds for the purpose of providing basic public services to their constituents. Non-payment of real estate taxes could be a solid ground for the government to auction off one’s property, so it’s crucial to know how much and when to pay.

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How is Real Estate Tax Computed

According to the Local Government Code of 1991, real property tax computation is based on the value of the property and is computed on the following rates:

  • 1% of the assessed value of the property if located in the provinces
  • 2% of the assessed value of the property for cities and municipalities within Metro Manila

LGUs may collect an additional 1% on the assessed value of the property, for the purpose of collecting funds for the Special Education Fund.

Property Tax and Real Estate Tax in the Philippines Differentiated

Property Tax is the tax that is paid on the property which is owned privately and is not attached to the land. It includes private property such as cars, boats, jewelry, electronic devices, and art to name a few. It can be categorized into four types of land (mountains, hills, plateaus, and plains) improvements to land, personal property, and intangible property.

Real Estate Tax, on the other hand, is a tax paid on anything which is attached or related to the land. It includes real property such as buildings, crops, houses, garages, parking lots, etc.

Types of Property Tax

Real estate property tax may be categorized into the following:

Purchase Tax

This is a type of property tax paid when one buys a condo for sale or a house and lot for sale or any residential property for sale. Normally, it is 6% of the property’s selling price or what is commonly known as the fair market value of the property. To compute the value of purchase tax, divide the sales tax percentage by 100 to get a decimal. After which, multiply the retail price by the decimal to calculate the sales tax amount. In most cases, the buyer or the one who made the purchase is responsible for paying this tax.

Capital Gains Tax

This is another type of property tax paid when one sells a property that is not residential in nature. It is a tax based on the profit realized after a sale of a capital asset. Capital assets are defined as assets generally outside of business operations. They are assets with future economic benefits often extending beyond a year. Homes and investment properties are examples of capital assets. The rate of this tax is based on the presumed gains. Capital gains tax is at 6%. To arrive at the tax amount, one needs to determine the higher value of the property and multiply it by 6%. The seller or the owner of the property sold is responsible to settle this tax.

Rental Income Tax

This is the type of property tax paid by an owner of a property receiving income from the said property such as rental fee or lease payment. It is tax paid by owners of residential properties such as apartment units, condo units, or houses being rented out and receiving payment from them. The same is true with owners of commercial properties such as warehouses, buildings, or any property used for business. The basic rate applied for this tax in most cases is 18% while 28% is applied for higher rate or additional rate taxpayers. To arrive at the tax value for the rental income tax, initially compute the net profit or loss (Rental Income – Allowable Expenses = Rental Profit). After obtaining the rental profit, deduct your personal allowance (Rental Profit – Personal Allowance = Total Taxable Rental Profit). Finally, calculate your tax rate for the current year. The landlord or the owner of the rental property receiving income from the rent/lease is responsible for paying this tax.

Maintenance Tax

This is also known as real property tax. It is the type of tax collected by the local government on the basis of the assessed value of the property. Its purpose is for the upkeep of public properties like roads, sewage systems, parks, or even government buildings in the municipality where the property is located. The rate of real property tax depends on where the property is located and what type the property is. In Metro Manila, the applicable rate is 2% for residential properties and 3% for commercial properties. The owner of the property is responsible for paying this tax. The owner of the property, either residential or commercial, pays for the maintenance tax.

Ad valorem tax

This is the type of tax paid based on the value of the property. The term “ad valorem” is a Latin word that when translated to English means “according to value”. It is based on the assessment of the property that determines the fair market value of the said property. To calculate the ad valorem tax, the number of units is multiplied by the selling price of any specific value per unit multiplied by the ad valorem tax rate. The owner of the property or administrator is responsible for paying this type of tax.

How To Pay Real Estate Property Tax

There are two ways to settle the real estate tax. It may be paid by setting foot in the municipal hall where the property is located. However, in recent years, doing online payments is a convenient option.

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Documents Needed When Paying the Real Estate Property Tax

In case of settling the property tax in the municipal hall, one may bring the following documents:

  • Valid ID
  • Most recent official receipt of real estate tax payment
  • Property title or a copy of the duplicate or certified true copy with a sworn affidavit executed by the interested party stating why the original document is not available
  • Certified copy of the latest Tax Declaration of the property or the number of your tax declaration

Step by step procedure of the real property tax payment is as follows:

  • Prepare the documentary requirements listed above.
  • Proceed to the Assessor’s Office or to the specific window designated for assessing the property tax payment.
  • After obtaining the Assessment Form, go to the Cashier or to the billing window to pay your real estate tax.
  • Once payment is settled, wait for the official receipt of payment as proof because you need to bring that with you for next year.

Payment can be completed in less than an hour if done earlier than the deadline to avoid long cues. On the other hand, if one decides to pay online, it would be done in lesser time. All one needs is a strong internet connection and an online payment facility.

Schedule of Payment of Real Estate Tax

There are several options to settle the real estate property tax. Normally, real estate property tax or amilyar for the current year is scheduled to be paid in full on the first day of January which is the tax’s annual due date. However, some local government authorities or municipalities give a special incentive for payments made on or before year-end or the last day of December of the previous year. Furthermore, some local government also allows a quarterly payment scheme wherein the full annual amount is divided into four equal payments. Payment of which as scheduled by the local government or municipality is on or before the end of each quarter of the current year:

  • First quarter: On or before March 31, 2023
  • Second quarter: On or before June 30, 2023
  • Third quarter: On or before September 30, 2023
  • Fourth quarter: On or before December 31, 2023

Should one opt for the quarterly payment scheme, it is best to remember these dates as there are consequences or penalties imposed in cases of failure to pay on these dates mandated by the local government or municipality. In the event that one failed to settle the property tax for one valid reason or another, he may check with the LGUs if tax amnesty is being offered in the municipality where the property is located as there are municipalities that grant amnesty on default payments on real property taxes. However, it is still wise to settle tax obligations promptly.

Final Note

It pays to know one’s obligations particularly in ensuring properties remain in his possession and taking care of them as long as it is in his possession. Having a real estate property or properties is a blessing and taking care of them is the owner’s obligation that needs to be taken seriously. Life is simpler if one is equipped with the basic knowledge of taxation. Provisions had to be set aside not just for maintenance and the upkeep of the property but for the real estate tax payment as well. Significant dates had to be calendared in order to avoid the rush and other unfortunate consequences.

Read more: How to Pay Your Property Taxes in the Philippines