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Navigating Real Estate Taxes

Real estate taxes may appear overwhelming, but grasping these essential categories can offer clarity and assurance, whether you’re managing your estate, venturing into property investment or buying your first home. It’s advisable to seek guidance from a tax expert or real estate broker to customize your strategy according to your individual situation and adhere to local regulations.

Property Taxes (Your annual commitment):

Property taxes are ongoing annual taxes based on the value of real estate property.

These are local taxes, used primarily to fund public services like schools, roads, and emergency services. Property value assessments are typically performed periodically by local authorities to ensure accurate taxation.

Capitalย Gainย Taxes (Profiting from Property):

Capital gains tax is applicable when selling a property. The tax amounts to 6% of the purchase price, Zonal value, or Fair Market Value (FMV), whichever is the highest. Exemptions are commonly accessible for the sale of a primary residence, which can greatly lessen or completely waive the capital gains tax on it.

Estate Taxes (What you Need to Know):

Estate taxes, often referred to as “inheritance taxes” or “death taxes,” are levied on the estate of a deceased person before the distribution to their heirs. This tax is based on the net value of all assets owned at the time of death, including cash, real estate, investments, and other possessions. Not everyone will face this tax, as it applies only if the estate’s value exceeds certain thresholds which vary by jurisdiction.

Donorโ€™s Tax:

Donor’s tax is levied on property transfers through donations, set at a fixed rate of 6% for gifts surpassing โ‚ฑ250,000 annually, under the Tax Reform for Acceleration and Inclusion (TRAIN) law. Gifts below โ‚ฑ250,000 within a calendar year are not subject to this tax.

Documentary Stamp Tax:

Documentary Stamp Tax (DST): This is applied at a rate of 1.5% on documents that facilitate real estate transactions.

Transfer Tax:

Transfer Tax, this tax, levied by the local government, applies to the transfer of property ownership and is payable in the City or Municipality where the property is situated.

Creditable Withholding Tax:

CWT is applicable to the sale of real properties treated as ordinary assets (used in business), and in certain cases, even capital assets depending on the seller’s activities and the nature of the transaction.

Value Added Tax (VAT):

The current VAT rate is 12% of the gross selling price or fair market value of the property, whichever is higher. VAT is applicable primarily to the sale of real property held primarily for sale to customers or held for lease in the ordinary course of business. This includes developers selling residential lots, houses, and other real properties.

ALL YOU NEED TO KNOW!

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