Capital Gains Tax vs Real Property Tax: What's the Difference When Selling Property in the Philippines?

Capital gains tax (CGT) and real property tax (RPT) are two entirely separate taxes that happen to both involve real estate — CGT is a one-time, 6% national tax the BIR collects when a capital asset is sold, while RPT is a recurring annual tax local government units collect from whoever currently owns the property, sale or no sale. Confusing the two is common because both show up around a property transaction, but they go to different governments, are computed differently, and answer different questions.

This guide separates the two. For how to file the BIR return for capital gains tax itself, see BIR Form 1706: How to File Capital Gains Tax on Sale of Real Property; for the principal-residence exemption, see Capital Gains Tax Exemption on Sale of a Principal Residence.

Which government agency collects each tax? #

Capital gains tax is a national tax the BIR collects; real property tax is a local tax the city or municipal treasurer collects — they never go to the same office. CGT is imposed under Section 24(D) of the National Internal Revenue Code (NIRC) and administered by the Bureau of Internal Revenue. RPT is imposed under the Local Government Code (Republic Act No. 7160), which authorizes provinces, cities, and Metro Manila municipalities to levy an annual tax on land, buildings, machinery, and other real property improvements within their jurisdiction.

How does each tax actually get triggered? #

CGT is triggered by a change of ownership; RPT is triggered simply by owning the property, whether or not it’s ever sold. When a capital asset — typically real property not used in a trade or business — is sold, the seller has 30 days from the date of notarization of the deed of sale to file and pay capital gains tax, per BIR rules implementing Section 24(D). RPT, by contrast, is billed annually (often payable in full or in quarterly installments) regardless of any sale, and continues indefinitely as long as someone owns the property.

This is also why a property sale usually involves both taxes in practice, even though they’re unrelated in mechanism: the seller pays CGT on the transaction itself, and the local treasurer typically requires proof that RPT on the property is current before issuing the tax clearance the BIR needs as part of the documentary requirements for the Certificate Authorizing Registration (eCAR) that finalizes the transfer of title — see RMC No. 75-2026: BIR Clarifies eCAR Issuance and ONETT Processing Rules for that process.

Worked example: selling a residential lot #

A seller disposes of a residential lot (not their principal residence, so no exemption applies) for ₱4,000,000, while the BIR zonal value for the lot is ₱4,500,000 — the higher figure applies for CGT purposes:

The seller pays the ₱270,000 CGT to the BIR within 30 days of notarization using BIR Form 1706, separately from whatever RPT was already due to the local treasurer for that year — the two amounts, bases, and due dates don’t share a computation, even though both had to be resolved before the sale could be registered.

Frequently asked questions #

What is the difference between capital gains tax and real property tax? #

Capital gains tax (CGT) is a national tax the BIR collects on the sale, exchange, or disposition of a capital asset, computed at 6% of the higher of gross selling price or fair market value. Real property tax (RPT) is a separate, recurring annual tax that local government units — not the BIR — collect from the owner of real property, based on its assessed value, whether or not the property is ever sold.

Who collects real property tax, and who collects capital gains tax? #

Real property tax is collected by the city or municipal treasurer’s office under the Local Government Code (Republic Act No. 7160). Capital gains tax is a national internal revenue tax collected by the Bureau of Internal Revenue under the National Internal Revenue Code.

Do I need to settle real property tax before I can pay capital gains tax on a sale? #

In practice, yes for the transfer process. A seller typically needs to show the property’s real property tax payments are current (through a tax clearance from the local treasurer) as part of the documentary requirements to secure the BIR’s Certificate Authorizing Registration (eCAR) that finalizes the transfer of title after capital gains tax is paid.

What is the capital gains tax rate on real property in the Philippines? #

Capital gains tax on the sale of real property classified as a capital asset is a flat 6%, computed on whichever is higher between the gross selling price and the BIR zonal value or fair market value, under Section 24(D) of the National Internal Revenue Code.

Does capital gains tax replace real property tax after a sale? #

No. Capital gains tax is paid once, at the time of sale. Real property tax continues to apply every year afterward to whoever owns the property — the new owner becomes responsible for it going forward.

Summary #

Capital gains tax and real property tax never overlap in computation — CGT is a one-time, 6% national tax the BIR collects on a sale, and RPT is a recurring local annual tax collected regardless of any sale — but they routinely intersect in a single transaction, since RPT clearance is typically a documentary requirement for finalizing the transfer that triggers CGT. Handle each with the right agency and the right form: BIR Form 1706 for CGT, and the local treasurer’s office for RPT.