5 things to know about paying real estate taxes
- antonioluissilos
- Aug 15, 2019
- 2 min read
Updated: Aug 16, 2019
When it comes to thinking about taxes most people are very confused on how to pay, when to pay, and where to pay. This problem is especially significant with real estate as this will affect your bottomline or income when it comes to your property investment. Before we begin, let's define Real Property Tax(RPT), RPT is a property tax that is paid yearly. It is imposed on all types of real properties including land, buildings, improvements, and machinery. To avoid excessive use of such authority, limitations were established by setting specific percentages for the ceiling and base rates. Hopefully after reading this short to do list, you will be able to understand and pay for your property tax.
1.) VALUE - When it comes to Philippine real estate, there are three values used in the valuation of the property, these three values are called Zonal Value (Value deemed by Local Government Valuation Office), Assessed Value (Value deemed by Appraisers usually used for bank loans etc etc. and Market Value (Value dictated by the current market) for the purpose of this conversation, we will be focusing on the Zonal Value
2.) TAX RATE - in the Philippines the prevailing tax rate for Metro Manila properties is 2% of the Zonal Value and outside Metro Manila it is only 1%.
3.) TAXABLE AMOUNT - The good news about Philippine Real Estate, you don't have to pay for the whole property's amount, there are tax levels that depend on the local government unit but generally they follow this rule, 50% is the taxable amount for Industrial and Commercial properties and 20% for Residential Properties.
4.) FORMULA - Now that we know all this to do an estimate of your property's Real Estate Property Tax(RPT) we compute it like this Zonal Value(ZV) x Taxable Amount (50% or 20%) x Tax Rate (.02 or .01)
Here is an example for a residential condominium in Metro Manila with 100,000php Zonal Value at 30sqm
100,000php x 30sqm = 3,000,000.00php (Zonal Value)
Taxable Amount Residential (20%)
Metro Manila Rate (2%)
3,000,000php x .2 = 600,000php Total Taxable Amount
600,000.00php x .02 = 12,000php (Total Real Property Tax)
This is the amount we have to pay for every year as Real Property Tax
5.) PROCESS - now that we know how to compute for your tax, this is the part where I tell you that it will not be significant in your life at all. That formula would help in figuring out how much taxes you will incur before a purchase, giving you an important decision making factor when you purchase property in the future. For current property that you own, you simply must give a copy of the title or tax declaration to the assessor's office and they will compute the exact amount that you have to pay. Depending on the Local Government Unit (LGU) they sometimes give as much as an additional 20% discount on the RPT depending on when you pay it according to their own fiscal year. If you want to know when to pay for a specific LGU, maybe I will reserve that for another blog post.
Hope this helps!
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