Question: Saan po i base ang payment ng capital gains tax kung rent to own? Sa Contract Price (CP) lang ba or sa CP plus yong interes na ipinatong mo sa buyer during his entire years of paying the MA?

Answer:

From the TAX CODE:

Tax Base/Rate for Capital Gains:

There shall be imposed a final tax rate of six percent (6%) based on whichever is higher of the following:

1. The fair market value as determined by the Commissioner (zonal value)
2. The fair market value as shown in the Schedule of Values of the Provincial and City Assessors; or
3. The selling price of the property or the fair market value of the property received in an exchange transaction.

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Since the payment scheme is rent-to-own, capital gains shall be based on the fair market value at the time the Deed of Absolute Sale was executed.

What I am trying to explain here is that the current fair market value of the property at the time the Contract To Sell was executed would not be the same as the fair market value 10 years from now at the time the Deed of Absolute Sale would be executed. It is ofcourse higher.