Everyone dreams of having their own house and lot. All of your years of effort will finally have paid off once you accomplish this goal and receive your Transfer Certificate of Title for your real estate. However, owning property has drawbacks. Along with making mortgage and association payments, a homeowner also has the annual duty of paying real estate or property taxes on their home by filing a tax declaration of real property. If you don’t, the local authority can decide to sell your land at auction. Therefore, it is best to arm yourself with real property tax knowledge in order to avoid such an unfortunate situation.
What is real property?
Before we talk about tax declaration of real property, it is important to know what exactly is considered real property. The knowledge of everyone regarding real property seems too limited only to land and building. The Philippine law stipulates which properties are to be classified as “real.” Hence, according to the Civil Code, specifically under Article 415, the following are to be considered as Real Property:
- “Land, buildings, roads and constructions of all kinds adhered to the soil;
- Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable;
- Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object;
- Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements;
- Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;
- Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included;
- Fertilizer actually used on a piece of land;
- Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant;
- Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast;
- Contracts for public works, and servitudes and other real rights over immovable property.”
Further, the Supreme Court declared in Benguet Corporation v. Central Board of Assessment Appeals, 218 SCRA 271, that for taxation purposes, specifically for tax declaration of real property, the phrase “real property” may include items that are typically treated as personal property. It is a common occurrence to see items classified as real property for taxation purposes even though they could generally be considered personal property.
Thus, certain improvements may qualify as real property and be taxed accordingly. The Local Government Code defines an improvement as a worthwhile addition made to a property or an improvement in its condition, amounting to more than just a simple repair or replacement of parts requiring capital expenses and labor, that is intended to increase its value, beauty, or utility or to adapt it for new or further purposes. Therefore, for the purposes of real property taxation, even if machinery, receptacles, or instruments intended for an industry or work are placed by another party, aside from the owner, they are still considered to be real property as long as they are fundamental and important components of the operation being carried out in the building.
What is real property tax?
Real estate taxes are imposed by the local government on a variety of assets, including land, buildings, machinery, and additions made to either the building or the land.
Local government units (LGU) shall have local autonomy, which, according to the Supreme Court, entitles them to carry out specific tasks and use a specific authority in order to avoid becoming overly reliant on the National Government, subject to any restrictions imposed by the 1987 Constitution or Congress. Under the Local Government Code of the Philippines, a province or city, or municipality may impose taxes on any real property situated in the Philippines, such as land, building, and machinery. As a result, LGUs have the authority to generate their own sources of income and to impose taxes, one of which is the real property tax (RPT).
It is a wise move to consider the local government where you’ll buy a house aside from just merely looking for a house and lot for sale in the Philippines. Further, it is the local government unit that is in charge of assessing the value of your real estate. The percentage that is added to the market value to calculate how much of your property is taxable is known as the “assessment level.”
While your real estate’s fair market value is determined by its existing condition and appraisal values. The classification of the property, such as whether it is residential, agricultural, commercial, machinery, timberland, or special, will be determined once the fair market value has been established.
Classifications of Real Property
As discussed above, there are various categories of real estate that could have an impact on how much property tax you will pay. However, only the three most typical categories—residential, commercial, and agricultural properties—will be covered in this article.
- Residential Properties
Any structure or component used exclusively for habitation and not for business or industrial activity is referred to as a residential property. Residential property is often owner-occupied, but it can be used to generate income through leasing, renting, or selling.
There are various subcategories of residential properties, such as single-family homes, condominiums, townhouses, and cooperatives. You may want to take these subcategories into account while looking for a house and lot to buy in the Philippines.
Single-family homes are structures constructed on a single lot without using any common walls. Condominiums, on the other hand, are individual units in a big complex that share walls with other apartments. On the other hand, townhouses are a cross between condos and single-family homes.
- Commercial Properties
Commercial real estate is land that is only used for commercial activities. These typically refer to structures that offer spaces for other businesses to rent. However, they can also include sizable residential rental units or commercially developed property.
- Agricultural Properties
An agricultural property includes the real estate and resources that produce crops, cattle, poultry, vegetables, fruits, and other agricultural goods to make money. Agricultural lands according to the Department of Agriculture shall not be designated by law as mineral land, forest land, residential property, commercial land, or industrial land.
Due to the lower cost of agricultural properties, some people might even consider buying agricultural lands and building there their residences. However, the local authorities must reclassify the agricultural lot used for residential development as residential land first. If not, you can face legal repercussions. But nonetheless, you are still allowed to establish a residential portion within your farm. As long as the region is not prohibited from conversion, lots can be categorized and classed according to their intended use.
When should you file your tax declaration of real property?
The government provided the taxpayers with their own choice of paying their tax obligations either in full upfront or in installments. The accumulation of tax liabilities for real estate owners begins on January 1 of each year. You have two payment options: you can use the installment system or pay it all at once for the year. And real property tax is paid to the city or municipal treasurer’s office. The following dates are crucial so keep them in mind for paying quarterly installments:
- Every first quarter: On or before March 31, 2022
- Every second quarter: On or before June 30, 2022
- Every third quarter: On or before September 30, 2022
- Every fourth quarter: On or before December 31, 2022
How to compute your real property tax?
The local government unit (LGU) must establish a basic RPT rate that is uniform and applicable to each locality:
- At a rate not to exceed two percent (2%) of the assessed value of the real estate in cities or municipalities in Metro Manila.
- At a rate not to exceed one percent (1%) of the real property’s assessed value in the provinces.
The assessed value is calculated by multiplying the property’s fair market value by the assessment level. This assessment level varies because as mentioned earlier, the local government unit determines it.
Further, the maximum percentage for residential properties, including condominiums for rent, is 20%, while the cap for commercial and industrial assets is 50%. The LGU may furthermore impose and collect a 1% annual tax on the property’s assessed value on top of the real property tax, from which the Special Education Fund will benefit from this collection. Regarding idle lands, a valorem tax of up to 5% may also be applied.
What is a tax declaration of real property?
A tax declaration of real property is a sworn declaration of the property’s true value, which must be the property’s current fair market value as determined by the declarant. The declaration includes a thorough description of the property, which will make it easier for the assessor to locate it for reasons of assessment. In the period from January 1 to June 30, for every three (3) years, you must submit a tax declaration of real property to the assessor. Upon the turnover of the condo unit, a certified true copy of a tax declaration of real property is necessary. The following are the documents you need to prepare when obtaining a copy of your tax declarations:
- Your Certificate Authorizing Registration
- Your BIR Tax Clearance Certificate
- Your Transfer Fee Receipt
- Your Updated Real Property Tax payment
- Your Sworn Statement of True and Fair Market Value of the Property
Steps In Paying Real Property Taxes
In every city or province, paying real estate taxes is almost essentially the same. Although you might be able to pay your property taxes online in some places so as to avoid leaving your house. There are generally only five simple procedures for paying your property taxes:
- First, you must go to the Treasurer’s Office at the City Hall in your municipality and look for the Real Property Tax Section.
- Next, visit the assessor’s office and request an order of payment (OP).
- Go to the real estate tax division and show the order of payment and the receipt for your most recent tax payment. Present your updated tax declaration for recently transferred properties.
- The tax calculation is done by the collecting agent.
- Your payment will be recorded on the property tax card once you have made your payment and received an official receipt.
Keep in mind that the local government unit may assess and collect your property taxes within certain periods. Assessment should be done within five (5) years from the due date or January 1 every year and a corresponding collection five (5) years from receipt of the assessment. While an assessment is made ten (10) years from the discovery of fraud or intent to evade payment, a corresponding collection should be made within five (5) years from receipt of the assessment.
Further, there will be interest charged at a rate of two percent (2%) per month until all taxes are paid in full if the basic real property tax and any extra taxes are not paid within the deadlines set for payment or when they are due. And the total interest for your unpaid tax or portion of it should not exceed thirty-six months.
In sum, understanding tax declaration of real property can be done at a later time. You should look first for your real property. At BRIA Homes, they offer a vast of affordable houses and lot suited for every Filipino’s needs.