BIR Clarifies Tax Rules on Sale of Real Property considered as Ordinary Assets

The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 31-2025 (RMC 31-2025) in April 2025 to clarify the tax obligations on the sale of real properties classified as “ordinary assets.” 

The term ordinary assets include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real property used in trade or business of the taxpayer.¹

Requisite tax returns to be filed to the sale of real property by taxpayers habitually engaged in the real estate business 

The tax returns to be filed by taxpayers habitually engaged in the real estate business are:

1. BIR Form No. 1606 or the Withholding Tax Remittance Return for Onerous Transfer of Real Property other than Capital Asset – to remit the creditable withholding tax (CWT) on the sale; and
2. BIR Form No. 2000-OT for the declaration and payment of the Documentary Stamp Tax (DST) due on the sale of real property.

The BIR reminds that lumping the filing and remittance of CWT involving multiple real estate sales transactions using one (1) return shall not be allowed and the same cannot be used as a proof of withholding tax payment in processing the electronic Certificate Authorizing Registration.

Documents to be issued by taxpayers habitually engaged in the real estate business on their Sale of Real Property financed by Financing Institutions

The seller shall issue a Sales Invoice to the buyer as evidence of sale and payment, and an Acknowledgment Receipt or Official Receipt to the financing institution as evidence of cash receipt.

The other fees collected by taxpayers habitually engaged in the real estate business such as transfer fees, processing fees, miscellaneous fees, registration fees, and the like shall be subject to income tax and 12% output VAT.

These guidelines reinforce existing tax rules concerning the taxability of sales of ordinary assets. They emphasize that real estate sales by dealers or developers are not subject to capital gains tax, but rather to creditable withholding tax, income tax, and VAT. The objective is to ensure consistent treatment across the real estate industry and to prevent revenue leakages arising from improper tax compliance. Taxpayers engaged in the real estate business are strongly advised to strictly adhere to these clarified requirements, as failures — such as misclassifying a sale, underreporting VAT, or claiming improper tax credits — may result in the imposition of penalties or the initiation of tax audits.

Prepared by April Anne Roma.

FOOTNOTES

1. Section 39, National Internal Revenue Code (NIRC) of 1997, as amended