BIR Form 1706 Capital Gains Tax Real Property

Overview of BIR Form 1706

BIR Form 1706 is the official tax return form prescribed by the Bureau of Internal Revenue (BIR) for reporting capital gains tax (CGT) on the sale of real property in the Philippines. Under the National Internal Revenue Code (NIRC §24(D)) and as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law RA 10963, capital gains realized from the disposition of real property are subject to a flat 6% tax rate on the net capital gain. Form 1706 serves as the vehicle for taxpayers—whether individuals, partnerships, or corporations—to declare these gains and remit the corresponding tax liability to the BIR within 30 days from the date of sale (RR 2-98, as amended).

Who Must File Form 1706

Any person or entity that sells, exchanges, or otherwise disposes of real property located in the Philippines must file Form 1706, regardless of whether the property is classified as capital asset or ordinary asset. This includes:

• Individual Filipino citizens and resident aliens selling residential or commercial land and buildings
• Non-resident aliens with Philippine-source real property income
• Partnerships and corporations disposing of real property
• Estates and trusts realizing gains from property sales

Exemptions exist for certain transactions, such as transfers by gift (subject to donor's tax instead), transfers to the government, and transfers between spouses in a legal marriage (NIRC §24(D), as amended by RA 10963).

Capital Gains Tax Rate and Computation

Under the TRAIN Law (RA 10963, effective 1 January 2018), the capital gains tax on real property is a flat 6% rate applied to the net capital gain. The net capital gain is computed as the selling price minus the cost of acquisition (basis). The formula is:

Capital Gains Tax = Net Capital Gain × 6%

For example, if Juan dela Cruz sells a residential lot in Quezon City for ₱2,500,000 and his original cost was ₱1,800,000, the net capital gain is ₱700,000. The capital gains tax due is ₱700,000 × 6% = ₱42,000. This amount must be reported and paid via Form 1706 within 30 days of the sale date (RR 2-98, as amended by RR 16-2018).

Filing Deadline and Penalties

Form 1706 must be filed with the BIR within 30 days from the date of sale or disposition of the real property. The date of sale is typically the date the deed of sale is executed or the date of transfer of ownership, whichever is earlier. Late filing incurs a surcharge of 25% plus interest at 12% per annum on the unpaid tax (NIRC §248, as amended by RA 10963). Failure to file within the prescribed period may also result in criminal penalties under NIRC §255.

Required Documentation and Attachments

When filing Form 1706, taxpayers must submit the following supporting documents:

• Original or certified copy of the deed of sale or transfer document
• Tax declaration or real property assessment notice showing the property description and assessed value
• Proof of payment of documentary stamp tax (DST) and transfer tax, if applicable
• Certificate of title or land registration documents establishing ownership and cost basis
• Proof of identity and TIN (Tax Identification Number)
• For non-residents: proof of residence status and authorization to transact with the BIR

The BIR may request additional documents such as appraisals, surveys, or evidence of improvements made to the property to verify the cost basis claimed (RR 2-98).

Where and How to File

Form 1706 is filed with the BIR Revenue District Office (RDO) having jurisdiction over the location of the real property sold. Taxpayers may file in person, by mail, or through authorized BIR electronic filing systems (e-filing) if available in their jurisdiction. The form must be accompanied by payment of the capital gains tax due. Payment may be made via:

• Direct payment at the RDO cashier
• Bank deposit slip (BDS) at authorized depository banks
• Online payment through the BIR's electronic payment system (if available)

A proof of payment (official receipt or bank confirmation) must be retained and presented with the filed form (RR 2-98, as amended).

Special Situations and Considerations

Installment Sales: If the real property is sold on an installment basis, the capital gains tax is computed on the total net capital gain but may be reported and paid in installments corresponding to the receipt of payments, provided the taxpayer files a request with the BIR (NIRC §24(D)).

Exchange of Property: When real property is exchanged for other property, the fair market value of the property received is treated as the selling price for CGT purposes (NIRC §24(D)).

Inherited Property: If an heir sells inherited real property, the cost basis is the fair market value at the date of death of the decedent, not the original cost to the decedent. This stepped-up basis rule applies under NIRC §24(D) (RR 2-98).

Property Acquired Before 1 January 2018: For properties acquired before the TRAIN Law effective date, the cost basis may be adjusted using the average exchange rate or fair market value as of 1 January 2018, at the taxpayer's election (RR 16-2018).

Common Errors and Compliance Issues

The BIR frequently encounters the following errors in Form 1706 filings:

• Incorrect computation of net capital gain due to failure to include all acquisition costs (e.g., transfer taxes, registration fees, improvements)
• Late filing beyond the 30-day deadline, triggering surcharge and interest
• Incomplete or missing supporting documents, causing rejection of the return
• Misidentification of the property location, leading to filing with the wrong RDO
• Failure to report the sale in the annual income tax return (Form 1701 or 1702), creating discrepancies

Taxpayers are advised to consult with a tax professional or the BIR directly to ensure accurate and timely filing (RR 2-98).