How to Legally Defer Capital Gains Tax on Real Estate in the Philippines: A Beginner’s Guide to Tax-Free Like-Kind Exchanges
If you are a real estate seller in the Philippines facing a hefty 6% Capital Gains Tax (CGT) and wondering if there’s a legal way to defer paying that tax when reinvesting in another property—there is. This is thanks to a recently enacted law modeled after the U.S. IRS Code Section 1031, which allows a like-kind exchange of real property while legally pushing the payment of capital gains tax for many years.
📜 What is This New Law?
The relevant law is Section 24 (D)(2) of the National Internal Revenue Code (NIRC) of the Philippines, as amended by the TRAIN Law (Republic Act No. 10963), which took effect in January 2018.
It allows for tax-deferred exchanges of real property used in trade or business, or for your personal residence, or to a corporation, provided that:
- The exchange is solely for property of like kind (i.e., real estate for real estate),
- The amount the seller would have paid for Capital Gains tax is held in a bank account up to 18 months, giving you time to purchase another property.
- If the new property is not purchased in that 18 month period the tax plus penalties is owed.
- The transaction is properly documented and reported to the Bureau of Internal Revenue (BIR) by a professional accomodator.
🔗 Explore the law at:https://ntrc.gov.ph/13-tax-laws/97-capital-gains-tax
🏦 How Does It Work in Practice?
In a “like-kind exchange” (often called a 1031 Exchange in the U.S.), you can sell a piece of real property and reinvest the proceeds into another property — or a corporation, without immediately paying capital gains tax. Instead, the tax is deferred until the new property is sold, unless you repeat the process.
Key features include:
- No cash touches your hands. The sale proceeds go directly into a segregated trust account at a reputable bank such as Land Bank of the Philippines or another institution of your choosing.
- A neutral third-party Trustee or exchange accommodator (not you) holds the funds temporarily.
- Within a limited period (typically 180 days), you must identify and close on a like-kind replacement property.
- The accommodator validates compliance with the BIR and ensures the transaction qualifies for tax deferment.
- You must wait 10 years before you sell that property through an exchange again.
🧑⚖️ Why This Is Still Rare in the Philippines
Unlike in the U.S., where there are thousands of qualified 1031 exchange facilitators and strict industry standards, the Philippine version of this system is still in its infancy.
There are very few qualified exchange accommodators in the Philippines due to:
- The novelty of the law (barely a few years old),
- A general lack of infrastructure for trust-based real estate transactions,
- The high bar for professionalism and regulatory compliance.
Here is an example of the complex procedures the accomodator will perform for you as part of the tax deferred exchange.
🔐 Who Can Help You?
One professional who can guide you through this process is Trish Wilson, a licensed Philippine Real Estate Broker and degreed accountant, formerly a licensed CPA with significant U.S. experience in 1031 exchange transactions.
As part of Global Realtor 4a Cause, Trish can work with a Trustee/Exchange Accommodator, helping ensure that:
- The exchange is structured to comply with Section 40(C)(2) of the Philippine NIRC,
- Your funds remain secure in a segregated trust account (Land Bank or another bank of your choice),
- The entire process is transparent and properly documented for BIR compliance.
- She will represent you as your real estate broker in identifying and purchasing your replacement property, ensuring a seamless, tax-smart transaction.
💡 Summary: Steps to Defer Capital Gains Tax in the Philippines
| Step | Action |
|---|---|
| 1️⃣ | Sell real estate |
| 2️⃣ | Ensure funds go to an accommodator-held trust account |
| 3️⃣ | Officially inform the BIR of your intent to use a like-kind property exchange, within 30 days |
| 4️⃣ | Complete purchase within 18 months |
| 5️⃣ | File proper documentation with BIR via Accomodator |
If you’re considering selling a property and reinvesting in another—without triggering a 6% capital gains tax upfront—consider a tax-deferred like-kind exchange. And if you need a trusted professional to assist you every step of the way, Trish Wilson is ready to help.
📧 For inquiries or a consultation: trish@globalrealtor4acause.com
🌐 Visit: https://www.globalrealtor4acause.com (for more on services and credentials)
Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. Always consult with a licensed lawyer or tax professional in the Philippines for specific advice related to your case.
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