Monday, January 24
Home>>Property Investing>>How to Solve for Real Property Tax
a hand holding a pen, and a hand calculating and checking the papers
Property Investing

How to Solve for Real Property Tax

By the end of the year, every homeowner pays property taxes. Owners must pay real property tax as levied by the local government on properties. Land, buildings, improvements to the land and/or buildings, and machinery are all taxable properties.

In the Philippines, the Local Government Code (officially known as Republic Act 7160) was passed in 1991. Under this statute, local governments are given the right to create and collect their own money to pay public expenditures. Real property taxes are one of these sources of revenue.

Instead of simply paying when it is due, it is also crucial to understand how property taxes are assessed and calculated. With this guide, you can ensure that the property appraiser’s office will not overcharge as you already know these basics. 

Here are the three fundamental concepts you need to know:

Assessing Property Tax

Different taxes are imposed on different land and structures, depending on their property classification. Vacant land, for example, will have a substantially lower assessed value than renovated property. Hence, it will also have lower property taxes.

Meanwhile, the land assessment might be higher if the property has easy access to public facilities like sewerage systems, water, and gas. If the assessor believes the land has development potential, the owner may also have a higher assessment and taxes. The total amount of tax the property will need to pay comes from a percentage of its assessed value. 

Additionally, the property’s location determines the actual tax rates. For instance, the real property tax rate in Metro Manila is 2% of the property’s assessed value. Meanwhile, the province rate is 1%.

Local governments also levy an additional tax for the Special Education Fund aside from the normal real estate tax. There is a 1% surcharge added to the assessed value of the real estate. The proceeds will then go to the local school district’s budget. 

Apart from normal real property tax, the government can impose a maximum of 5% of the assessed value if the properties are left vacant. Therefore, it’s always a good idea to put your land to good use and make it generate income for you.

Computing for Real Property Tax

To solve for the real property tax, it is essential to remember that the RPT rate in Metro Manila is 2%, whereas it is 1% in the provinces. Then, use this formula RPT = RPT rate x assessed value.

You also need to compound the RPT rate by the assessed value. The assessed value is calculated by multiplying the fair market value of the real estate property by the assessment level. Usually, these values are fixed through ordinances. 

Sometimes, the assessed value of a property might be referred to as the taxable value. To calculate a property’s taxable value, you must multiply the market value by the assessment level.

As mentioned earlier, the assessment levels vary for every property and depending on its size and/or use. These assessment levels are based on Section 218 of the Local Government Code.

Sample Scenario

For example, a residential property in Makati City is assumed to have a market value of Php10,000,000.00. The property comprises a land piece of Php 6,000,000, and the house’s construction, commonly known as the building or improvement, is valued at Php4,000,000.

To calculate the RPT, property appraisers must assess the residential’s value. It is solved by simply adding the value of the land and the value of the building.

  • Assessed Value of Land: Residential land (Php6,000,000) x Assessment Level (20%) = Php1,200,000
  • Assessed Value of the Building: House (Php4,000,000) x Assessment Level (40%) = Php1,600,000
  • Total Assessed Value of the Property: (A) + (B) = Php 2,800,000

After getting the total assessed value of the property, you will then need to multiply it by the RPT based on its location.

  • Real Property Tax: x Metro Manila RPT rate (2%) = Php 56,000

You must also calculate the added tax for the Special Education Fund.

  • Special Education Fund = 1% of the Total Assessed Value of the Property = Php 28,000

Therefore, the total real property tax you need to pay for this residential property is Php 84,000.

Owners can pay their taxes at the Land Tax Division of their LGU’s Treasurer’s Office. In some places, online payment options may be available as well. In Quezon City, for example, owners pay real property taxes through the QC e-services website.

© 2021. All rights reserved