INSTALLMENT PAYMENT OF THE CAPITAL GAINS TAX

When domestic stock is sold in installments, the capital gains tax may also be paid in installments if the:
a. Selling price exceeds 1,000
b. Initial payment does not exceed 25% of the selling price

SIGNIFICANT TERMS/AMOUNT/STEPS
1 Selling Price>1,000
2 Net Capital Gain
3 Net Capital Gains Tax Due
No Mortgage Cost>Mortgage Cost<Mortgage

4 Initial Payment Initial Payment Constructive Receipt

5 Ratio of IP Ratio of IP Initial Payment
6 Contract Price Contract Price Ratio of IP
Contract Price
CGT PAYABLE EVERY INSTALLMENT

Illustrative Problem 1
On November 1, 2021, Mr. Batanes made a sale of
domestic stocks costing 700,000 directly to a buyer for
1,000,000. The buyer agreed to pay in 100,000 monthly
installments starting November 30.

Selling Price 1,000,000.00

Less: Cost of Shares sold 700,000.00
Net Capital Gain 300,000.00
Multiply by: 15%
Net Capital Gains Tax due 45,000.00

No Mortgage
First Installment (November 30) 100,000.00
Second Installment (December 31) 100,000.00
Initial Payment 200,000.00

Initial Payment 200,000.00

Divided by: Selling Price 1,000,000.00
Ratio of Initial Payment 0.20

Contract Price =Selling Price 1,000,000.00

Collection 100,000
Divided by: Contract Price 1,000,000.00
0.10
Multiply by: Capital Gains Tax 45,000
 CGT PAYABLE EVERY INSTALLMENT 4,500.00

Illustrative Problem 2
On November 1, 2021, Mr. Batanes made a sale of
domestic stocks costing 700,000 directly to a buyer for
1,000,000. The buyer agreed to pay in 100,000 monthly
installments starting November 30. Assume the stocks
were previously mortgaged for 600,000 which the
buyer assumed.
Selling Price 1,000,000.00
Net Capital Gain 300,000.00
Net Capital Gains Tax Due 45,000.00

Cost>Mortgage

Initial Payment 200,000.00

Ratio of IP 20%

Selling Price 1,000,000.00

Less: Mortgage Assumed 600,000.00
Contract Price 400,000.00

Collection 100,000.00
Divided by: Contract Price 400,000.00
0.25
Multiply by: Capital Gains Tax 45,000.00
CGT PAYABLE EVERY INSTALLMENT 11,250.00

Illustrative Problem 3
On November 1, 2021, Mr. Batanes made a sale of
domestic stocks costing 700,000 directly to a buyer for
1,000,000. The buyer agreed to pay in 50,000 monthly
installments starting November 30. Assume the stocks
were previously mortgaged for 750,000 which the
buyer assumed.
Selling Price 1,000,000.00
Net Capital Gain 300,000.00
Net Capital Gains Tax Due 45,000.00

Cost<Mortgage

Assumed Mortgage 750,000.00

Less: Cost 700,000.00
Constructive Receipt 50,000.00
First Installment (Nov.30) 50,000.00
Second Installment (Dec.31) 50,000.00
Indirect Down payment (C. Receipt) 50,000.00
Initial Payment 150,000.00

Initial Payment 150,000.00

Divided by: Selling Price 1,000,000
Ratio of Initial Payment 0.15

Selling Price 1,000,000.00

Less: Mortgaged Assumed 750,000.00
250,000.00
Add: Constructive Receipt 50,000.00
Contract Price 300,000.00

Collection 50,000.00
Divided by: Contract Price 300,000
0.1666666666667
Multiply by: Capital Gains Tax 45,000.00
CGT PAYABLE EVERY INSTALLMENT 7,500.00
Special Tax Rules In Capital Gain or Loss Measurement
1. Wash sales of stocks
2. Tax-free exchanges

WASH SALES RULE

*also referred to as the 61-day period

*deemed to occur when within 30 days before and 30 days after
the losing sale of securities, the taxpayer acquired the same or
substantially identical securities.
*Capital losses on wash sales by non-dealers in securities are not
deductible against capital gains because they are effectively unrealized. The taxpayer did totally le go of the shares.
*Wash sales rule is not applicable to dealers in securities.

Illustrative Problem 1(acquisition of identical shares before a losing sale)

In 2021, Mr. Donald had the following transactions in the shares of Talisay, Inc., a domestic corporation:
Date Transaction Shares Price Cost
5-Jan Purchase 10,000.00 4.00 40,000.00
1-Mar Purchase 10,000.00 4.10 41,000.00
18-Mar Sale 10,000.00 3.80
Mr.Donald uses the FIFO method in costing security transactions.
How much capital loss can be deductible?

Selling Price 38,000.00

Less: Cost of shares sold(from Jan. purchase) 40,000.00
Capital loss (2,000.00)

Pursuant to the wash sales rule, the 2,000 capital loss on sale shall not be
deductible in the computation of the annual net capital gains in 2021.

Adjusted basis of the replacement shares acquired

on March 2021 shall be:

Purchase Price 41,000.00

Add: Deferred loss on March 18 wash sales 2,000.00
Basis of replacement shares 43,000.00

New Price per Share(43,000/10,000 shares) 4.30

Illustrative Problem 2(Replacement shares>Shares Sold)

In 2021, Mr. Donald had the following transactions in the shares of Talisay, Inc., a domestic corporation:
Date Transaction Shares Price Cost
5-Jan Purchase 10,000.00 4.00 40,000.00
1-Mar Purchase 8,000.00 4.10 32,800.00
 18-Mar Sale 10,000.00 3.80
Mr.Donald uses the FIFO method in costing security transactions.
How much capital loss can be deductible?

Selling Price 38,000.00

Less: Cost of shares sold(from Jan. purchase) 40,000.00
Capital loss (2,000.00)

Only the portion covered with replacement shares shall be disallowed.

The portion without replacement cover is a deductible realized loss.

Deferred loss(8,000shares/10,000 shares×2,000) 1,600.00

Deductible loss(2,000shares/10,000 shares×2,000) 400.00
Capital loss 2,000.00

Adjusted basis of the replacement shares acquired

on March 2021 shall be:

Purchase Price 32,800.00

Add: Deferred loss on March 18 wash sales 1,600.00
Basis of 8,000 replacement shares 34,400.00

New Price per Share(34,400/8,000 shares) 4.30

Illustrative Problem 3(Acquisition of identical shares after a losing sale)

In 2021, Mrs. Rachelle had the following transactions in the stocks of Sta. Rita Co., a domestic corporation:
Date Transaction Shares Price Cost
4-Jan Purchase 10,000 20 200,000
28-Feb Sale 10,000 18 180,000
4-Mar Purchase 12,000 16 192,000
Mrs. Rachelle uses the FIFO method in costing security transactions.
How much capital loss can be deductible?

Selling Price 180,000

Less: Cost of Shares Sold 200,000
Capital loss -20,000

There is replacement cover within the 61-day period, the capital loss shall be deferred.

The basis of the replacement shares purchased on March 4 shall be:

Purchase Price 192,000
Add: Deferred loss on wash sales 20,000
Basis of 12,000 replacement shares 212,000

Illustrative Problem 4: acquisition of identical shares before and after a losing sale
 In 2021, Mr. Windell had the following transactions in the shares of Naga Corporation, a domestic corporation:

Date Transaction Shares Price/share Value

4-Jan Purchase 15,000 20 300,000
15-Feb Purchase 5,000 21 105,000
28-Feb Sale 12,000 18 216,000
4-Mar Purchase 3,000 16 48,000
1-Apr Purchase 7,000 14 98,000

Capital Loss (18/share selling price-20/share cost)×12,000 24,000

Deferred loss(8,000/12,000 shares×24,000) 16,000

Deductible loss(4,000 shares/12,000 shares×24,000) 8,000
Capital loss 24,000

Adjusted basis of the replacement shares acquired on February 15, 2021 shall be:
Purchase Price 105,000
Add: Deferred loss(5,000shares/8,000 shares×16,000) 10,000
Basis of 3,000 replacement shares on February 15 115,000

Adjusted basis of the replacement shares acquired on March 4, 2021 shall be:
Purchase Price 48,000
Add: Deferred loss(3,000shares/8,000 shares×16,000) 6,000
Basis of 3,000 replacement shares on March 4 54,000

Illustration Problem 5(No replacement shares in the 61-day period)

On January 18, 2021, Mr. Real bought 10,000 shares of Gen. Luna Co. for 100,000.
On February 6, 2021, he sold the same shares for 95,00.
On March 28, 2021, he bought 5,000 shares for 55,000.
How much capital loss be deductible?
ayer did totally le go of the shares.

corporation:

corporation:
, a domestic corporation:
ation, a domestic corporation: