Answer:

calings in Prepert
1) Capital asset
2) Ordinary asset 6) Capital asse
Chapler 9 3)
4)
Capital asset
Capital asset
Ordinary asset
8) Ordinary asset
5) Capital asset 9) Capital asset
10) Ordinary asset
Applicable Taxes
Dealings in Property Property classification of an
asset
import because of the special tax rules on as capital or ordinary. is
ant
refer to
of
theordisposal assets (ordina- exchanges of of capital assets which gains and losses from sales
Dealings in property do not
the tax assets
or
sale exchanges. Under le or exchanges of ordinary assets. apply to gains and losses
capital assets) either through from
Gains on sale or
or

the following are ordinary asse code, capita assets and d ordinary assets
may be subjected to exchanges
of
or other property of a kin types of taxes: the following
1. Stock in trade of the taxpayer
would properly be included in the inventory of the taxna Which
on
2.
hand at the close of taxable year.
Property used in trade or business subject to depreciation.
TARLE 8-1: Applicable INCOME TAXES for Capital Gains and Ordinary Gains
TYPE OF GAIN
3. Real property held by the taxpayer primarily for sale to custom APPLICABLE TAX
CAPITAL GAIN on:
in the ordinary course of trade or business omers
Sale of shares of domestic Subject to 15% CGT on capital gain. However, if
4. Real property used in trade or business of the taxpayer corporations directly to a buyer. the seller is
aforeign corporation, CGT is 5% on 1st
P100,000 capital gain, 15% in excess of P100,000
On the other hand, capital assets include all other property held by the (Chapters 285).
taxpayer (whether or not connected with his trade or business) not
2. Sale of shares of domestic Not subject to income tax regardless of whether
included in the definition of ordinary assets above. Revenue regulations local stock
corporations through the transaction resulted to a gain or loss. It is
07-2003 provides that "Real Property" shall have the same meaning exchange subject to stock transaction tax of 6/10 of 1% of
attributed to the term as described under Article 415 of RA386, otherwise gross selling price (TRAIN Law). A stock
known as the Civil Code of the Philippines. Likewise, properties classified transaction tax is dlassified as "other percentage
as ordinary assets are automatically converted into capital assets upon tax' which is a "business tax', not an income tax
showing of proof that the same have not been used in business for more (Refer also to discussions in Chapters 2 and 5).
than two (2) years
involving said properties.
prior to the consummation of the taxable transaction
3. Sale of real properties classified Subject to 6% capital gains tax based on the
as capital assets in the highest amount among the selling price, fair market
Philippines. value and zonal value.
ILLUSTRATION 1: 4. Sale of real properties classified Either 6% capital gains tax or basic tax at the
Classify the following as ordinary or capital assets:
1) Stock and securities held by taxpayers as investment as capital assets in the Phils. to option of the taxpayer (Refer to- Chapter 2).
the gov't, its agencies or GOCCs
2) Stock and securities held dealers in securities.
3) Interest in partnership and joint venture by an individual taxpayer
Goodwill to basic income tax. Part of the
5. All Other types of capital gains Subject
income but subject to rules on
5) Real property not used in trade or business other than those enumerated in taxpayer's axable
and losses as discuSsed in the
6) House and lot #1-4. capital gains
Real property held for sale in the ordinary course of trade or business uy SUCceeding pages of this chapter.
taxable
real estate company. Subjectto basic tax. Part of the taxpayers
ORDINARY GAIN
8) Real property used as a warehouse income.
9) Real property held as investment a
10) Parking space for lease by real estate company

383
382
 Dealings in Propert,
CAPITAL GAINS Subject to Ordinary
Basic IncomeT.
or

All other capital asset transactions other than

Ssets
Subien The amount that can
Dealings in Preperty
percentage taxes and capital gains taxes may result to eitha be
or capital losses which are subject to basic tax (Refer to Tahapitalo succeeding year should not be in deducted
from the
RULES IN THE RECOGNITION OF CAPITAL GAINS ANDI
8-1). gains the time
exemption) at the
do not apply to capital
the ccapital exces of the net net
time the
loss income
capital gait of the
was (after personal
of stock asset incurred.
1. The transaction must involve property classified as canitSES chares of
domestic transactions involving The foregoing
ass
2. The transaction must arise, generally, from sale or exchanet. capital gains taxes. corporations as these arereal property rules
and
subject to final
a net
However,
Net capital gains are added to ordinary gains. However
f
oital loss, such loss çan only be deducted froO the
resutis Loss sustained by Domestic Banks and
Any loss Trust
sustained by a domestic
gain. This is to insure that only costs or expenses incufrerte Capial
sale of bonds, debentures, Companies bank or
the income shall be deductible tor income tax purposes any trust
with the requirement of the law that only
necessary expen: onsonant indebtednessis issued dy any notes certificate other company from
corporation,
or
or
evidences of
allowed as deductions from gross income. The term gcovernment
ve
considered as an including those issued
expenses" presupposes that in order to be allowed as dedes$ary
are income ordinary loss by the
deductible from ordinary
expense must be business connected, which is not the case i he
capital losses are concerned. This is also the eason wh insofar as Computation of
Gains and Losses from
Gains or losses from Dealings in
business connected expenses ike personal,
living ane between the amount of value dealings in property referProperty
to the difference
expenses, are not allowed as deduction from gross income
36(A 1) of the 1997 Tax Code). (Secti determined value of the property hereceived by the taxpayer over the
has disposed of
and/or exchange of assets. arising from sale,
Amount realized
4. HOLDING PERIOD -Less: Cost basis
Pxx
This rule is applicable only to individual
taxpayers, estates *Gain/(Loss) XX
and trusts. Holding Period refers to the
length of time the asset In (Pxx)
was held by the taxpayer. It covers the computing the gain or loss from the sale or other
period from the date property, the cost basis shall be as follows: disposition of
acquisition to the date of sale or exchange. The amount of capitalof TABLE 8-2: COST BASIS of
gains and losses will depend on the length of time the asset was Property Sold or Exchanged
held by the individual taxpayer as follows: Property acquired by lts cost (the purchase price plus expenses daquision,)
purchase
Holding Period Percentage to be recognized
12 months or less 100% Property which should be Its latest inventory value
More than 12 months 50% included in the inventory
Property acquired by devise, Its fair market value as ofthe dale diaaquision
The entire amount of capital bequest or inheritance
gains and losses incurred by
Corporations shall be recognized regardless of the holding perio0.
However, the rule that capital losses are recognized only to the Property acquired by gift or The same as f it would be in the hands ofthe donor or at
extent of capital donation
gains shall likewise apply to corporate taxpayers last preceding owner by whom it was not acquired by gift,
except that if such basis is greater than the FMV of the
5. Net Capital Loss Carry-over property at the tme of the git then, for the purpose of determining

his rule is applicable only to individual taxpayers. d oss, the bass shal be such FMV
individual taxpayer sustains in any taxable year a net
such loss shall be treated
in the succeeding year as a
capl ar Property (other than capital The amount paid by the transferee for
the property or
s l lass asset) acquired for less than transferor's adjusted basis at the time of the tansr
capital loss. Meaning, it can be deducted
in the year against net aal loss an adequate cornsideraton in
whicheveris greater
was incurred.
immediately following the year when a net cap money's worth

385
384
 Dealings in Presert, Dealings in Property
real properties acquired by the real estate
Al" elooed as of the time of the acquisition, and alldeveloper, whether developed or
real properties which held
7-2003)
by the
al estate developer primanily held for sale or for lease to customers in the ordinary
TERMS (RR
DEFINITIONOF
asset. coltrse of his trade or Dusiness Or which would properly be included in the inventory of
of capital
disposition
Captalgain
the sale,
exchange,
or other dha taxpayerif on hand at the close
of the taxable
year an all real properties used in
Gain from trade or business, Wnener in hne torm of land, building or other improvements, shall
asset. considered as ordinary assets.
of capital be
Capital Loss or other
disposition

Loss from sale, exchange,

Real Estate Lessor

asset over losses from

Net Capital Gain
exchanges of capilal
sun

or
Real estate lessor reler to any person engaged in the business of leasing or renting
sale or
Excess of gains from on hisrented
real properties being own account as a principal and holding himself out as lessor or
out or offered for rent.
exchanges. real properties
Net Capital Loss assets over the gains from siun
All real properties of the real estate lessor, whether land and/or improvements, which
of captal sales
or excihanges
losses from sales
Excess ofthe are for leaselrent or being offered for lease/rent, or otherwise use or being used in the
or exchanges.
trade of business shall likewise be considered as ordinary assets.
from perform
Ordlinary Gan of ordinary asset including gains of in the real estate business
Gain realized from the
sale or exchange Taxpayers engagedinot engaged
services and business. Real estate engaged in the real estate business shall refer collectively to real estate
dealers, real estate developers, and/or real estate lessors. Conversely, the
term
other than
Ordinary Loss
of ordinary asset. ([t also means the excessof "taxpayers in
not engaged the real estate business shall refer
to persons
Loss incurred from the sale/exchange a taxabie year, or net operating loss). real estate dealers, real estate developers, and/or real estate lessors.
income of a taxpayer during
deductions over the gross

All real properties acquired in the course of trade or business by a taxpayer habitually
Dealers in Securities sale of real estate shall be considered as ordinary assets. Moreover,
are engaged in the sale of stock, bonds, exchanges, engaged in the
All persons, who for their own account of Rev. Regs. No. 7-2003, all real property originally
bank nots, or other securities as
licensed by the SEC. pursuant to section 3(a)(4)d)
bulions, coined
money,
acquired by a taxpayer registered to engage in the real estate business are
in the said business
particular REAL property is a
capital considered ordinary assets even if such taxpayer did not engage
GUIDELINES in determining whether a
since its incorporation (BIR Ruling No. DA-519-2004, October 6, 2004).
asset or ordinary asset under RR 07-03

with the HLURB HUDCC as a developer shall be

real estate dealer or
Real Estate Dealer Registration or
in the sale of real
Real estate dealer shall refer to any person engaged in the business of buying
and Sufficient for a taxpayer to be considered as habitually engaged
the HLURB or HUDCC as a real estate
selling or exchanging real properties on his own account as a principal and hoding estate. If the taxpayer is not registered with
be deemed to be engaged in the real
himself out as a full or part-time dealer in real estate. dealer or developer, he/it may nevertheless
of substantial relevant evidence (such as
estate business through the establishment sale
taxable real estate
All real properties acquired by the real estate dealer shall be considered as ordinary of at least six (6)
consummation during the preceding year as engaged in real estate
habitually
asset.
ransactions, regardless of amount; registration etc.).A
or the Bureau of Internal Revenue,
business with the Local Government Unit is later
Real Estate Developer business, even though this purpose
use in the
Real estate developer shall refer to of property purchased for future the taxpayer's' control,
does not lose its character
any person engaged in the Dusdd tnwarted by circumstances beyond
of the active use of the
developing real estate properties into subdivisions or building houses ds an ordinary asset. Nor does a
mere discontinuance
lots, or constructing residential or commercial o mar established as a business property.
townhouses property change its character previously
units, and otnet
units for his own account and
offering them for sale or lease.

386 387
 Dealings in Propert,
Dealings in Prperty
Solution:
Ordinary income
ILLUSTRATION 2: Taxpayer) P240,000
Period-Individual 2018tava
wing data for 2018 taxable year Ordinary loss
tolOWing
data (40,000)
Case A(Holding single,
has the Net capital gain:
individual taxpayer,
An Ordinary income
P240,000 Short term capital gain
10,000
Ordinary lossS for six (6) months
40,000 Long term capital gain (50%)
on capital
asset held
three (3) years
10,000 20,000
Capital gain asset held for 40,000 Long term capital loss (50%)
(40,000)
on capital
Capital gain asset held for 15 months
10,000 Taxable income P200,000
on capital
Capital loss Capital loss is deductible only to the extent of capital gain.
taxable income?
the net
How much is as follows:
Question:
P175,000 computed Case D(Net Capital "Loss"Carrythe
Overcalendar
Individual Taxpayerdetermine the
Answer:

Ordinary income P240,000 Given the followingdataduring year (2018),

Ordinary loss 40,000) taxable income assuming the taxpayer is a ciizen of the Phiippines without a
dependent child.
Net capital gain: 10,000
Short term capital gain Business income P800,000
(50%) 20,000 500,000
Long term capital gain Business expenses
Long term capital loss (50%)
,UU0) 25,000 Compensation income 500,000
Taxable income P225,000 Capital gain on sale of bonds held for twenty (20) P 60,000
months
Taxpayer: on direct sale to a buyer of shares of 150,000
Case B(Holding Period-Corporate
data in Case A, except that
tne taxpayer is a corporation Capital gain
domestic corporation held for six (6) months
Assume the same
of the corporation. 50,000
Determine the taxable income
as follows:
Capital loss on sale of a car held for ten (10) months
Answer: P240,000 computed 100,000
Capital loss on sale of land in the Philippines held for
two (2) years
Ordinary income P240,000 income in 2011was 200.0
40,000) Capital loss in 2011 (net taxable
Ordinary loss
Net capital gain:
P100,000)
Short term capital gain 10,000
Long term capital gain (100%) 40,000 Answer: P750,000 computed asfollows:
P800,000
Long term capital loss (100%) (10,000) 40,000 Business income
(500,000)
P240,000 Business expenses
Taxable income
Compensation income
500,000
Holding period is not applicable to corporate taxpayers.
Net capital gain:
Gain on sale of bonds (50%) 30,000
Case C(HoldingPeriod &NetCapital"Loss"-ndividual Taxpayen:
An individual taxpayer, single, has the following data for 2018:
Capital loss-sale ofcar(100%) (50,000)
P240,000 Net capital loss carry-over
Ordinary income
Taxable income
P800,000
Ordinary loSs 40,000
previous year is deductible only to the
Capital gain on capital asset held for six (6) months 10,000 N e t capital loss carry-over of a In addition, the net
40,000 extent of net capital gain
in the suCceeding year.
Capital gain on capital asset held for three (3) years should not be more that the taxable income of the
Capital loss on capital asset held for 15 months 80,000 capital losS cary over incured. In the problem
the net capital loss was
previous year when loss cary over because
cannot avail of net capital
Question: How much is the net taxable income? provided, the taxpayer the curent year.
than capital gain during
Answer: P150,000 computed as follows. capital loss was higher

388
389
 Dealings in Propert Dealings in Property
Over-Individual
Tarna Answer: P360,000 computed as
Capital "Loss"Carrythe year (201q9), Business income follows
CaseE(Net data dunng
calendar

determine Business expenses P800,000

Given the following
taxable
income assuming
taxpayer is
the taxpayer
is a citizen
Ciuzen or the Philippines
silippines withoutthea Net capital gain: (500,000)
Gain on sale of bonds
dependent child.
P800,000 (100%) 70,000
Business income Capital loss -sale of car (100%)
Business expenses 500,000 Net capital gain (10,000)
Compensation income
held for two (2) months
500,000
P 60,000 Taxable income 60,000 60,000
Capital gain on
sale of bonds P360,000
to buyer of shares of
Capital gain on
direct sale
months
150,000 Rules on holding periods and capital loss
held for six (6) carry-over are not applicable to
domestic coporation
car held for two (2) years
10,000 corporate taxpayers.
loss on sale of a
Capital held for
sale of land in the Phililppines 100,000
Capital loss on CAPITAL GAINS Subject to percentage taxes
two (2) years
Capital loss in 2018 (net
taxable income in 2018 was 200,000 &Beginning January 1, 2018, Peroentage tax' of 6/10 of 1% of the
a
gross selling price or gross value in money of shares of stock sold,
P50,000) bartered, or exchanged through the local stock exchange (Listed
as follows:
Shares) also known as stock Transaction Tax. The following sellers or
Answer: P755,000 computed
transferors of stock are liable to this tax:
Business income P800,000 a) Individual taxpayer, whether citizen or alien.
Business expenses (500,000) b) Corporate taxpayer, whether domestic or foreign.
Compensation income 500,000
Net capital gain: c)Other taxpayers not falling under (a) and (b) above, such
Gain on sale of bonds (100%) 60,000 as estate, trust, trust funds, and
pension funds, among
Capital loss- sale ofcar (50%) (5,000) others.
Net capital gain 55,000
Net capital loss carry-over** (50,000) 5,000 The shares of stock referred to above pertain to shares of stock
Taxable income P805,000 held as capital assets. The seller should not be a dealer in securities,
"Thenet capital loss carry-over should not be more than the nettaxable otherwise, the sale is subject to basic income tax as well as value
income at the time the capital loss was incurred. added tax (Refer also to Volume 2-Transfer and Business Taxation).
The remaining P150,000 (P200,000-P50,000) net capital loss incurred in
Since the basis of the tax is gross selling price, any gain or loss from
2018 is no longer allowed as a net capital loss carry over after 2019 sale or exchange is ignored. Therefore, regardless of whether the
transaction resulted in the realization of profit or loss, as long as a
Case F(Taxpayer-Domestic Corporation: transaction occurred referring to a or
sale
exchange shares of of stock
Given the following
taxable income
data during the calendar year (2019), determine the held as capital asset in a local stock exchange, it is subject to a
assuming the taxpayer is a "domestic corporation. percentage tax of 6/10 of 1% of gross selling price. The stock broker
Business income P800,000 who effected the sale shall collect the tax from the seller and remit the
Business expenses 500,000 date
same to the collecting bank within five (5) banking days from the
Capital gain on sale of bonds held for two (2) months P 70,000
Capital gain on direct sale to buyer of shares of of collection thereof.
150,000
domestic corporation held for six (6) months
Capital loss on sale of a car held for two (2) ILLUSTRATION 3:
years 10,000 in local stock exchange
George sold 2,000 shares of a domestic corporation
a
Capital loss on sale of land in the
two (2) years Philippines
held for 100,000 at 110 per share (Acquisition cost- P100 per share).
Capital loss in 2018 (net taxable income in 2018 was 200,000 the sale of shares?
P50,000) Question1: How much is the capital gains tax on
Answer: PO. The transaction is exemptfrom capital
gains tax.

390 391
 Dealings in Property Dealings in Property
The applicable tax rate is multiplied or
based on the gross selling
i c e o r g r o s s value in money of the
to basic or ordinarv:
hary tax? shares of stock sold, bartered,
is the
income subject
Phanged or otherwIse disposed of.
How much
Question2:

Answer: Po. "Gross value in money" means the "fair market value". In the
transaction?
tax on the traded thru the stock
What is the applicable computed as follows
of shares
exchange, "fair market value" shall
Question3:
Percentage tax ofx P1,100 P220,000 casef
consist the actual selling price at which the transaction was executedin
ofthe
Answer:
P110) trading syst and/or facilities of the Local Stock Exchange (RR 6-
(2,000 sh.
Sellingprice 006
tax rate the
X Percentage
Percentage/Transaction Tax P1,320 2008).

is a dealer
in securities, der Percentage taxes and Value
volume 2 Transfer and Business
Added
axation).
Tax are also discussed in
mine the
Assume that George
Question4: due.
amount of tax
applicable taxes
and the Basic Income Tax han
A n s w e r . The
transaction Is subject to: oased on
sale and Value Added
Value Tax (Business
the gain or loss on Tax to
CAPITAL GAINS Subject capital gains tax
sale of shares of stock of a domestic
computed as follows:
CAPITAL GAINS TAX On
Selling price (2,000
sh. x P110) P220,000 corporation sold directly to a buyer computed a tax rate of:
Cost (2,000 sh. P100)
x 200,000)
to basic tax P20,000
Gross income subject Prior to Jan. 1, 2018 (regardles ofthe classification ofthe taxpayer
5% On the 1P100,000 capital gains
sh. x P110) P220,000 On capital gains in excess of P100,000
Selling price (2,000 10%
Cost (2,000 sh. x P100) (200,000)
P20,000 uponeffectivity of TRAIN Law
Beginning January 1 2018 orand
Gross income
12%
domestic corporations
Xvat rate For individual taxpayers
Output Vat (Business Tax) P2,400 Tax %: 15%
Basis: Capital gains
tax. t is a business tax like
Value Added Tax (VAT) is not an income
are discussed in Chapter 8 of
Taxes
percentage tax. Value Added For foreign corporations
volume2 (Transferand Business Taxation Tax %: 5% on 1 P100,000 capital gain
15% in excess of P100,000 capital gain
of stock solc or exchanged
Percentage tax on sale of shares Basis: Capital gains
based on the gross selling price
through initial public offering (IPO) asset
of the shares of stock soid in accordance of real properties held as capital
or gróss value in money
to the total
b. CAPITAL GAINS TAX on sale of 6% of the highest
with the proportion of the shares of stock sold at a rate
situated in the Philippines computed value.
shares of stock after listing in the local stock
price, fair market value and zonal
Outstanding amount among the selling
exchange. The percentage tax shall be: * N o t applicable to foreign
corporations
detailed
*PercentageTax Taxpayers) for a
Ratio/Proportion * R e f e r to Chapter 2 (Individual tax.
Up to 25% 4% illustrations on capital gains
discussions and
Over 25% but not over 33 1/3% 2%
Over 33 1/3 1%

RATIO is computed as:

Shares sold, bartered, shares
exchanged Proportion of Disposed
Total outstanding shares to Outstanding Shares

393
392
 CHAPTER EXERCISES
Chapter Gercises Dcaliays in Property
PROBLEMS

p9.4. citize taxpayer rovided the

the years 2017 and 2018:
207
A
resident
following data for 2018:
P9.1. the following
data for Capital gain on sale of bonds held for 20 months P50,000
has
A taxpayer Capital gain on direct sale to buyer of shares of 120,000
2018 P360,000 domestic corp. held for 6 mos.
Gross income
Business expenses
acquired on
280,000 Capital loss on sale of car held for 11 months
80,000
loss (capital
asset was
March 15, 2018)
60,000 Capital loss on sale of land in Makati held for 3 years 60,000
Capital was sold
on Capital loss in 2017 (taxable income for 2017 was
2018 and 20,000
January 15, asset was
acquired on
40,000
(capital March 31, 2018) P10,000)
Capital gain sold on
2016 and was
January 15,
DETERMINE THE FOLLOWING:
1. Total capital gains for 2018
2019
Gross income
P500,000 2. Total capital loss for 2018
Business expenses
350,000 3. Net capital gain (loss) for 2018
asset held for 12 months) 80,000
Capital gain (capital asset held for 2 years) 20,000
Capital loss (capital P9.5. a citizen of the Philippines:
Calendar year is 2018 and the taxpayer is
DETERMIWE T H E F O L L O W I N G :

in 2018 assuming the taxpayer is P 45,000

Capital gains on sale of bonds held for 2 months
a
1. Taxable net income
of 120,000
domestic corporation. Capital gains on sale directly to buyer of sh.
in 2019 assuming the taxpayer is a domestic corp. held for 16 mos
2. Taxable net income
80,000
domestic corporation Capital loss on sale of family car held for 5 years
in 2018 assuming the taxpayer is a held for 3yrs. 60,000
3. Taxable net income Capital loss on sale of land in Makati
resident citizen (Selling price is P800,000)
2019 assuming the taxpayer is a income 2017 20,000
Taxable net income in Net capital loss in 2017 (taxable
resident citizen P30,000)
DETERMINE THE FOLLOWING:
P9.2. exclusive of the
income of P400,000
Royale, Inc., had 2018 taxable 1. The net capital gain in 2018
carried-over in 2018
following: P50,000 2. Total net capital loss in 2017 to be
Gain on sale of land used in business, for 3 years
used in business, for 8 26,000
Loss on sale of machinery P9.6.
data income and losses
months on
8,000 Juan Marquez, married, had the following 2019
Loss on sale of securities held for 3 years
6,000
2018
Loss on sale of securities held for 3 months P48,900 P85,700
Ordinary business income
REQUIRED: Determine the taxable income of Royale, Incorporale Short term capital gain
15,895
18,960
P9.3.
Short term capital loss 45,700
Pedro, single, has the following data for the 2018 taxable year Long term capital gain
Ordinary income in 2019.
P140,000 income of Juan Marquez
Determine the taxable
Long term capital gain 40,000
Long term capital Loss 10,000
REQUIRED: Determine the taxable income of Pedro
395
394
 Chapler Ezerises Dealings in Property
Chapter yeruisas
-

Dealings in Property 6. For income

ital asset?
tax purposes, which of the following is considered as

Vacant lot used as business'

parking space customers for
to the disposal thro.
MULTIPLE CHOICE
in Property'
refers
through sal or Real estate developed by realtor for
Factory equipment long due for majorsubsequent
"Dealings sale
1. The term .
exchange of Ordinary assets d. None of the above repair
Capital assets
C. Iand l Nhich of the following is a capital asset
Tonly d. Neither I nor II 7.
a.
a Stock in trade
b. II only b. Property held by the taxpayer primarily for sale to customers in
are those
assets that are used primarily in the the ordinary course of trade or business
2. rdinaryassets or business.
Ordinary assets incld C. Personal property used in trade or business
of trade
ordinary course
Inventory
intended for sale
in
the normal course of biie siness d. Property of a kind which would not be included in inventory of
a.
used in business including real propertv hel
held f thetaxpayer if on hand at the close of the taxable year
b. Real property
rent.
business subject to depreciation, such as
as Which of the following is a capital asset?
Assets used in 8.
a. Inventory for sale
equipment.
d. All of the above
b. Real property held for rent
C. Equipment used in business
false?
3. Which of the following is d. Investment property
asset may be an asset connected or not connected
a. A capital
the taxpayer
with the trade or business of 9. Which of the following is not an ordinary asset?
in business which is subject to amortization is
b. An asset used a. Investment in equity security
an ordinary asset b. Real property used in business
C. Inventory is an ordinary asset C. Factory equipment of manufacturing business
d. An asset held in business as investment is ordinary asset d. None of the above

4Which of the following is/are considered inventory intended for sale in to the general
10. Which of the following capital assets are not subject
the ordinary course of business? rules on capital gains and losses?
a. Raw material inventory, work-in process inventory, finished
a. Capital gain on sale of shares of stock of a foreign corporation
goods inventory. b. Gain on sale of bonds of a domestic corporation
b. Real estate being held or being sold by a trader of equipment. C. Loss of family car in an accident
C. Securities held or being sold by an
d. All of the above
investor d. Loss in value of securities

11. A net capital loss means

5. Budoy operates a retail store and owns the following properties. a. Losses over the gains on sales and exchanges of capital
Which of the following is capital asset in the hand of
Budoy? assets
a. Building which houses or exchanges of capital
the retail store Losses the losses on sales
b. Fixtures used in the retail b. over
store assets
C.
Inventory on hand at the end of the year Determined cost over the value received
from the sale or
d. Trade accounts C.
receivable asset
exchange of a capital

397
396
 Dealings in Chapter Eercises Dealings in Progerty
Property
-

ercises
Clesir exchanges off
or e x c h a n g e s o
on First statement: The capital gains
tax on sale of shares of stock
not
losses on
sales capital asse. 16..listed traded in the local
and
stock exchange be
d. Gains o v e r the stallment if the iniual payments do not exceed 25may% of thepaidn
selling
capital gain or loss?
may result to
12. Which
of the following
of
investment
in bonds cond statement: The capital gains tax on sale of shares of stock not
a. Sale
of liquidating
dividend
isted and traded in the local stock exchange are not included in the
b. Receipt "b" Computation or taxable net income for individual and corporate
and
C. Both a"
"a" n o r "b" taxpayers.
d.
Neither
a. Statements 1 & 2 are false
from c a n i t a l
1: Capital
losses can be deducted only b. Statement 1 is true but statement 2 is false
13. Statement
losses can
be from
deducted
any grosS C. Statement 1 is false but statement 2 is true
Statement 2: Ordinary d. Statements 1 and 2 are true
income 1 & 2 are
false
Statements
a.
but statement 2
is false
Statement 1 is true 17. On September 30, 2018, Juan sold a piece of land to Pedro who
b. but statement 2 is true
C.
Statement 1 is
false correctly computed the applicable capital gains tax of P1,440,000 on
Statements 1 and
2 are true the transaction. The latter withheld the applicable capital gains tax
d.
and remitted the same to the BR before the statutory deadline. The
14. Earl owns a
with a monthly
twenty (20) door apartmentthis to
rental of
selling price of the nd is P20,000,000. Which of the following is not
residential unit. He sold property Clifford. Whih
Vhich
P15,000 each correct?

is false? a. The fair market value of the land is P 24,000,000.

gains tax.
a. Earl is not liable to pay capital b. Juan received cash of P18,560,000 from Pedro
asset.
b. The apartment is a capital
business.
C. Juan applied the tax rate to the fair market of the land, not to
C. Earl is engaged in the estate its selling price of P20,000,000.
Earl is regularly renting out the apartment. asset.
d. d. The land sold by Juan is classified a s an ordinary
correct?
15. Which of the following statement is 18. The following a r e the transactions of Pablo pertaining
to sale of real
a. Gain from sale of domestic shares of stock held as capital
properties for the current year.
asset through the stock exchange is part of the seller's gross
Sale of vacant lot used in his trading business, P500,000.
income. This was acquired 2 years ago at P200,000
b. The capital gains tax of 6% based on the gross selling price or Sale of his residential lot for P1,000,000, the
zonal value at
fair market value whichever ishigher is to a
applicable
land made by real estate dealer where such land is part of his
sale of the date of sale is P1,200,000. This was purchased 3 years

ago at P400,000
pieces of land for sale. estate transactions?
C. Sale of residence located in the Philippines is exempt from What would be the final tax for these real
a. P60,000 C. 72,000
to
capital gains tax if the proceeds from the sale is fully utilized
the b. P90,000 d. 102,000
acquire another residence within eighteen months from
date of sale. the current year:
d. The capital gains tax on the sale of real property classified as 19. The following the transactions of Juan for
are
in the stock exchange at 105 per share.
capital asset should be remitted to the BIR within 30 days 1,000 shares sold three years ago.
at P95 per share
following each sale or The shares were acquired
disposition of real property. 1,000 shares sold outside
the stock exchange at P110 per
share (cost = P100/share)

399
398
 Chastur Erercists Dealinas in
ProhePert
What would be the final tax for these transactions?
C. 750 Chaster Exercise
a. P500
Dealnps in Prose
-

b. P1,000 d. 1,500 23. What is the correct amount of Pau>'s

a. P100,000
20. Statement 1: Forindividuals, estates and trusts, capital b. P50,000 capital gain for 2018?
C. P25,000
losses are considered at 100% if the asset was held forJeins and d. PO
24. What is the cor
period ofmoren than
twelve months, and 50% if the asset was neld for a correct amount of Paul's
a. P20,000
than twelve months.
b. P10,000
capital loss for 2018?
C. P5,000

Statement 2: When securities were d. PO

held by an individual as aWhat is the correct amount of
capital losscapital
asset and were written off, the write off results in a
a a. P25,000 net Paul's net
date of the write off. on the b. capital gain capital gain/loss for 2018?
a. Statements 1 & 2 are false P25,000 net capital loss C.
P20,000 net capital gain
d.
b. Statement 1 is true but statement 2 is false P20,000 net capital loss
C. Statement 1 is false but statement 2 is true
26. The following losses are deductible from
d. Statements 1 and 2 are true which is deductible only to the extent of gross income, except one
a.
b.
Netoperating loss carryover, capital gain:
21. A feature of Accounts written off because
ordinary gains as distinguished
from capital these are certain to be
a. Gains from sales of assets not stock in gains uncollectible;
trade . Loss arising from
d. Loss incurred frompermanent
b. May or may not be taxable in full decline in market value;
C. Sources are capital assets a transaction
d. No
involving a capital asset.
holding period 27. Where the taxpayer is a
corporation, the following rules as to
recognition of capital gains
22. The and losses from the
following data pertains to the transactions of Paul for classified as capital asset shall disposition of property
Total net sales from his trading business year 2018 apply. Which does not?
a. The holding period does not
Cost of sales P500,0 and losses are apply, hence, the capital gains
Sale of vacant lot used in his business 300,000 recognized 100%.
b. Capital losses are
years ago at cost of P150,000)
(acquired two deductible only to the extent of capital
gains.
Sale of residential house and lot 200,000 C. Ordinary losses are
acquired 12 years
-

deductible from capital gains but net

ago, P800,000 of the proceeds was used to capital loss cannot be deducted from ordinary gain.
his new residential house and acquire d. Net capital loss
Iot. All pertinent BIR 1,000,000 carry-over is applicable
requirements were complied with.
Sale of his personal 28. Which statement is
computer. He
personal use 2 years ago at cost ofbought
this for his wrong? The rule that capital losses are deductible
P20,000. 10,000 only to the extent of capital gains is applicable:
Sale of personal car, a. Toa corporation
acquired 3 years ago at P50,000 100,00
b. To an individual;
What is the correct
amount of Paul's c. To an individual taking the Optional Standard Deduction;
a. P200,000 ordinary gain for 2018? d. To an individual taking the itemized deductions from gross
b. P225,000 C. P205,000
d. P250,000 income.

400 401
 Chapler Eerises
-

ZDealin hnds in Propertu

regard to the dealin
is correct with g in capital
29. Which of the following
asset? allowed to
cary-over by individu
a. Net capital loss
next year.
is

allowed to have a short and l e .

taxpayer
b. Corporate taxpayer
is long holdir
periods. is under the possession of the
C. If the capital asset sold
months, the holding period is
individual sellerfor 12
considered as long term.
d. If the holding period is considered long term, only 75% of
capital gain is reportable.

30. Jonathan has taxable income was P200,000 exclusive of capital

and losses for 2018. Jonathan had a net long term loss of PR gains
2017. There was no capital gain or loss in 2018 What amountof this
000 in
capital loss can Jonathan offset against 2018 ordinary income?
a. PO C. P4,000
b. P3,000 d. P8,000

402