Real Property Tax (RPT) is a tax that owners of real property need to pay every year so that the local government unit (LGU) will not auction off their property.
There are some investors who buy tax-delinquent real properties and participate in auctions held by LGU’s.
Buying tax delinquent properties is one of the many ways one can buy properties at low prices.
We also publish schedules and lists of tax-delinquent real properties of different cities – they are classified under the category tax-delinquent properties.
Table of Contents
In the past, we have discussed what happens during these LGU auctions. You may want to read them should you be interested in this type of investment:
- Marikina Public Auction of Tax-Delinquent Real Properties (one of our very first posts)
- Four tips for investors who plan to invest in tax-delinquent real properties in Quezon City
- 9 lessons learned from the real property tax foreclosure auction sale in Quezon City
In this post, I will discuss the legal bases for RPT and how to compute it.
What is Real Property Tax?
Real Property Tax is the tax on real property imposed by the Local Government Unit (LGU). The legal basis is Title II of the Local Government Code (LGC), Republic Act (R.A.) no. 7160. The implementing rules and regulations of R. A. 7160 can be found here.
The RPT for any year shall accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind whatever, and shall be extinguished only upon payment of the delinquent tax.
If you have prior years’ delinquencies, interests, and penalties, your RPT payment shall first be applied to them. Once they are settled, your tax payment may be credited for the current period.
Who should pay the RPT
The owner or administrator of the property
Where to pay
At the City or municipal treasurer’s office
When to pay
If you choose to pay for one whole year, the payment is due on or before January 31. If the basic RPT and the additional tax accruing to the Special Education Fund (SEF) are paid in advance, the sanggunian concerned may grant a discount not exceeding twenty percent (20%) of the annual tax due. Jay wrote about the discount on RPT recently in his post How To Get A 20% Discount on Real Property Taxes.
If you choose to pay in installments, the four quarterly installments shall be due on or before the last day of each quarter, namely: March 31, June 30, September 30, and December 31.
In case of failure to pay the basic RPT and other taxes when due, the interest at the rate of two percent (2%) per month shall be imposed on the unpaid amount, until fully paid. The maximum number of months is thirty-six (36) months, so effectively, the maximum interest rate is seventy-two percent (72%).
How do you compute real property tax (RPT)?
RPT = RPT Rate x Assessed Value |
What are the RPT rates?
Maximum RPT rates:
Coverage | RPT rate |
| Cities and Municipalities within Metro Manila | 2% |
| Provinces | 1% |
Special Education Fund (SEF) – 1%
In addition to the basic RPT, the LGU’s may levy and collect an annual tax of one percent (1%) which shall accrued exclusively to the Special Education Fund (SEF).
Ad Valorem Tax on Idle Lands – 5%
In addition to the basic RPT, the LGU’s may collect a maximum idle land tax is 5% assessed value of the property.
How do you compute the Assessed Value?
Assessed Value = Fair Market Value x Assessment Level |
Sec. 199 (l) of the LGC defines “Fair Market Value” as the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy. In practice, however, the Fair Market Value is based on the assessment of the municipal or city assessor as written in the Tax Declaration.
The Assessment Level shall be fixed through ordinances of the Sangguniang Panlalawigan, Sangguniang Panglungsod, or the Sangguniang Pambayan of the municipality within the Metro Manila area. To get this data, look for the tax Ordinance of the city or municipality where your property is located.
Maximum Assessment Level rates
I. Land
Class | Assessment Level |
| Residential | 20% |
| Timberland | 20% |
| Agricultural | 40% |
| Commercial | 50% |
| Industrial | 50% |
| Mineral | 50% |
–
II. Building and Other Structures
- Residential
FMV Over | But Not Over | Assessment Level |
0.00 | 175,000.00 | 0% |
175,000.00 | 300,000.00 | 10% |
300,000.00 | 500,000.00 | 20% |
500,000.00 | 750,000.00 | 25% |
750,000.00 | 1,000,000.00 | 30% |
1,000,000.00 | 2,000,000.00 | 35% |
2,000,000.00 | 5,000,000.00 | 40% |
5,000,000.00 | 10,000,000.00 | 50% |
10,000,000.00 | 60% |
–
2. Agricultural
FMV Over | But Not Over | Assessment Level |
300,000.00 | 25% | |
300,000.00 | 500,000.00 | 30% |
500,000.00 | 750,000.00 | 35% |
750,000.00 | 1,000,000.00 | 40% |
1,000,000.00 | 2,000,000.00 | 45% |
2,000,000.00 | 50% |
–
3. Commercial/Industrial
FMV Over | But Not Over | Assessment Level |
300,000.00 | 30% | |
300,000.00 | 500,000.00 | 35% |
500,000.00 | 750,000.00 | 40% |
750,000.00 | 1,000,000.00 | 50% |
1,000,000.00 | 2,000,000.00 | 60% |
2,000,000.00 | 5,000,000.00 | 70% |
5,000,000.00 | 10,000,000.00 | 75% |
10,000,000.00 | 80% |
–
4. Timberland
FMV Over | But Not Over | Assessment Level |
300,000.00 | 45% | |
300,000.00 | 500,000.00 | 50% |
500,000.00 | 750,000.00 | 55% |
750,000.00 | 1,000,000.00 | 60% |
1,000,000.00 | 2,000,000.00 | 65% |
2,000,000.00 | 70% |
–
II. Machineries
Class | Assessment Level |
| Agricultural | 40% |
| Residential | 50% |
| Commercial | 80% |
| Industrial | 80% |
Sample Computation
Data:
Actual use of property: Residential
Location: City within Metro Manila
FMV per assessor’s officer (based on Tax Declaration):
Improvement – P350,000
Assessment Level for Land: 20%
Assessment Level for Improvement: 20%
Note: The assessment levels are fixed through ordinances of the Sangguniang Panlalawigan, Sangguniang Panglungsod, or the Sangguniang Pambayan of the municipality within the Metro Manila area. We will be using the maximum rates for sample computation purposes.
Computation
Assessed Value of Land = P350,000 x 20% = P70,000
Assessed Value of Improvement = P350,000 x 20% = P70,000
Basic Real Property Tax for Land and Improvement
= (P70,000 + P70,000) x 2% = P2,800
Special Education Fund (SEF) for Land and Improvement = (P70,000 + P70,000) x 1% = P1,400
Special Classes of Real Property
All lands, buildings, and other improvements thereon actually, directly and exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and government-owned or controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power
What are the assessment levels for special classes of real property?
Actual Use | Assessment Level |
| Cultural | 15% |
| Scientific | 15% |
| Hospital | 15% |
| Local water districts | 10% |
| Government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power | 10% |
What are Idle Lands?
1. Agricultural lands more than one (1) hectare in area, suitable for cultivation, dairying, inland fishery, and other agricultural uses, ½ of which remain uncultivated or unimproved.
- Exceptions
i. Lands planted to permanent or perennial crops with at least 50 trees to a hectare; and
ii. Lands used for grazing purposes (Note: put goats or cows on your property).
2. Lands Other than Agricultural, located in a city or municipality, more than 1,000 sqm. in area, ½ of which remain unutilized or unimproved
3. Residential lots in subdivisions, regardless of land area
~~~
Aside from real property owners, I hope this also helps those studying for the 2013 real estate brokers exam. Do you have any questions, comments or reactions? Just let me know by leaving a comment below, thanks!
~~~
Cherry Vi M. Saldua-Castillo
Real Estate Broker, Lawyer, and CPA
PRC Real Estate Broker License No. 3187
PRC CPA License No. 0102054
Roll of Attorneys No. 55239
Text by Jay Castillo and Cherry Castillo. Copyright © 2008 – 2013 All rights reserved.
Full disclosure: Nothing to disclose.
Image courtesy: of renjith krishnan / FreeDigitalPhotos
FREE CHECKLIST: IDENTIFY AND AVOID PROBLEMATIC FORECLOSED PROPERTIES BY DOING PROPER DUE DILIGENCE!
Avoid losing money, wasted time and effort caused by buying foreclosed properties that have too many problems, with our free 60-item Property Due Diligence Checklist. Grab your free copy now.
