Central Mindanao University

COLLEGE OF BUSINESS AND MANAGEMENT

Accountancy Department
Tax 41
Chapter Quiz on Dealings in Property and Deductions
Part I. TRUE or FALSE
1.
2.

Sale of movable property classified as capital asset is subject to final income tax. FALSE
If the employer did not withhold or did not pay the fringe benefit tax for the fringe benefits given to the employees, the fringe
benefits are not allowed as a deduction from the gross income. TRUE
3. Real property held for rent is classified as capital asset. FALSE
4. Dividends received by a domestic corporation from Domestic Corporation are subject to the final income tax rate of 10%.
FALSE
5. Capital gains on the sale of shares of stock not registered in the local stock exchange are not a passive income. TRUE
6. The sale of the principal residence of a taxpayer, with the intention of buying another residence using the proceeds of the sale,
is exempt from 6% capital gains tax as a rule. TRUE
7. Capital gains tax on sale of real property is 6% of gross selling price or fair market value whichever is higher. TRUE
8. The capital gains tax must be paid by the seller, but the BIR requires the buyer to file the capital gains tax return. TRUE
9. If the individual taxpayer fails to submit documentary evidence within 30days after 18 months from the date of Deed of Sale to
show that he has fully utilized the proceeds of the sale to acquire a new principal residence, he shall be assessed for the
deficiency tax, plus the related surcharge of the late payment and 20% interest per annum. TRUE
10. An individual is qualified to account for the capital gains tax on instalment basis if the initial payment does not exceed 25% of
the selling price. TRUE
Part II. PROBLEMS
1.

On August 1, 2016, Mr. T sold his lot which he acquired at a cost of P300,000 for P800,000 under the following terms: P80,000
upon execution of sale; the balance of P720,000 shall be paid in 24 annual instalments of P30,000 beginning October 1, 2016.
How much is the capital gains tax on 2016? [(170,000/800,000)*(800,000*.06)]= P10,200

2.

On September 1,2016, r. Y sold his lot which he acquired for P1,200,000 eight year ago for P2,500,000. Terms of sale: Down
payment P250,000, September 1,2016; mortgage assumed P800,000; balance of P1,450,000 payable in four annual
instalments beginning January 2,2017. How much is the capital gains on 2016? [(250,000/1,700,000)*(2,500,000*.06)]=
P22,059

3.

Mr. G, a resident of Manila, owns shares of stock of ABS Entertainment, a domestic corporation. He acquired it for P100,000.
After five years he sold his shares for P215,000 directly to the buyers. (a) Compute the capital gains tax due and payable. (b)
Suppose the shares were traded in the local stock exchange, compute the capital gains tax.
a. P6,500
b. P1,075

4.

Mr. B, a resident citizen, sold his residential house an lot located in Quezon City on December 22,2017. The said property is
held as capital asset with the following additional data:
Cost Price, 2012
Depreciated Value
Fair Market Value
Selling Price

P2,000,000
1,700,000
2,800,000
2,500,000

a.

If the house and lot is a principal residence and the proceeds of the sale were utilized to acquire a new principal
residence, the capital gains tax shall be:
NONE

b.

If the house and lot is not a principal residence, the capital gains tax would be: P168,000

c.

If only 80% of the total proceeds were used to acquire a new principal residence within 18 months, the capital gains tax on
the sale of house and lot shall be: P33,600
Based on letter C, the basis of the new principal residence shall be =80%xP2,000,000= 1,600,000

d.
5.

Carols owns a house and lot which she inherited from her father in 1995 when its worth was P500,000. The said house and lot
was family home or principal residence of Carol. Her father purchased the said house and lot in 1985 for P250,000. On
February 14,2007, Carol sold the said house and lot for P2,000,000. She used the proceeds to acquire a new house and lot
worth P2,500,000. The adjusted cost basis of the new principal house is. =[(2,500,000-2,000,000)+500,000]=P1,000,000

6.

WO, singe and supporting his unemployed mother, has the following data for the current year 2018:
Compensation Income, net of 15% CWT
Business Income
Business Expenses
Cash Prize from billiard
Royalty income from musical composition
Raffle Winnings from SM
Winnings from Tok Tok Tok
Gains from sale of shares of stock traded outside the local stock exchange (selling price
P270,000, acquisition cost P140,000)
Gains from sale of shares of stock thru LSE (selling price P210,000, acquisition cost, P160,000)
Compute the following:

135,000
800,000
480,000
100,000
50,000
20,000
35,000
130,000
50,000

Solutions:
Normal Tax
Compensation Income, net of 15% CWT
Business Income
Business Expenses
Cash Prize from billiard
Royalty income from musical composition
Raffle Winnings from SM
Winnings from Tok Tok Tok
Gains from sale of shares of stock traded
outside the local stock exchange (selling price
P270,000, acquisition cost P140,000)
Gains from sale of shares of stock thru LSE
(selling price P210,000, acquisition cost,
P160,000)
Less: Personal Exemption
Taxable Income and Final Taxes Withheld
7.

Passive Income
158,824

800,000
(480,000)

320,000
100,000*20%
50,000*10%
20,000*20%
35,000*20%
[(100,000*.5%)
+(30,000*10%)]
210,000*1/2 of 1%

50,000
P 428,824

P45,050

Mr. MP, a Filipino businessman, married with two qualified children had the following ordinary taxable income, capital gains
and capital loss for the calendar years 2016 and 2017.

Ordinary Taxable Income

Short-term Capital Gain
Short-term Capital Loss
Long-term Capital Loss

2016
20,000
14,000
18,000
40,000

2017
60,000
35,000
4,500
0

Note: There is a contradicting view with regards the limit of the NCLCO to be applied on the next taxable year. As per
rules, NCLCO to be deductible from the net capital gain of the immediately subsequent year should not exceed the
taxable income of the year in which the NCLCO was sustained. Reyes defines taxable income, for this purpose, as
one that is deducted with personal exemption while Valencia says that taxable income should be before the
deductions for personal exemption. However, we will adhere with the treatment of Valencia, that is, taxable income
should be before personal exemption. Hence,
Compute the taxable net income of Mr. MP before personal and additional exemption for the taxable years (a) 2016 and (b)
2017.
a. 20,000*
b. [(60,000)+(35,000-4,500-20,000*)]= 70,500
8.

Atty. BC, a practicing lawyer, married, has the following data regarding his income for the current year 2018:

professional fees cpa (net of 10% cwt)

professional fees lawyer (net of 10% cwt)
winnings from damage suit for moral damages
interest income from bank deposits (net of 20% ft)
lotto winnings
raffle winnings
gains from sales of shares o stock held as capital assets not sold thru the LSE
share in net income of the general professional partnership
short-term capital gain
long-term capital loss
net capital loss carry over
taxable income 2017
salaries and employee benefits
depreciation expense equipment
Supplies
Solutions:

professional fees cpa (net of 10% cwt)

professional fees lawyer (net of 10% cwt)
winnings from damage suit for moral damages
interest income from bank deposits (net of 20% ft)
lotto winnings
raffle winnings
gains from sales of shares o stock held as capital assets not sold thru the LSE
share in net income of the general professional partnership
short-term capital gain
Total
Less: OSD [(328,889+322,222)*40%]
Taxable income before exemption

296,000
290,000
100,000
36,000
10,000
10,000
112,000
160,000
24,000
16,800
14,000
11,000
400,000
20,000
24,000

OSD
328,889
322,222
NON
P 9,000 FT
NON
P2,000 FT
P 6,200 CGT
160,000
24,000
835,111
260,444
P574,667
Itemized

professional fees cpa (net of 10% cwt)

professional fees lawyer (net of 10% cwt)
winnings from damage suit for moral damages
interest income from bank deposits (net of 20% ft)
lotto winnings
raffle winnings
gains from sales of shares o stock held as capital assets not sold thru the LSE
share in net income of the general professional partnership
Total
Les: Allowable Deductions
Salaries and employee benefits
Depreciation expense equipment
Supplies
Note: Supplies may be part of inventory or may be claimed as an
expense
short-term capital gain
long-term capital loss
Net capital gain
NCLCO Note: NCLCO should not exceed the taxable income on 2017,
hence only P11,000 shall be carried over.
Taxable Income before exemption

Deductions
328,889
322,222
NON
P 9,000 FT
NON
P2,000 FT
P 6,200 CGT
160,000
811,111
400,000
20,000
24,000

16,800/2

(444,000)
367,111
24,000
(8,400)
15,600
(11,000)

4,600
P371,111

Compute the following:

a.
b.
c.
d.
e.
f.
9.

Taxable gross income 328,889+322,222+160,000= P 811,111 (Note: I would consider if you also added any amount
of net capital gain)
Total taxable income before personal exemption using the OSD- P574,667
Total taxable income before personal exemption using Itemized Deduction- P371,111
Total passive income- P55,000 (Note that gains from dealings of shares are subject to final tax (CGT) but are not
passive income)
Total final withholding tax on passive income- P35,200/P29,000 ( Note: the question I gave is quite misleading, I
should have omitted the word on passive income to mean final taxes)
Total non-taxable income. P110,000

Vilma, single, with a 25-year old mentally retarded sister who is dependent upon her for chief support has the following data
regarding her income and expenses for the current year 2018:

Gross Sales from Grocery Store

Allowed Business Expenses
Long-term Capital Gain
Long-term capital Loss
Short-term Capital Gain
Short-term Capital Loss
Capital Loss Carry Over
Net Loss, 2017*

550,000
300,000
24,000
18,000
10,000
7,000
4,000
10,000

Compute the taxable income suppose Vilma opted to avail (a) OSD and (b) Itemized deductions.

a. [(550,000*60%)+[(12,000+10,000 capital gains)]=352,000

b. {(550,000-300,000)+ [(12,000+10,000 capital gains)-(9,000+7,000 capital losses)]=256,000-10,000 NOLCO=
P246,000
(Note:
*If the taxpayer sustained a net loss (ordinary) on the previous year, he cannot avail of the NCLCO on the subsequent
year. instead, NOLCO shall apply.
A taxpayer who elects OSD cannot simultaneously claim for NOLCO.
**Capital Loss is not deductible in terms of OSD.)
10. During 2017, PL, single received the following:

Salary, net of P10,000 CWT

Salaries of his personal maid
Gain on sale of stock investment (not traded thru LSE)

123,000
30,000
190,000

Compute the taxable income of PL under (a) OSD and (b) Itemized deductions.
Note: OSD is not available for purely-compensation income earner. Hence for both and b, the answer is P83,000
11. Compute the total amount of allowable business expenses and the taxable income on the following independent assumption:
a.
b.

The taxpayer is an individual with two qualified dependents.

The taxpayer is a corporation.

Interest Expense

28,000

Interest Income (net of 20% FT)

Charitable Contribution (20% to priority projects)
Gross Sales
Cost of Sales
Entertainment and Representation Expenses
Salaries to employees
Utilities Expense
Gains from sales of real property held as capital asset for two years now (selling price
of P2,600,000)

12,000
120,000
5,600,000
2,700,000
200,000
245,000
182,000
420,000