How to Donate a Real Estate Property?
While an intention to give freely and without expecting anything in return is commendable, our laws require more than a genuine intention to give. Donations, for this matter, must still comply with the formal, substantive, and procedural requirements under the Civil Code. Otherwise, the donation will be void and ownership over the property will not transfer.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.
A. What are the requirements for a valid donation?
1. The donor must have the capacity to make the donation and must be the lawful owner of the property donated;
2. The donor must have donative intent;
3. There must be delivery of the thing donated; and
4. The donee must accept the donation during the lifetime of the donor and the donee.
B. What may be donated?
A thing or a right may be donated. It may be a personal or real property. However, donations cannot embrace future properties or those that are not owned by the donor at the time the donation was made.
C. What are the formalities required in a donation?
1. If it is a donation of personal property
If the donation involves personal property and its value does not exceed PhP5,000.00, the donation may be made orally or in writing and accompanied by the simultaneous delivery of the thing donated. However, if the value of the personal property donated exceeds PhP5,000.00, the donation and its acceptance must be made in writing.
2. If it is a donation of real property
If it is a donation of real property, such as land, the donation and its acceptance must be made in a public instrument or notarized, specifying therein the property donated and the value of the charges which the donee must satisfy. The deed of donation, once acknowledged before a commissioned notary public, qualifies it as a public instrument.
The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.
D. What should be included in the Deed of Donation?
A straightforward deed of donation shall contain the following:
1. Name of the donor and the donee;
2. Categorical declaration of ownership of the donor over the property;
3. Categorical declaration that the donor donates the property;
4. Express manifestation of acceptance by the donee of the donated property;
5. Specific or technical description of the property;
6. Date of execution;
7. Conditions of the donation, if any;
8. The burdens assumed by the donee, if any; and
9. Signature of the parties.
E. What are the requirements to transfer the property from the donor to the donee?
1. Pay the donor’s tax before the Bureau of Internal Revenue (BIR)
Under the Tax Reform Acceleration and Inclusion Act (TRAIN Law) the donor’s tax for each calendar year shall be six percent (6%) based on the total gifts in excess of PhP250,000.00 exempt gift made during the calendar year.
Who shall file the donor’s tax? The Donor’s Tax Return (DTR) shall be filed by the person who transfers or causes the transfer of the property gratuitously.
When and where to pay the donor’s tax? The DTR shall be filed within thirty (30) days after the donation was made. The return shall be filed with any Authorized Agent Bank (AAB)of the Revenue District Office (RDO) having jurisdiction over the place of residence of the donor at the time of the donation.
What does the BIR require in the payment of the donor’s tax? In the payment of the donor’s tax, the BIR requires the following:
b. Tax Identification Number of donor and donee;
c. Proof of claimed tax credit, if applicable;
d. Duly Notarized Special Power of Attorney for the transacting party if the latter is not one of the parties to the deed of donation;
e. Official receipt/deposit slip and duly validated return as proof of payment;
f. Certified true copy of the Original/Transfer/ Condominium Certificate of Title of the donated property; and
g. Certified true copy of the tax declaration of the donated property issued by the Local Assessor’s Office.
2. Pay the documentary stamp tax (DST) before the BIR.
DST is a tax on documents, instruments, loan agreements and papers proving the acceptance, assignment, sale or transfer of an obligation, right or property. In other words, DST is the tax is due on the deed of donation. The DST is 1.5% of the current fair market value of the donated property. Who shall file the DST? The DST may be filed and paid by either the donor or the donee.
When and where to file the DST? The DST shall be filed before BIR RDO where the property is located and shall be filed within five (5) days after the close of the month when the deed of donation was executed.
Once the donor’s tax is paid and the required documents are submitted, the BIR will issue a Certificate Authorizing Registration (CAR). The CAR is a form of tax clearance which is required in transferring the title of the property from the donor to the donee.
What does the BIR require in the payment of the DST?
a. Photocopy of the document to which the documentary stamp shall be affixed; and
b. Proof of exemption under special laws, if applicable;
3. Pay the Transfer Taxes to the Treasurer’s Office of the concerned Local Government Unit (LGU).
The Local Government Code of 1991 also imposes tax on the transfer of ownership or title to a real property. This is in the nature of a transfer tax. Transfer tax is the tax imposed on the sale, barter, or any other method of transferring the ownership of a real property to another, such as donation. It is imposed at the maximum rate of 50% of 1% of a property’s worth (in the case of cities and municipalities within Metro Manila, this is 75% of 1%), depending on the specific LGU.
Who shall pay the transfer tax? The payment of transfer tax is the responsibility of the donor.
When and where to pay the transfer tax? Transfer taxes shall be paid to the LGU that has jurisdiction over the location of the property donated and shall be paid within sixty (60) days from the date of execution of the deed of donation. Particularly, the transfer tax shall be paid to the Treasurer’s Office of the City or Municipality where the property is located.
What does the LGU require in the payment of transfer tax? The following are the requirements for the payment of the transfer tax:
a. CAR from the BIR;
b. Real property tax clearance from the Treasurer’s Office; and
c. Official Receipt from the BIR for the DST.
Once paid, the LGU concerned will issue a clearance or proof of payment of transfer taxes. This clearance from the LGU is a mandatory requirement before the deed of donation may be registered with the Register of Deeds (RD). This is also required for the cancellation of the old tax declaration.
4. Pay the Registration Fees before the RD.
If the foregoing taxes are already paid and their corresponding clearance/proof of payment have been issued, the donee may now register the deed of donation before the RD for the issuance of a new Transfer Certificate of Title (TCT) in his name. The CAR, tax clearances, and documents proving tax payments should be submitted to the RD to proceed with the registration.
Registration fees shall also be paid to the RD. Please note that it is important to verify the contents of the new title once it is issued, including the name, area, and the technical description of the property. If found incorrect, report the erroneous details immediately to the RD.
5. Request for the cancellation of the old tax declaration.
After the issuance of the new TCT in the name of the donee, the final step is to present the following documents to the Local Assessor’s Office of the concerned LGU:
a. New TCT;
c. Certified true copy of the Old TCT; and
d. Certified true copy of the tax declaration of the donor/previous owner.
Upon verification of the LGU of the authenticity of such documents, the LGU will cancel the former tax declarations in the name of the previous owner or the donor. The donee, as the new owner, shall pay the assessment fees for the issuance of the new tax declaration in his name.
F. Persons Proihibited from Donating to Each Other
The following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the time of the donation;
2. Those made between persons found guilty of the same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descedants and ascendants, by reason of his office.
Obviously, a good and genuine intention to give will not suffice. In order to successfully transfer ownership through donations, it is best that the parties to a donation are assisted by a real estate lawyer.
*Arceo Balmoja and Irausta Law Firm is a property and estate law office in Bulacan that serves clients anywhere in the Philippines. Its estate and tax lawyers have an extensive experience in facilitating donation of lands and real estate properties. Our property and CPA lawyers have successfully advised and represented clients in donation matters. Should you wish to learn more about donation of real estate properties, you may contact us at email@example.com to get in touch with any of our real estate and tax attorneys.