Rental income tax calculator

How it works

Income tax on rent is a national tax, administered by the Bureau of Internal Revenue. It is recurring: you owe it for every year you collect rent, in four instalments through the year and a final return the following April NIRC Sec. 74 NIRC Sec. 51(C)(1). It is separate from the amilyar on the property itself, which the city or municipality collects.

The law treats an individual who leases out property as self-employed. That puts rent under the same rules as any other small business: the graduated table in Sec. 24(A)(2)(a), or the 8% option in Sec. 24(A)(2)(b) for those whose gross is within the ₱3,000,000 VAT threshold TRAIN Law Sec. 5.

Who pays: the owner who receives the rent. Spouses compute their income tax separately; rent that cannot be attributed to either is divided equally between them NIRC Sec. 24(A). A corporation that owns and leases property pays corporate income tax instead, at 25%, or 20% for small corporations CREATE Act Sec. 6; this calculator does not work that.

The three ways to compute it

Option A lets you deduct the ordinary and necessary expenses of the rental, paid or incurred in the year NIRC Sec. 34(A). You need receipts and books of account for every peso.

Option B replaces all of that with a flat 40% of gross receipts, no receipts needed for the deduction NIRC Sec. 34(L). You must signify it in your return, and the choice holds for the whole year. When the Ease of Paying Taxes Act repealed the old Sec. 34(K), this paragraph became Sec. 34(K) EOPT Act Sec. 5; the rule did not change.

Option C taxes 8% of gross rent and other non-operating income above ₱250,000, “in lieu of the graduated income tax rates … and the percentage tax under Section 116” NIRC Sec. 24(A). No expenses are deducted, and no percentage tax is added.

Under A and B, the percentage tax is 3% of the rent bearing it, paid quarterly NIRC Sec. 116. It was 1% from 1 July 2020 to 30 June 2023 CREATE Act Sec. 13. Rent from a residential unit at ₱15,000 a month or less bears none (see below).

Worked examples

Each example below is run through the same calculator at the top of this page. The figures are its output, not typed in by hand.

The income tax tables

TRAIN set two schedules: one for 2018 to 2022, and a lower one from 2023 TRAIN Law Sec. 5. The calculator uses the one for the year you enter, so an estimate for a past year is worked with that year’s law.

A note on the 32% band: some online copies of the TRAIN Law print its upper limit as ₱5,000,000. The Official Gazette copy and the BIR’s implementing regulations both print ₱8,000,000, and only ₱8,000,000 makes the next row’s ₱2,410,000 add up. The calculator uses ₱8,000,000.

The 8% option: who can choose it, and when

• Only an individual who is not VAT-registered, and whose gross rent and other business income for the year is ₱3,000,000 or less NIRC Sec. 24(A).
• You choose it on your first quarterly return of the year. If you do not, the graduated rates apply for the whole year, and the choice cannot be changed afterwards (BIR Revenue Regulations No. 8-2018, Sec. 3(C)).
• If your gross goes over ₱3,000,000 during the year, you move to the graduated rates and the 8% already paid is credited (RR 8-2018).
• With a salary as well, there is no ₱250,000 allowance: the 8% is on all the rent, because the salary already uses the 0% band NIRC Sec. 24(A).

The 8% option usually wins when expenses are low and the rent is modest, because it also removes the 3% percentage tax. Itemized expenses can win when a property carries heavy costs, such as major repairs. The calculator works all three on your figures so you can see where your line falls.

If you also earn a salary

Your salary is taxed at the graduated rates whichever option you take for the rent NIRC Sec. 24(A). Your employer withholds that tax, so the question for a landlord is what the rent adds on top. The calculator works the tax on salary plus net rent, takes away the tax on the salary alone, and shows the difference as the rent’s share. Under the 8% option, the rent’s share is simply 8% of the gross rent.

Exemptions and special cases

No income tax exemption applies to rent as such. What some rent escapes is the business tax: a residential unit leased at ₱15,000 a month or less is exempt from VAT NIRC Sec. 109(1)(Q), and because the 3% percentage tax reaches only receipts exempt under Sec. 109(CC) NIRC Sec. 116, it bears no percentage tax either. That rent is still income and is still counted in your gross for the income tax.

If your other rent is over ₱3,000,000 in a year, or you are VAT-registered, the rent bears 12% VAT instead of percentage tax NIRC Sec. 108(A), and the 8% option is closed. VAT is a separate tax; the VAT and percentage tax calculator works it.

Some summaries of the TRAIN Law mention an exemption from percentage tax for gross sales up to ₱500,000. That provision was vetoed when the law was signed, and the current Sec. 116 exempts only cooperatives EOPT Act Sec. 24. The calculator does not apply it.

Filing and paying

Returns are filed and paid with an authorized agent bank, the Revenue District Office’s collection officer, or an authorized tax software provider, electronically or manually EOPT Act Sec. 29. Register the rental with your Revenue District Office before you start collecting rent EOPT Act Sec. 34.

If a tenant withheld tax from your rent, it gives you a Certificate of Creditable Tax Withheld at Source, BIR Form 2307. That amount is credited against your income tax; enter the total in the calculator and it shows what is left to pay. Late filing or payment adds surcharges and interest, which this calculator does not compute.

Your city or municipality may also require a business permit for a rental business and charge local fees under its own revenue code. Those are not included here.

Common mistakes

• Missing the first quarterly return and losing the 8% option for the year.
• Subtracting expenses under the 8% option. The 8% is on gross; nothing is deducted but the ₱250,000.
• Taking the ₱250,000 allowance while also earning a salary.
• Paying percentage tax while on the 8% option. The 8% replaces it.
• Paying percentage tax on residential units at ₱15,000 a month or less.
• Counting refundable security deposits as rent, or leaving out advance rent received in the year.
• Using the 2018–2022 table for 2023 or later, or the reverse.
• Claiming Form 2307 credits without attaching the certificates.