CHOOSING THE RIGHT RE LAWYER

If you ask most lawyers whether they’re knowledgeable in real estate transactions, they’ll likely say yes.

But in practice, not all lawyers operate at the same depth.

Real estate is one of the most regulation-heavy areas of law in the Philippines. Tax rules evolve. BIR issuances change. Court rulings reinterpret old principles. What worked five years ago may already be outdated.

That’s why I prefer lawyers who specialize in real estate — not those who just “handle” it occasionally.

Here are three questions I like to ask to gauge real estate tax sophistication:

1. A family corporation (e.g., Dela Cruz Realty Corporation) owns the ancestral house. The property has been idle for ten years. If the corporation sells it, is the sale subject to VAT?

The word “Realty” in the corporate name is a giveaway. It indicates that the corporation’s primary purpose, as stated in its Articles of Incorporation, is engaged in real estate activities. If that’s the case, the sale is typically considered made in the ordinary course of trade or business and therefore be subject to VAT.

The key issue is the nature of the seller — not whether the property was tenanted.

2. If I incorporate a company to consolidate family assets, do I automatically pay 6% Capital Gains Tax when transferring the properties into the corporation?

Answer: No. You may structure it as a "tax-free exchange for shares", provided the transferors gain control (at least 51%) of the corporation after the exchange.

3. If I create a holding company to own non-commercial assets (e.g., the family home), how should the property be reflected in the balance sheet?

If held for appreciation or long-term holding, it should fall under Investment Property under accounting standards.

If a lawyer gets these wrong, it doesn’t mean they’re incompetent. It just means real estate taxation may not be their specialization.