Redemption and Tax Rules on Foreclosed Assets

Capital gains tax (CGT) becomes due within 30 days after the redemption period expires if the property is a capital asset of the mortgagor.
If the foreclosed property is an ordinary asset, the creditable expanded withholding tax (CEWT) is due within 10 days after the end of the month when the redemption period expires.
Value-added tax (VAT) applies if circumstances warrant under Section 106 of the Tax Code and must be paid by the mortgagor VAT-registered entity on or before the 20th or 25th day of the month following the redemption period expiration.
Documentary Stamp Tax (DST) payments and filings must be made within 5 days after the month the redemption period ends.
Taxes are computed based on the highest bid price at auction.

Classification as capital or ordinary asset depends on the mortgagor’s holding.
Banks, quasi-banks, and trust companies acting as mortgagees are statutory sellers responsible for paying CGT, CEWT, and DST after the redemption period lapses, even if no further sale occurs.

General venue for tax payment and filing is the location of the foreclosed real property, except:
- VAT must be paid and filed at the Revenue District Office (RDO) where the mortgagor is registered.
- For Large Taxpayers classified mortgagee banks/quasi-banks/trust companies, payments of CGT, CEWT, and DST are made at the Large Taxpayers Service office.

Upon proof that statutory sellers have paid their required taxes, the CAR must be issued without waiting for mortgagor’s VAT compliance when VAT is applicable.
The BIR office with jurisdiction over the statutory seller must notify the mortgagor’s RDO to collect VAT related to the transaction.

The law also ensures the purchaser’s right to immediate possession upon sale confirmation.
Petitions to stop foreclosure actions require bond posting to secure potential damages to banks.
Statutory banks are required to pay their taxes promptly according to the set deadlines without waiting for additional buyers.
The Circular enjoins BIR officers and other concerned parties to widely disseminate these rules for compliance and proper implementation.