Property Tax

Rental Income Tax in the Philippines (2026): Rates, VAT and Deductions

How rental income is taxed in the Philippines in 2026 — graduated vs 8 percent income tax, 3 percent percentage tax, when 12 percent VAT applies above P3M, the P15,000/month residential VAT exemption, deductible expenses, 5 percent withholding, and worked PHP examples.

Last updated: June 21, 2026 by Aditya Aman
Written and reviewed by the TaxCalculator.com.ph Editorial Team, led by Aditya Aman, Founder

Quick Answer

Philippine rental income is taxed two ways: income tax (graduated 0-35 percent or a flat 8 percent option) plus a business tax. If your annual gross rent is P3,000,000 or below you pay 3 percent percentage tax; above that you charge 12 percent VAT. Residential units renting at P15,000/month or less are fully exempt. Estimate your bill with our <a href="/calculators/income-tax">income tax calculator</a>.

How is rental income taxed in the Philippines?

Rental income in the Philippines is taxed in two separate layers: an income tax on your net or gross earnings, and a business tax (either 3 percent percentage tax or 12 percent VAT) on your gross receipts. Renting out property is treated by the Bureau of Internal Revenue (BIR) as a trade or business, so a landlord must register, issue official receipts, and file returns even if leasing just one unit. The exact combination you pay depends on your annual gross rent and the type of property you lease.

This guide covers individual lessors — the most common situation for Filipino property owners. We use the current 2026 rates under the TRAIN Law (RA 10963), which remain in force this year. For a deeper look at the underlying taxes, see our pages on income tax, percentage tax, and VAT.

What income tax do I pay on rent — graduated or 8 percent?

You choose between two income tax regimes. Under graduated rates, your net rental income (gross rent minus allowable expenses) is taxed on a sliding scale from 0 to 35 percent, with the first P250,000 of annual taxable income taxed at 0 percent. Under the 8 percent option, you skip expense deductions and percentage tax entirely and pay a flat 8 percent on gross receipts above the first P250,000.

The 8 percent flat rate is only available if your annual gross receipts do not exceed the P3,000,000 VAT threshold and you are not VAT-registered. Here are the 2026 graduated brackets that apply if you don't elect 8 percent:

Annual taxable income (PHP)Tax rate
0 – 250,0000 percent
250,000 – 400,00015 percent of excess over 250,000
400,000 – 800,000P22,500 + 20 percent of excess over 400,000
800,000 – 2,000,000P102,500 + 25 percent of excess over 800,000
2,000,000 – 8,000,000P402,500 + 30 percent of excess over 2,000,000
Over 8,000,000P2,202,500 + 35 percent of excess over 8,000,000

Not sure which is cheaper? Our guide on 8 percent vs graduated income tax walks through the trade-off, and the salary tax calculator can sanity-check the graduated brackets.

When does VAT or percentage tax apply to rent?

If your aggregate annual gross rent is P3,000,000 or below, you are a non-VAT taxpayer and pay a 3 percent percentage tax on gross receipts, filed quarterly on BIR Form 2551Q. If your gross rent exceeds P3,000,000, you must register for VAT and charge 12 percent VAT on rent, filed quarterly on BIR Form 2550Q. VAT-registered lessors can claim input VAT on related expenses to reduce what they remit.

Important: if you elect the 8 percent income tax option, the 3 percent percentage tax is already baked in — you do not file 2551Q separately. Estimate either tax with our percentage tax calculator or VAT calculator.

Is residential rent of P15,000 a month or less tax-exempt?

Yes. Under RR 13-2018, the lease of residential units at a monthly rent of P15,000 or less per unit is exempt from both VAT and the 3 percent percentage tax, regardless of how much you earn in total across all units. So a landlord with ten condo units each renting at P14,000/month pays no business tax at all, even though the aggregate is P1.68M a year. Income tax, however, still applies on the net earnings.

If a residential unit rents for more than P15,000/month but your aggregate annual rentals stay at P3,000,000 or below, the rent is VAT-exempt but subject to the 3 percent percentage tax. Cross P3,000,000 in aggregate and 12 percent VAT kicks in. Commercial leases (offices, stalls, warehouses) do not get the P15,000 exemption — they follow the standard P3M threshold.

What expenses can I deduct from rental income?

If you use graduated rates with itemized deductions, you may deduct ordinary and necessary expenses tied to earning the rent. Common deductible items for Philippine landlords include:

Alternatively, you may claim the Optional Standard Deduction (OSD) — a flat 40 percent of gross rent — with no need to keep receipts. The OSD often wins for landlords with low actual expenses. The 8 percent option allows no deductions beyond the P250,000 relief.

What is the 5 percent withholding tax on rent?

When the tenant is a business (a corporation, sole proprietor, or professional), the BIR requires it to withhold 5 percent expanded withholding tax (EWT) from each rental payment and remit it to the BIR, giving you BIR Form 2307 as proof. This is not an extra tax — it is a creditable advance on your income tax. You subtract the withheld amount from your annual income tax due. Individual residential tenants are generally not required to withhold. See our withholding tax page and withholding tax calculator for details.

Lease contracts also attract documentary stamp tax (DST): P6 for the first P2,000 of total rent over the lease term, plus P2 for every additional P1,000. Compute it with our DST calculator.

Worked example: condo rented at P25,000 a month

Maria Santos rents out her Quezon City condo to a business tenant for P25,000/month — P300,000 a year. Because the unit exceeds P15,000/month but her total is under P3M, she owes 3 percent percentage tax and income tax.

Now compare Juan Dela Cruz, who leases commercial stalls earning P3.6M a year. He must register for VAT, charge 12 percent (P432,000 output VAT, offset by input VAT on expenses), and pay graduated income tax on his net profit — landing him in the 25-30 percent brackets.

Common mistakes landlords make (and how to avoid them)

This is the information most generic guides skip. Avoid these costly errors:

Optimization: graduated-plus-OSD vs the 8 percent flat rate

For most small residential landlords with low cash expenses, graduated rates with the 40 percent OSD usually beat the 8 percent flat rate, because the OSD plus the P250,000 zero-bracket often wipes out income tax entirely on modest portfolios — as Maria's example shows. The 8 percent option shines when your gross is higher and you want a single, predictable rate that also covers percentage tax. Run both scenarios before choosing your regime on Form 1901, and remember the choice is generally locked for the taxable year. If you also freelance or run a shop, see our self-employed and small business guides, and if you plan to sell the property later, review the real estate sellers tax guide and capital gains tax calculator.

Sources and References

The rates, thresholds, and rules on this page are drawn from official Philippine government issuances and reputable tax references. Tax rules change; always confirm current figures with the relevant agency before acting.

Frequently Asked Questions

Yes. The BIR treats leasing as a business, so even a single rented unit requires you to register, issue receipts, and file income tax. You may still owe zero income tax if the OSD and the P250,000 zero-bracket cover your net income, but you must file the return. Residential units at P15,000/month or less are exempt from VAT and percentage tax, but not income tax.

Only if your aggregate annual gross rent exceeds P3,000,000, in which case you must register for VAT and charge 12 percent. Below that threshold you pay 3 percent percentage tax instead. Residential units leased at P15,000/month or less per unit are exempt from both VAT and percentage tax regardless of total earnings.

Under RR 13-2018, leasing residential units at a monthly rent of P15,000 or less per unit is exempt from both 12 percent VAT and 3 percent percentage tax, no matter how high your total annual rentals are. Income tax still applies on your net rental earnings. Commercial leases do not get this exemption.

When a business or professional rents your property, it must withhold 5 percent expanded withholding tax from each payment and remit it to the BIR, issuing you Form 2307. This is a creditable advance on your income tax, not an additional tax — you subtract it from your annual income tax due. Individual residential tenants generally do not withhold.

Under graduated rates you may deduct actual expenses such as real property tax, repairs, depreciation of the building, loan interest, and management fees — or take the flat 40 percent Optional Standard Deduction with no receipts needed. The 8 percent flat-rate option allows no deductions beyond the first P250,000 relief.

For small residential landlords with low cash expenses, graduated rates with the 40 percent OSD often produce zero or minimal income tax because of the P250,000 zero-bracket. The 8 percent flat rate, which also covers percentage tax, suits higher earners wanting one predictable rate. Compare both before electing on Form 1901, as the choice is generally fixed for the year.

Non-VAT lessors with aggregate annual gross rent of P3,000,000 or below pay 3 percent percentage tax on gross receipts, filed quarterly on BIR Form 2551Q. If you elect the 8 percent income tax option, the percentage tax is already included and you do not file 2551Q separately.

Yes. Documentary stamp tax on a lease is P6 for the first P2,000 of total rent over the contract term, plus P2 for every additional P1,000 or fraction. It is computed on the aggregate rent across the full lease period and is the lessor's or lessee's responsibility depending on the contract.

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