Death, Real Estate, and Estate Tax

The topic of death is usually taboo on ordinary days except the start of November when we
remember our dead on All Saints and All Souls Day, or when we are jolted by the death of a close friend
or relative. We must accept, though, that we will all die it is just a matter of time. With death, estate
taxes must be settled, and we will discuss this here. In times of death, we still need to pay our taxes
When someone passes away, loved ones left behind are usually overwhelmed with emotions and
are unable to do anything. I know this from experience. But, there are certain things that need to be done,
and someones got to do them. Someone has to arrange for the embalming, the wake, the casket, the
interment or cremation, the burial plot (incidentally, there are a lot of foreclosed memorial lots) and the
gravestone, among others.
And of course, someone has to take care of the estate tax.
Note: For the rest of this article, we will use the terms decedent or deceased person to refer to the
person who died.
What is Estate Tax?
Estate tax is imposed on the transfer of the net estate, which is the difference between the gross
estate (as defined under Section 85 of the Tax Code) and allowable deductions (under Section 86) of the
decedent. Estate tax rates are graduated and depend on the net estate amount.
Net Estate = Gross Estate Deductions
Real property may not be transferred from the decedent to his or her heirs without the filing of the
estate tax return and payment of the estate tax. Non-payment of estate tax is common and this brings
about many problems when the properties need to be transferred to the names of buyers.
What to do when someone has died
Estate tax-wise, these are the things that need to be done:
1. File a Notice of Death with the Bureau of Internal Revenue within two months after the date of
death. This is applicable when the gross value of the estate exceeds P20,000.00. This should be
filed by the executor or administrator of the estate, or any of the legal heirs. It shall be filed with
the RDO where the decedent was domiciled at the time of his death. There is no specific format.
2. Get a Tax Identification Number (TIN) for the Estate of the deceased person by using BIR Form
No. 1901. Use this TIN when filing the Estate Tax Return (BIR Form No. 1801).
3. Prepare the list of assets and liabilities of the decedent. Get the fair market values of the
properties at the time of death.
4. Prepare the supporting documents for the assets and liabilities, as well as the deductions you are
going to take. You will need these for the estate tax computation and as attachments to the Estate
Tax Return.
a. Certified true copy of the Death Certificate

5.
6.
7.
8.

b. Notice of Death duly received by the BIR, if gross estate exceeds P20,000 for
deaths occurring on or after Jan. 1, 1998; or if the gross estate exceeds P3,000 for
deaths occurring prior to January 1, 1998
c. Any of the following:
Deed of Extra-Judicial Settlement of the Estate, if the estate is
settled extra judicially (sample forms may be found here and here).
Court Orders/Decision, if the estate is settled judicially;
Affidavit of Self-Adjudication (sample here) and Sworn Declaration
of all properties of the Estate
A certified true copy of the schedule of partition of the estate and
the order of the court approving the same, if applicable.
d. Certified true copy(ies) of the Transfer/Original/Condominium Certificate of
Title(s) of real property(ies) (front and back pages), if applicable
e. Certified true copy of the latest Tax Declaration of real properties at the time of
death, if applicable
f. Certificate of No Improvement issued by the Assessors Office declared
properties have no declared improvement or Sworn Declaration/Affidavit of No
Improvement by at least one (1) of the transferees
g. Certificate of Deposit/Investment/Indebtedness owned by the decedent and the
surviving spouse, if applicable
h. Photocopy of Certificate of Registration of vehicles and other proofs showing the
correct value of the same, if applicable
i. Photo copy of certificate of stocks, if applicable
j. Proof of valuation of shares of stocks at the time of death, if applicable
k. For listed stocks newspaper clippings or certification from the Stock Exchange
l. For unlisted stocks latest audited Financial Statement of issuing corporation with
computation of book value per share
m. Proof of valuation of other types of personal property, if applicable
n. Proof of claimed tax credit, if applicable
o. CPA Statement on the itemized assets of the decedent, itemized deductions from
gross estate and the amount due if the gross value of the estate exceeds two million
pesos, if applicable
p. Certification of Barangay Captain for claimed Family Home
q. Duly notarized Promissory Note for Claims against the Estate arising from
Contract of Loan
r. Accounting of the proceeds of loan contracted within three (3) years prior to death
of the decedent
s. Proof of the claimed Property Previously Taxed
t. Proof of claimed Transfer for Public Use
u. Copy of Tax Debit Memo used as payment, if applicable
Compute the net estate and estate tax.
File the Estate Tax Return and pay the estate taxes.
Follow the procedure for transferring real properties to the name of the heirs (this will be
discussed in a separate post).
Follow the procedure for cancellation of the TIN of the decedent as discussed in Section 12 of
Revenue Regulations No. 7-2012. Use BIR Form No. 1905 for the cancellation of TIN.

Gross Estate

Gross estate is the value at the time of death of all property, real or personal, tangible or intangible,
wherever situated. In the case of a nonresident decedent who at the time of his death was not a citizen of
the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be
included in his taxable estate.
The value of the properties shall be based on their fair market value (FMV) as of the time of death.
If the property is a real property, the FMV shall be the higher between the BIR zonal valuation and FMV
per tax declaration (I paraphrased this).
Please also note that also included in the computation of the gross estate are interest or share in a property,
transfers in contemplation of death, and revocable transfers.
The proceeds of life insurance are included in the gross estate unless the beneficiary is designated as
irrevocable).
Deductions from gross estate
1. Expenses, Losses, Indebtedness, and Taxes (ELIT)
a. Funeral expenses Lowest among:
Actual funeral expenses;
5% of the gross estate; and
P200,000.00.
b. Judicial expenses of the testamentary and intestate proceedings
c. Claims against the estate
At the time the indebtedness was incurred, the instrument was duly notarized;
and
If the loan was contracted within three (3) years before the death of the decedent,
the administrator or executor shall submit a statement showing the disposition of
the proceeds of the loan
d. Claims of the deceased against insolvent persons
e. Unpaid mortgages, etc.
2. Property Previously Taxed (Vanishing deduction)
3. Transfers for Public Use
The amount of all bequests, legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines, or any political subdivision
thereof, for exclusively public purposes.
4. Family Home
Fair Market Value of the Family Home or P1 million, whichever is lower.
As a condition for the exemption or deduction, said family home must have been
the decedents family home as certified by the barangay captain of the locality.
5. Standard Deduction P1 million (no substantiation needed)
6. Medical Expenses
Medical expenses incurred by the decedent within one (1) year prior to his death
which shall be duly substantiated with receipts
Maximum: P500,000.00
7. Amount received by heirs under RA 4917 (retirement benefits of employees of private firms)
8. Share in the Conjugal Property

The net share of the surviving spouse in the conjugal partnership property as diminished by the
obligations properly chargeable to such property
What are the Estate Tax rates?
The estate tax rates depend on the date of death. For those who died on January 1, 1998 and onwards, the
following are the estate tax rates based on the net estate:

If the decedent died between July 28, 1992 to December 31, 1997, the following are the applicable estate
tax rates based on the net estate amount:

When is an Estate Tax return required to be filed?

When the gross value of the estate exceeds P200,000 (though exempt from tax); or
Regardless of the gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of stock, or other similar property
for which a clearance from the BIR is required as a condition precedent for the transfer or
ownership thereof in the name of the transferee

When to file and pay

Within six (6) months from the decedents death;

Unless an extension of time is requested in cases where the payment of the tax will result in
undue hardship on the heirs
o Not to exceed 5 years in case the estate is settled through the courts;
o Not to exceed 2 years in case the estate is settled extrajudicially.

Penalties for late payment

The penalties shall include 25% surcharge and 20% interest per year (Under Secs. 248 and 249,
respectively). If fraud is involved, the surcharge shall be 50%. You may also pay compromise penalties in
lieu of imprisonment, which can be viewed at the BIRs website through the following link: Schedule of
compromise penalties.
BIR Form to be used - BIR Form No. 1801 (Estate Tax Return)
Where to file

The Authorized Agent Bank (AAB), Revenue District Officer (RDO) or duly authorized
Treasurer of the city or municipality where the decedent was domiciled at the time of his death; or
If there be no legal residence in the Philippines, with the Office of the Commissioner.

How to Get A BIR Certificate Authorizing Registration (CAR)

The Registry of Deeds will not allow you to transfer the title of real properties of a deceased person if
there is no BIR CAR. Please make sure that you have the documents as enumerated in the Checklist of
Documentary Requirements (CDR) for Estate Tax, which can be found in Annex A-6 and A-6.1 of
Revenue Memorandum Order (RMO) No. 15-03 (see pages 7 to 9).
To help you determine the computation for the estate tax due, you may refer to the ONETT (One-Time
Transaction) Computation Sheet, in Annex B-3 (pages 16 and 17) also of RMO No. 15-03. Please also
check the sample computations in BIR RR No. 2-2003 and BIR Form No. 1801.
Further reading
1.
2.
3.
4.

Overview on Estate Tax

Sections 84 to 97 of the 1997 Philippine Tax Code
Revenue Regulations 2-03 (Estate Tax and Donors Tax Regulations)
Estate Tax Return (BIR Form No. 1801, front and back pages)

Estate tax in the Philippines: Rates, exclusions and deductions

Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and
beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to
testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting
property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.
The current estate tax rates in the Philippines range from 5% to 20% of the net estate. This is more
specifically outlined in the table below:

THE ESTATE TAX

OF EXCESS

SHALL BE

PLUS

Exempt

Below
P200,000

OVER

5%

P200,000

P15,000

8%

500,000

135,000

11%

2,000,000

465,000

15%

5,000,000

1,215,000

20%

10,000,000

1. What are included in gross estate?

For resident alien decedents/citizens:

a) Real or immovable property, wherever located

b) Tangible personal property, wherever located
c) Intangible personal property, wherever located

For non-resident decedent/non-citizens:

a) Real or immovable property located in the Philippines

b) Tangible personal property located in the Philippines
c) Intangible personal property - with a situs in the Philippines such as:
- Franchise which must be exercised in the Philippines
- Shares, obligations or bonds issued by corporations organized or constituted in the Philippines
- Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is located in
the Philippines

- Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines ( i.e., they are used in the furtherance of its business in the
Philippines)
- Shares, rights in any partnership, business or industry established in the Philippines

2. What are excluded from gross estate?

GSIS proceeds/ benefits

Accruals from SSS

Proceeds of life insurance where the beneficiary is irrevocably appointed

Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life)

War damage payments

Transfer by way of bona fide sales

Transfer of property to the National Government or to any of its political subdivisions

Separate property of the surviving spouse

Merger of usufruct in the owner of the naked title

Properties held in trust by the decedent

Acquisition and/or transfer expressly declared as not taxable

3. What will be used as basis in the valuation of property?

The properties subject to Estate Tax shall be appraised based on its fair market value at the time of
the decedent's death.

The appraised value of the real estate shall be whichever is higher of the fair market value, as
determined by the Commissioner (zonal value) or the fair market value, as shown in the schedule of
values fixed by the Provincial or City Assessor.

If there is no zonal value, the taxable base is the fair market value that appears in the latest tax
declaration.

If there is an improvement, the value of improvement is the construction cost per building permit or
the fair market value per latest tax declaration.

4. What are the allowable deductions for Estate Tax purposes?

For Resident Decedent

Expenses, losses, indebtedness and taxes

a) Funeral Expenses
i) CA 466 - 5 % of gross estate (up to Dec. 31, 1972)
ii) PD 69 - 5 % of gross estate but not exceeding P 50,000 (Jan. 1, 1973 to July 27, 1992)
iii) RA 7499 - 5 % of gross estate but not exceeding P 100,000 (July 28, 1992 to December 3l, 1997)
iv) RA 8424 - 5% of gross estate but not exceeding P 200,000 (Jan. 1,1998)
b) Judicial expenses of the testamentary/intestate proceedings
c) Valid claims against the estate
d) Claims against insolvent person
e) Unpaid mortgages/indebtedness
f) Unpaid taxes
g) Casualty losses
h) Property previously taxed or vanishing deductions
Requisites:

Present decedent must have died within five (5) years from date of death of prior decedent or date
of gift

The property with respect to which the deduction is claimed must have formed part of the gross
estate situated in the Philippines of the prior decedent or taxable gift of the donor

The property must be identified as the same property received from prior decedent or donor or the
one received in exchange therefore

The estate taxes on the transmission of the prior estate or the donors tax on the gift must have been
finally determined and paid

No vanishing deduction on the property or the property given in exchange therefore was allowed to
the prior estate
i) Transfer for public purpose
j) Share of surviving spouse

k) Medical expenses - those incurred by the decedent within one (1) year prior to his/her death which
shall be substantiated with receipts
l) Family Home - fair market value but not to exceed P1,000,000.00
m) Standard Deduction - an amount equivalent to P1,000,000.00 (applicable only for death occurring
after the effectivity of RA 8424 which is January 1, 1998.)
n) Amount received by the heirs under Republic Act No. 4917 (applicable only for death occurring after
the effectivity of RA 8424 which is January 1, 1998)
For Non-Resident Decedent, not a citizen of the Philippines

Expenses, losses, indebtedness, taxes

Property previously taxed

Transfer for public use

Share in the conjugal property

Donation As An Estate Planning Tool (A Discussion on Donors Tax)

The donation of properties can be used as a tool for estate planning. One just needs to be aware
that donations are subject to donors tax. Read this to find out how much donors tax you need to pay
when donating a property as part of estate planning.
Real property, just like any other material possession, may not be brought to the afterlife. You
need to transfer property sooner or later. Usually, however, the transfer of property prior to death is a
taboo subject so many end up dealing with property transfer problems only after a person has died. It is
always good to be prepared since we will all surely die there is simply no escaping it, so might as well
prepare for the inevitable.
Why donate your properties prior to death?
Donation may be considered as an estate planning tool because you are able to transfer your
properties prior to death little by little every year and therefore you can take advantage of the graduated
donors tax rates. If you have a lot of properties at the time of death, the estate tax* would be higher
because the total amount of the properties will probably fall under a higher tax range
*If you want to learn more about estate tax (the tax that needs to be paid after death) read this:
Death, Real Estate, and Estate Tax
On another note, it is usually the case that the family spends a lot for medical care prior to death,
and because of this, the familys cash reserves are depleted. If the family is not liquid and they need to
pay the estate tax within six months from the time of death, many times the family is forced to sell their
properties below market value because they are under time pressure. It is during these pressure points that
many investors are able to buy good properties at a good price. I dont want to view it as taking advantage
of the misfortune of others rather, I want to think of it as the investors helping the family solve their
cash problem. If no one bought the property, the family would be in a worse situation.
Another problem that may arise upon death is that the children or heirs will be fighting each other
for their rightful share of the deceaseds property. I dont think any parent would want their loved ones
to be fighting over money or property. If the properties are already distributed as agreed upon by all
parties prior to death, then this problem may be alleviated.
Lastly, I believe that a person who already thought in advance of the transfer of properties prior to
death, and actually had no more significant properties to transfer upon death, would be at peace upon
death because he/she did not leave problems to his/her family. Dealing with grief is hard enough, it would
be difficult to deal with the nitty-gritty taxes and what-not during a most stressful time.
Of course, there are downsides to donation too Who shall control the properties? Who gets the
fruits/rental income? etc etc These may be answered by trusts and other legal documents. But for
now, lets deal with straightforward donation.
What is Donors Tax?
Donors tax is imposed on tax on the transfer by any person, resident or non-resident, of a
property by gift. For an overview on donors tax, please check the BIR website. The legal basis for

donors tax may be found in Sec. 98 to Sec. 104 of the National Internal Revenue Code (NIRC) (aka the
Tax Code). Check also the Donors and Estate Tax Regulations (BIR Revenue Regulations No. 2-2003)
and Revenue Memorandum Order (RMO) No. 1-98.
What is the tax base?
The donors tax base shall be the total value of the net gifts during the taxable year. The value of
the net gifts shall be based on the fair market value (FMV) of the gifts at the time of donation. In case of
real property, the tax base shall be the BIR Zonal Value or FMV per Tax Declaration, whichever is higher.
If there is no Zonal Value, the tax base shall be the FMV based on the latest tax declaration. If there is an
improvement (like a house or a building), the FMV of the improvement shall be the construction cost
based on the building permit and/or occupancy permit plus 10% per year after the year of construction, or
the FMV based on the latest tax declaration.
The term net gift, for purposes of donors tax, pertains to the net economic benefit which the
done gets from the transfer. Thus, if a property encumbered with a mortgage is transferred as a gift, but
the donee is required to pay the mortgage, then the net gift is computed by deducting the amount of
mortgage assumed by the donee from the fair market value of the property given as a gift.
If you donate on different dates within a year, a donors tax return shall be filed for each date of
donation, and the donors tax base shall be based on the accumulated donations for the current calendar
year (January 1 to December 31). Thus, the more gifts you make within a calendar year, the higher the
probability that the donors tax will fall on a higher tax bracket. Note though, that donors tax previously
paid on previous donations shall be deducted from the donors tax payable. The good news here is that
you will get a fresh start for each year, and effectively, you can donate P100,000 in cash or in kind at zero
donors tax.
You may even donate cash which the donee can use to purchase property, so the property can be
in the name of the donee. For example, a parent can donate cash for installment payments of property so
that the property may be declared in their childs name, since the child cannot purchase directly without a
source of income.
Please note that in case of donation to relatives (not strangers), only one return shall be filed for
several gifts/donations by the donor (the one giving the donation) to the different donees (those receiving
the donation) on the same date. If the gift/donation involves conjugal or community property, each spouse
shall file a separate return for their respective shares in the said property.
Deemed Gift
If you purchased a property below its fair market value (FMV), the difference between the FMV
and the selling price shall be deemed a gift of the seller, subject to donors tax. This is also called a
transfer for less than adequate consideration.

Exemptions from Donors Tax

1. Dowries or gifts made on account of marriage and before its celebration or within one year thereafter
by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first
Ten thousand pesos (P10,000);
2. Gifts made to or for the use of the National Government or any entity created by any of its agencies
which is not conducted for profit, or to any political subdivision of the said Government; and
3. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited non-government organization, trust or philanthropic organization or research
institution or organization, provided, however, That not more than thirty percent (30%) of said gifts
shall be used by such donee for administration purposes.
Based on the BIR website, the following are likewise exempt from donors tax:
1. Encumbrances on the property donated if assumed by the donee in the deed of donation
2. Donations made to the following entities as exempted under special laws:
Aquaculture Department of the Southeast Asian Fisheries Development Center of the
Philippines
Development Academy of the Philippines
Integrated Bar of the Philippines
International Rice Research Institute
National Social Action Council
Ramon Magsaysay Foundation
Philippine Inventors Commission
Philippine American Cultural Foundation
Task Force on Human Settlement on the donation of equipment, materials and services
What are the Donors Tax rates?
The donors tax rate will be based on the law prevailing at the time of donation.
For donations made on January 1, 1998 up to the present, if the donee is a stranger, the donors tax rate
is thirty percent (30%).
A stranger is a person who is not a brother, sister (whether by whole or half-blood), spouse, ancestor and
lineal descendant, or a relative by consanguinity in the collateral line within the fourth degree of
relationship. This just means you are related by blood, and you count the degree by going up first to the
person who connects you then go down.
For example, your first cousin is within the fourth degree. You go up to your dad (1 degree), then up
to your lolo (1 degree), then go down to your uncle who is your dads brother (1 degree), then down
to your first cousin (1 degree), so 4 degrees in all.
Note that a child who is legally adopted is not considered a stranger. Donations between corporations or
from an individual to a corporation shall be considered as donations to a stranger.

If the donee is not a stranger, the donors tax rate, based on the net gifts, are as follows:

Over

But not

The tax

over

shall be

Plus

Of the
excess
over

100,000

Exempt

100,000

200,000

2%

100,000

200,000

500,000

2,000

4%

200,000

500,000

1,000,000

14,000

6%

500,000

1,000,000 3,000,000

44,000

8%

1,000,000

3,000,000 5,000,000

204,000

10%

3,000,000

5,000,000 10,000,000 404,000

12%

5,000,000

10,000,000

15%

10,000,000

1,004,000

Who should pay - The donor or the transferor for less than adequate consideration
When to pay - Within thirty (30) days after the date the gift is made. If more than one gift or donation is
made within one year, a separate return should be filed for each gift/donation within thirty (30) days after
the date the gift is made.
BIR Form to be used - BIR Form No. 1800 (Donors Tax Return)
Where to file and pay/ Filing procedure
Prepare three copies of the donors tax return (two copies shall be for the BIR and one copy shall
be for the taxpayer) and file them with any Authorized Agent Bank (AAB) of the Revenue District Office
(RDO) having jurisdiction over the place of the domicile of the donor (that is, where the donor lives) at
the time of the transfer.
In places where there are no AAB, the return will be filed directly with the Revenue Collection
Officer or duly Authorized City or Municipal Treasurer where the donor was domiciled at the time of the
transfer. If the donor has no legal residence in the Philippines, file the return with Revenue District No. 39
South Quezon City (this is along Quezon Avenue, with a DBP branch at the ground floor).

In the case of gifts made by a non-resident alien (that is, not a Filipino citizen), the return may be
filed with Revenue District No. 39 South Quezon City, or with the Philippine Embassy or Consulate in
the country where donor is domiciled at the time of the transfer.
Penalties for late payment
Same as other taxes, 25% surcharge plus 20% interest per year (under Secs. 248 and 249 of the Tax Code,
respectively). If there is fraud, the surcharge shall be 50%. You may also pay compromise penalties in lieu
of imprisonment (click on the link for the schedule of compromise penalties).
Documentary requirements
Based on the BIR website, the following requirements must be submitted before the Tax Clearance
Certificate/Certificate Authorizing Registration (that is, the document required for the title to be
transferred) can be released:
1.

Deed of Donation

2.

Sworn Statement of the relationship of the donor to the donee

3.

Proof of tax credit, if applicable

4.
Certified true copy(ies) of the Original/Transfer/Condominium Certificate of Title (front and
back) of lot and/or improvement donated, if applicable
5.
Certified true copy(ies) of the latest Tax Declaration (front and back pages) of lot and/or
improvement, if applicable
6.
Certificate of No Improvement issued by the Assessors office where the properties have no
declared improvement, if applicable
7.

Proof of valuation of shares of stocks at the time of donation, if applicable

For listed stocks newspaper clippings or certification issued by the Stock Exchange as to the par
value per share

For unlisted stocks latest audited Financial Statements of the issuing corporation with
computation of the book value per share
8.

Proof of valuation of other types of personal properties, if applicable

9.

Proof of claimed deductions, if applicable

10.

Copy of Tax Debit Memo used as payment, if applicable

Additional requirements may be requested for presentation during audit of the tax case depending upon
existing audit procedures.