Philippine Real Estate Under the TRAIN

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The amendments and provision made to TRAIN (Tax Reform for Acceleration and Inclusion) in relation to the local real estate market and housing sector

As the present government is committed to effect real positive change among Filipinos, President Duterte prompted what is said to be a fairer and simpler tax system for Filipinos: the Tax Reform for Acceleration and Inclusion, or what we commonly refer to as TRAIN.

Passed into law on December 19, 2017 by the president, TRAIN is considered as the first tax reform policy that aims to alleviate poverty among Filipinos by reducing personal income tax rates and imposing higher tax on certain goods with the hopes that such measures will raise the country to upper middle income status by 2022. While it is seems to be music to the ears of most low-wage earners, the revisions of the tax policy under the Duterte administration are a mixture of good and bad for other affected sectors. In this article, we will focus solely on the distinct changes that TRAIN implemented that will affect real estate.

1. Estate Tax Changes

Estate Tax, or the tax imposed on the property of lawful heirs and beneficiaries inherited from a decedent, was previously computed based on a tax schedule where an estate worth Php200,000 and over was taxed between 5 and 20 percent. Under the TRAIN law, all estate tax will be subject to a flat rate of 6 percent.

Also under the provisions of TRAIN, estate properties with a net value of Php5 million and below, and family homes valued at Php10 million or less are now exempted from tax. In the former tax law, only homes worth Php1 million were exempted.

2. Estate Tax Deductions

Estate Tax Deductions are deductions allowed to the gross estate of an individual. With the reformed tax law, funeral expenses, judicial expenses, and medical expenses are removed from the allowable deductions. The law also increases the Standard Deduction to Php5 million instead of the previous Php1 million.

In addition, estate tax deduction will only be available to citizens (resident and non-resident) and resident aliens. In the case of non-resident aliens, they can avail of standard deductions but only up to the amount of Php500,000.

3. Estate Tax Return

In the old tax law, only estate tax returns exceeding the gross value of Php2 million are subject to be certified by a certified public accountant (CPA). In the reformed tax law, CPA certifications are required for estate tax returns with a gross value exceeding Php5 million.

The deadline for filing of estate tax return is also lengthened. In the old tax rule, filing is only allowed within six months from the decedent’s death; under TRAIN, filing is extended to one year relative to the decedent’s death.

4. Payment of Estate Tax by Installment

While the reformed tax law made payment by installment simpler, it now implies that the payment of the full estate-tax liability is limited to only two years, a limit that was not included in the old tax rule.

5. Estate Transactions Exempted from Value Added Tax (VAT)

TRAIN offers exemptions for the following socialized housing segments:

A. Sale of real properties not primarily held for sale to customers or for lease in the ordinary course of trade or business; sale of real property utilized for socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws; residential lot valued at Php1,500,000 and below; house and lot, and other residential dwellings valued at Php2,500,000 and below: Provided that, beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business; sale of real property utilized for socialized housing as defined by RA 7279, sale of house and lot, and other residential dwellings with selling price of not more than Php2 million: Provided, further, that every three years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the Philippine Statistics Authority (PSA);

B. Lease of a residential unit with a monthly rental not exceeding Php15,000.

6. Estate Transactions Not Exempted from Value Added Tax (VAT)

TRAIN removes VAT exemptions to the sale of low-cost housing; sale of residential lot valued at Php1.919 million and sale of other residential dwellings valued at Php3.199 million; and lease of residential units not exceeding Php12,800 per month.


Main photo via Depositphotos


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