Family Home Deduction in Estate Tax

Overview

The family home deduction reduces the taxable estate of a deceased citizen or resident by the current fair market value of the decedent's family home, up to ₱10 million (NIRC §86(A)(7), as amended by the TRAIN Law, RA 10963). It recognizes the importance of the family residence in Philippine society and gives relief to heirs who inherit it.

Eligibility Requirements

Family Home Requirement

The property must have been the decedent's family home at the time of death. A vacation home, investment property or rental unit does not qualify, even if the decedent owned it.

Ownership

Only the part of the home included in the decedent's gross estate can be deducted. If the home is co-owned with persons other than a spouse, the deduction applies only to the decedent's proportionate share.

Single Property

The law refers to "the decedent's family home", so only one property qualifies, regardless of how many residential properties the estate owns.

Conjugal or Community Property

If the home is conjugal or community property, the deduction covers the decedent's share of the home. A home that belonged exclusively to the surviving spouse is not part of the decedent's estate and cannot be deducted.

Citizens and Residents Only

Estates of non-resident aliens do not get a family home deduction (NIRC §86(B)).

Deduction Amount and Calculation

The deduction equals the current fair market value of the family home, but not more than ₱10 million; any value above ₱10 million is subject to estate tax. For real property, fair market value is the higher of the BIR zonal value and the value in the assessor's schedule (NIRC §88(B)).

Net Estate = Gross Estate − Family Home Deduction − Other Deductions

Estate tax is then 6% of the net estate (NIRC §84, as amended by RA 10963).

Documentation and Proof

The executor or heirs usually prepare:

• The certificate of title showing the decedent's ownership
• The tax declaration of the property
• Proof that the decedent and the family lived in the property
• The other documents listed by the BIR for the Estate Tax Return (BIR Form 1801)

Interaction with Other Deductions

The family home deduction is separate from and in addition to the other deductions in NIRC §86, such as:

• The ₱5,000,000 standard deduction
• Claims against the estate, such as debts, and unpaid mortgages and taxes
• Casualty losses during settlement and transfers to the government for public use
• The surviving spouse's net share of conjugal or community property

Funeral, judicial and medical expenses are no longer deductible since the TRAIN Law (2018).

All deductions are subtracted from the gross estate to arrive at the net estate (NIRC §86).

Common Scenarios and Limitations

If the family home is mortgaged, the deduction is based on its fair market value, not the net equity, and the unpaid mortgage is deducted separately as an indebtedness of the estate (NIRC §86(A)(4)).

If the decedent co-owned the home with a non-spouse, only the decedent's share qualifies. For example, if Juan dela Cruz and his brother owned a ₱12 million home 50-50, only Juan's ₱6 million share is in his estate, and the deduction is limited to ₱6 million.

Estate Tax Computation Example

Maria Santos died on 15 June 2024, leaving an estate with the following assets:

• Family home (principal residence): ₱8,000,000
• Bank deposits: ₱3,500,000
• Stocks and bonds: ₱2,000,000
• Funeral and medical expenses paid: ₱200,000 (not deductible under the TRAIN Law)

Gross Estate: ₱13,500,000
Less: Standard Deduction: ₱5,000,000
Less: Family Home Deduction: ₱8,000,000 (limited to actual value)
Net Estate: ₱500,000
Estate Tax (6%): ₱30,000

Without the family home deduction, the net estate would be ₱8,500,000 and the estate tax ₱510,000. The deduction saves ₱480,000 (NIRC §86).

Timing and Filing

The family home deduction is claimed in the Estate Tax Return (BIR Form 1801), filed within one year from the date of death (NIRC §90). A late return can still claim the deduction, but surcharge and interest apply to any tax paid late.

Recent Amendments

Before the TRAIN Law, the family home deduction was capped at ₱1,000,000 and required a certification from the barangay captain that the property was the decedent's family home (NIRC §86(A)(4) of the 1997 Code). The TRAIN Law (RA 10963, effective 1 January 2018) raised the ceiling to ₱10,000,000 and introduced the flat 6% estate tax rate.