"Family Home" for Purposes of Computation of the Net Estate and Estate Tax

November 5, 1997 BIR RULING NO. 115-97 79 (a) (4)-000-00-115-97 Ms. Ma. Christina M. Lim 185 Molave Avenue Molave Park, Merville Paraaque, Metro Manila M a d a m : This refers to your letter dated July 21, 1997 requesting for our opinion on the following issues: 1) Whether you can consider Lot 169 with Tax Declaration No. 0370 as part of the "family home" for purposes of the computation of the net estate and estate tax of your late mother; 2) Whether or not the said lot should be classified as commercial (due to its location) or residential (based on its actual use); 3) Whether or not you can claim the value of the whole house (first and second floors) for purposes of the said computation; and 4) If not, to what extent or percentage of its market value can be claimed as "family home." Documents show that you filed the Estate Tax Return of your deceased mother, ISIDRA S. MERTO, who died on July 14, 1995; that on January 21, 1997, you paid P46,915.15 as basic tax, plus the corresponding interest from January 15, 1996 to January 21, 1997; that on March 21, 1997, when you were in Surigao City to follow-up your BIR Tax Clearance, you were assessed and made to pay additional basic tax of P3,281.40 and interest of P783.60 to cover for adjustment in the valuation of the building that you have claimed as your "family home"; that when the RDO in Surigao City forwarded the estate tax return to the Regional Office, you were further assessed the amount of P8,488.95 as deficiency estate tax and interest due to a variation in the computation of the family home allowance; that you have contested this additional assessment; that it is your impression that different people at both offices in Surigao and Butuan cities have different ways of treating your case, which to your opinion has become arbitrary and based on personal interpretations; that after six months of following up or waiting, you have not yet been issued a BIR Tax Clearance; that the City Assessor's Office certified that your Lot 169 with Tax Declaration No. 0370 is classified as "commercial" because it is located in a commercial area, but assessed and/or applied an assessment level for "residential" because it was actually used as such; that the said family home is actually a two-storey building with Tax Declaration No. 0371 which was erected on the above-described lot in the early 1950's when the neighborhood was still purely residential; that with progress and development, the area became commercial but was maintained as family residence until the death of Isidra Merto in 1995; and that Tax Declaration No. 0371 reveals that the market value of the aforesaid building is P85,262.40 for the first floor used for mixed purposes (commercial and residential) and P88,012.80 for the second floor used for residential purposes or a total of P173,275.20. In reply, please be informed as follows: 1) Articles 152 and 153 of the Family Code define "family home" as the dwelling house, including the land on which it is situated , where the husband and wife or an unmarried person who is the head of a family and the members of their family reside, as certified by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually reside therein. Accordingly, Lot 169 with Tax Declaration No. 0370 may be allowed as a deduction to the extent provided under Sec. 79(a)(4) of the Tax Code, as amended, in the computation of the net estate and estate tax of your late mother. 2) Following the definition of family home under Articles 152 and 153 of the Family Code, Lot 169 with Tax Declaration No. 0370 shall be classified as residential for purposes of determining the net estate of the deceased. 3) Premises considered, only the value of the portion of the first floor (P28,037.60) and the value of the second floor (P72,720.00) which are actually utilized for residential purposes of the decedent and her family at the time of her death shall be allowed as deduction. Thus, the value of the portion of the first floor, which is being used for commercial purposes, shall not be allowed as a deduction, the same not being the actual residential home of the decedent and her family. 4) Pursuant to Revenue Regulations No. 17-93, the allowable deduction must be in an amount equivalent to the fair market value or zonal value of the conjugal share of your late mother in the family home as of the date of her death on July 14, 1995 but not exceeding One Million Pesos (P1,000,000.00). Such being the case, the FMV/zonal value of the lot and the portion of the first floor and the whole second floor of the alleged family home less the share of the surviving spouse can be claimed as deduction. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. dctai Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue