Deductibility of Interest Paid on Loans Obtained by the Company to Acquire Housing Units

August 18, 1988 BIR RULING NO. 399-88 29 (b) & (f) 000-00 399-88 Gentlemen : This refers to your letter dated June 6 and July 14, 1988, in effect, requesting a ruling whether a corporation that undertakes a housing program for its employees out of the money borrowed from you is entitled to claim deductions for interest expense and depreciation on the housing units purchased/developed out of said borrowed money. It is orally represented that some companies apply for financing of housing program for their employees; that said companies purchase housing units from, or cause the same to be constructed by the developer and sold or leased to the employees. In reply, please be informed as follows: 1. Loans obtained by the company to acquire housing units to be sold or leased to its employees in furtherance and implementation of the program of providing low-cost housing to low income families are considered indebtedness in connection with the taxpayer's business. Such being the case, interest paid on said loans are deductible from the gross income of the employer-company pursuant to Section 29(b) of the Tax Code, in relation to Section 3 of P.D. No. 1217. 2. In accordance with the policy of providing low-cost housing to low income families, housing units leased by the company to its employees shall be considered property used in trade or business. Accordingly, a reasonable allowance for depreciation thereon may be claimed by the company pursuant to Section 29(f) of the Tax Code. 3. Ownership of the housing units sold to the employees under a Deed of Conditional Sale shall remain in the company until fully paid. Accordingly, before a Deed of Absolute Sale is executed by the company in favor of the employee-purchaser and title to said property is transferred to the latter, a reasonable allowance for depreciation thereon may be claimed by the company pursuant to Section 29(f) of the Tax Code. cdt Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner