Estate tax is a tax on the privilege of transmitting property at death. In the Philippines, it attaches to the decedent’s estate, not to the act of the heir accepting the inheritance. When the estate includes real property (land, houses, condominium units), computing the estate tax hinges on (1) what portion is included in the gross estate, (2) how the real property is valued, (3) what deductions are allowed, and (4) applying the estate tax rate to the net estate.

This article focuses on computing estate tax where inherited real property is involved, while also explaining the practical steps and documents typically required to transfer title.

1) Governing law and key concepts

Philippine estate tax is imposed under the Tax Code, as amended (commonly referred to as the National Internal Revenue Code), with major changes introduced by the TRAIN Law.

Core ideas to keep straight:

Date of death controls: valuation, inclusions, and many tax consequences are determined as of the decedent’s death.
Gross estate → deductions → net estate → tax due: estate tax is computed on the net estate.
Estate vs. heirs: liability is imposed on the estate; filing and payment are performed by the executor/administrator or, in many extrajudicial settlements, by the heirs acting as filers.

2) Who is covered and what property is taxed (real-property angle)

A. Residency/citizenship matters, but Philippine real property is almost always in

In general:

A citizen or resident decedent is taxed on property wherever situated (including real property abroad).
A nonresident alien is generally taxed only on property situated in the Philippines (Philippine real property is included).

Because this article is about inherited real property in the Philippines, the real property is part of the taxable base whenever it is located in the Philippines, regardless of where heirs live.

B. What counts as “real property”

Includes (among others):

Land and improvements (house/building)
Condominium units (and appurtenant interests)
Real rights over immovable property (e.g., usufruct, long-term leases with real-right attributes in certain contexts)

3) The estate tax rate (current framework)

Under the post-TRAIN framework, the estate tax is generally a flat rate applied to the net estate (commonly referenced as 6% of net estate). Because tax laws can be amended, computation should always be tied to the rules applicable to the date of death and the then-effective regulations and revenue issuances of the Bureau of Internal Revenue.

4) Valuation of inherited real property (the make-or-break step)

A. General valuation rule for real property

For Philippine estate tax purposes, real property is generally valued at fair market value (FMV) as of the decedent’s death, typically determined by comparing:

BIR zonal value, and
FMV per the assessor (tax declaration / schedule of values), and using whichever is higher (subject to specific rules and documentation).

Practical consequence: even if the property was bought long ago at a low price, the estate tax base often reflects current zonal/assessed valuations as of death.

B. Improvements (house/building) are part of the valuation

If a house is built on the land, the land and improvements are commonly valued based on the relevant schedules (zonal/assessor). Do not assume the land value alone is the base.

C. Encumbrances do not reduce FMV automatically

A mortgage does not reduce the property’s FMV itself. Instead, if properly documented and allowable, unpaid mortgages may appear as deductions/claims in computing the net estate (discussed below).

5) Marital property: how much of the real property is taxed?

A common mistake is taxing the entire family home or conjugal property as if it were solely owned by the decedent. Under Philippine property relations, what belongs to the decedent depends on the marriage regime:

A. Absolute Community of Property (ACP) / Conjugal Partnership of Gains (CPG)

If the real property is community/conjugal property, only the decedent’s share is ultimately taxed.

A standard approach in estate computations is:

Include the full community/conjugal properties in the gross estate, then
Deduct the “share of the surviving spouse” (commonly 1/2 of net community/conjugal assets), leaving the decedent’s share as part of the taxable estate.

B. Exclusive property

If the decedent owned the land exclusively (e.g., acquired before marriage, or acquired by gratuitous title and kept exclusive), then the full value of that exclusive property is within the decedent’s gross estate (subject to deductions).

Key takeaway: For married decedents, identify the property regime and ownership character of the real property before computing the taxable base.

6) Deductions that commonly affect real-property estates

After valuing the gross estate, allowable deductions are applied to arrive at the net estate. Deductions can be technical; what follows are the deductions most frequently encountered in estates with real property.

A. Standard deduction

The TRAIN framework introduced/retained a significant standard deduction (commonly referenced as ₱5,000,000 for estates covered by the post-TRAIN rules). It reduces the net estate without needing itemized proof of expenses.

B. Family home deduction

A family home may be deductible up to a statutory cap (commonly referenced as ₱10,000,000 under the post-TRAIN framework), subject to conditions. Important points:

It applies to the family home as defined by law (generally the dwelling where the family resides, with legal requirements).
Documentation is crucial (tax declarations, proof of use/occupancy, barangay certification in practice, etc.).
The deductible amount is limited to the statutory cap; any excess value remains in the estate.

C. Judicial expenses of settlement

Expenses incurred in settling the estate (especially in court proceedings) may be deductible if they meet legal requirements and are properly documented.

D. Claims against the estate / unpaid mortgages

Debts of the decedent (including unpaid mortgages) can be deductible if:

They are valid and enforceable, and
Adequately supported by documentation (loan agreements, statements of account, proof of outstanding balance as of death, etc.).

E. Other possible deductions (case-dependent)

Depending on the estate:

Losses incurred during settlement (within strict rules)
Transfers for public use (subject to requirements)
Certain claims against insolvent persons
Medical expenses (depending on the applicable law/regulations for the date of death)
Vanishing deductions (rare in ordinary practice; technical)

Note on nonresident estates: special limitation/proportion rules may apply to deductions where only Philippine-situated property is taxed; these are technical and fact-specific.

7) Step-by-step: computing estate tax for inherited real property

Here is the computation framework used in practice.

Step 1 — Identify properties includible in the gross estate

List all assets of the decedent, including:

Exclusive real property
Community/conjugal real property
Other assets (bank accounts, vehicles, shares, etc.) because they affect the overall net estate and deductions

Step 2 — Determine FMV of each real property at date of death

For each property:

Get zonal value (as applicable)
Get assessor’s FMV / tax declaration FMV
Use the higher amount as the property’s FMV for estate tax purposes (subject to specific rules)

Step 3 — Compute gross estate

Add up all includible properties at their FMV.

Step 4 — Subtract the surviving spouse’s share (if applicable)

If married and property is community/conjugal:

Compute net community/conjugal assets (community assets minus community liabilities, as recognized)
Deduct the surviving spouse’s share (often 1/2 of net)

Step 5 — Apply deductions

Subtract allowable deductions (e.g., standard deduction, family home deduction, claims, etc.).

Step 6 — Arrive at net estate

Net Estate = (Gross Estate − Spouse’s Share − Deductions)

Step 7 — Apply estate tax rate

Estate Tax Due = Net Estate × applicable rate (commonly 6% in the post-TRAIN framework)

Step 8 — Add penalties if late (if applicable)

Late filing/payment can trigger:

Surcharge
Interest
Compromise penalties (in some cases) Penalties depend on the nature and duration of delinquency and the rules in force.

8) Worked example (typical family scenario)

Facts (for illustration):

Decedent died owning:
- House and lot (family home), community property: FMV ₱12,000,000
- Vacant lot (community property): FMV ₱4,000,000
- Exclusive land inherited by decedent (exclusive): FMV ₱3,000,000
Outstanding mortgage on the family home: ₱2,000,000 (properly documented and allowable)
Deductions:
- Standard deduction: ₱5,000,000
- Family home deduction: capped at ₱10,000,000

Step A — Gross estate Community properties:

Family home ₱12,000,000
Vacant lot ₱4,000,000 Exclusive property:
Exclusive land ₱3,000,000

Gross Estate = 12,000,000 + 4,000,000 + 3,000,000 = ₱19,000,000

Step B — Determine spouse share Assume mortgage is a community liability tied to the family home.

Net community assets:

Community assets = ₱12,000,000 + ₱4,000,000 = ₱16,000,000
Less community liability (mortgage) = ₱2,000,000
Net community = ₱14,000,000

Surviving spouse share (½) = ₱7,000,000

Step C — Deductions

Standard deduction = ₱5,000,000
Family home deduction = up to ₱10,000,000 (Not ₱12,000,000; the cap applies.)

Other deductions: mortgage already accounted as a liability in net community for spouse-share computation in this illustration. (In real filings, the presentation must be consistent—either reflect liabilities in arriving at spouse share and/or claim them under deductions according to accepted reporting.)

Total deductions used here = ₱15,000,000

Step D — Net estate Net Estate = Gross Estate − spouse share − deductions Net Estate = 19,000,000 − 7,000,000 − 15,000,000 = (₱3,000,000)

If the result is zero or negative, the net taxable estate is effectively zero, so estate tax due is zero, but filing requirements may still apply for transfer and registration purposes.

This example shows how the family home deduction and standard deduction can dramatically reduce estate tax—even when valuable real property exists.

9) Filing, deadlines, and payment mechanics (practical essentials)

A. Estate Tax Return and where to file

The estate tax return is typically filed with the BIR office having jurisdiction over the decedent’s domicile/residence at death (rules for nonresident decedents are handled through designated offices).

B. Deadline (general rule)

Under the post-TRAIN framework, filing and payment are generally required within one (1) year from death, with limited extensions in certain cases (subject to conditions).

C. Installment payment (when estate is illiquid)

Where the estate is largely real property (cash-poor), the law allows installment payment in certain circumstances (with different maximum periods depending on whether settlement is judicial or extrajudicial), subject to compliance requirements. This matters because many estates are “asset-rich but cash-poor.”

10) After computation: why real property transfers often stall (and how the tax connects)

Even when the computed estate tax is low (or even zero), heirs often cannot transfer title without tax clearances. Common steps include:

Settle the estate
- Judicial settlement, or
- Extrajudicial settlement (commonly used when there is no will and no debts, subject to legal requirements such as publication under court rules)
File the estate tax return and pay estate tax (and any other applicable internal revenue taxes, if any)
Secure the Certificate Authorizing Registration (CAR / eCAR) This is the BIR clearance used by the Register of Deeds and other offices before transferring title.
Pay local taxes/fees and comply with local requirements
- Local transfer tax (LGU)
- Real property tax clearances
- Registration fees
Transfer title at the Register of Deeds and update the tax declaration with the assessor’s office

Important: Estate tax is not always the only cost. Depending on the settlement instrument (e.g., deed of partition), documentary stamp tax may be assessed on certain documents, and local transfer taxes/fees apply.

11) Common mistakes in computing estate tax for inherited real property

Using selling price or old acquisition cost instead of date-of-death FMV (zonal/assessor basis)
Failing to account for spouse’s share in community/conjugal property
Claiming family home deduction without meeting requirements or documentation
Double counting liabilities (e.g., reducing spouse share and also claiming full debt again as a deduction inconsistently)
Ignoring “other assets”—even if the focus is real property, other assets can affect net estate and deductions
Late filing (penalties can exceed the base tax in some cases)

12) Special situations affecting inherited real property computations

A. Multiple heirs and partition

Partition among heirs does not change the estate tax base (which is determined at death), but it affects documents required and downstream taxes/fees.

B. Estates with a will

Probate/judicial settlement can affect timelines and documentary requirements; it does not change the fundamental estate tax computation framework (gross estate → deductions → net).

C. Properties under dispute or with title defects

Tax may still be assessed based on includibility and valuation rules, while transfer can be delayed by land registration issues.

D. Prior estate tax amnesty programs

Philippine law has, at times, provided estate tax amnesty programs (for certain prior deaths and conditions). These programs are time-bound and eligibility-based; computation and requirements differ from regular estate tax.

13) A concise computation checklist (real-property focused)

Determine date of death
List all real properties and classify: exclusive vs. community/conjugal
Obtain zonal value and assessor FMV; use higher (as applicable)
Add other assets to compute gross estate
Compute and deduct surviving spouse share (if married under ACP/CPG)
Apply deductions: standard deduction, family home, claims/liabilities, others as applicable
Compute net estate
Apply the estate tax rate to get tax due
Check deadlines; compute penalties if late
Prepare documentary requirements for CAR/eCAR and title transfer

14) Bottom line

Computing Philippine estate tax for inherited real property is a structured exercise:

Value the real property at date of death (often higher of zonal value and assessor’s FMV),
Determine the decedent’s taxable share (especially for married decedents),
Subtract allowable deductions (notably the standard deduction and, when applicable, the family home deduction), and
Apply the estate tax rate to the resulting net estate.

The real challenge is rarely the arithmetic—it is getting the correct valuation, ownership characterization, and properly supported deductions so the computation matches the legal requirements and can be cleared for registration.