How to Compute Philippine Estate Tax: A Step-by-Step Worked Example Under the TRAIN Law

Philippine estate tax under the TRAIN Law is a flat 6% of the net taxable estate — the gross estate (all property the decedent owned at death) minus allowable deductions such as the standard deduction, the family home deduction, and any unpaid debts or mortgages. This post walks through one complete, illustrative computation, line by line, so you can see exactly how each number feeds into the final tax due.

What does Section 84 of the NIRC actually say about the estate tax rate? #

Section 84 of the National Internal Revenue Code, as amended by the TRAIN Law, sets a single flat 6% rate on the net estate of every decedent — resident or nonresident — replacing the old graduated schedule that once ran from 5% up to 20%. The rate applies uniformly regardless of how large or small the net estate is, which is what makes the computation simpler than it was before 2018: there is no bracket to look up, only one multiplication once the net taxable estate is known.

The provision reads, in full:

“There shall be levied, assessed, collected and paid upon the transfer of the net estate as determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a tax at the rate of six percent (6%) based on the value of such net estate.”

— Section 84, National Internal Revenue Code, as amended by the TRAIN Law (Republic Act No. 10963)

Two things follow directly from this text. First, the 6% is applied to the net estate, not the gross estate — Section 86 (deductions) has to be worked through first. Second, the rate does not distinguish between a resident citizen and a nonresident: both are taxed at 6%, though nonresident estates compute their gross estate and standard deduction differently (only Philippine-situated property counts, and the standard deduction for a nonresident alien is a much smaller ₱500,000).

What deductions bring the gross estate down to a net taxable estate? #

Before the 6% rate is applied, the gross estate is reduced by the deductions allowed under NIRC Section 86, as implemented by Revenue Regulations (RR) No. 12-2018 — chiefly the flat ₱5,000,000 standard deduction, the family home deduction capped at ₱10,000,000, and any unpaid mortgages or claims against the estate. These are the deductions that do the heavy lifting in most estate tax computations, and understanding what each one requires is what separates a correct BIR Form 1801 filing from one the examining revenue officer sends back.

• Standard deduction — ₱5,000,000 flat, available to every citizen or resident decedent’s estate with no receipts or substantiation required. Nonresident aliens instead get a separate, smaller ₱500,000 standard deduction.
• Family home deduction — up to ₱10,000,000, equal to the family home’s fair market value or the decedent’s interest in it, whichever is lower. If the home is worth more than ₱10,000,000, only ₱10,000,000 is deductible and the excess stays taxable. See Estate Tax Standard Deduction and Family Home Deduction for the full mechanics and qualifying conditions of these two deductions.
• Unpaid mortgages and claims against the estate, provided the debt existed at the time of death, was contracted in good faith for adequate consideration, and is supported by a loan document or creditor statement showing the outstanding balance.
• Vanishing deduction, for property that was already subjected to estate or donor’s tax in a transfer to the decedent within the five years before death — a separate, more specialized deduction not used in the example below.

One important fact the TRAIN Law changed that catches some heirs off guard: funeral expenses, judicial expenses, and medical expenses are no longer separately deductible. Before 2018, an estate had to itemize and substantiate each of these categories up to its own peso cap. RA 10963 removed all three and replaced them with the single, much larger ₱5,000,000 standard deduction — so an estate with modest funeral costs and an estate with expensive ones now claim exactly the same standard deduction amount.

A full worked example: computing estate tax step by step #

This worked example is illustrative and entirely fictional — it does not describe a real person or an actual BIR case — but every peso figure and computation step follows current law and RR No. 12-2018. The scenario: a Filipino resident decedent, referred to here as “Estate of J. Reyes” for illustration only, dies leaving a mix of real property, bank deposits, and personal property, with two outstanding debts against the estate at the time of death.

Step 1: Establish the gross estate #

The gross estate includes the fair market value of everything the decedent owned at death. For real property, fair market value is the higher of the BIR zonal value or the assessed value on the latest tax declaration — the same valuation standard used throughout Philippine estate tax practice.

Step 2: Apply the standard deduction #

The estate is entitled to the flat ₱5,000,000 standard deduction automatically, with no need to itemize or prove any funeral, judicial, or medical costs actually incurred.

Step 3: Apply the family home deduction #

The family home’s fair market value is ₱8,500,000, which is below the ₱10,000,000 cap, so the entire ₱8,500,000 is deductible. (Had the home been worth, say, ₱12,000,000, only ₱10,000,000 would be deductible and the remaining ₱2,000,000 would stay in the taxable base.)

Step 4: Apply unpaid mortgage and claims against the estate #

Two debts existed at the time of death and are supported by documentation:

• An unpaid mortgage of ₱900,000 on the commercial lot, evidenced by the loan agreement and the bank’s certified outstanding-balance statement.
• A ₱350,000 unpaid personal loan from a relative, evidenced by a notarized promissory note and the creditor’s sworn statement of the balance due.

Step 5: Compute the net taxable estate and the tax due #

The full deduction stack — ₱5,000,000 + ₱8,500,000 + ₱900,000 + ₱350,000 = ₱14,750,000 — is subtracted from the ₱16,000,000 gross estate, leaving a net taxable estate of ₱1,250,000. Applying the flat 6% rate from Section 84 gives an estate tax due of ₱75,000, payable when BIR Form 1801 is filed.

When must this ₱75,000 be filed and paid? #

BIR Form 1801 and the computed estate tax must be filed and paid within one year from the decedent’s date of death, a strict deadline under NIRC Section 90 that starts running immediately regardless of how long it takes heirs to informally settle the estate. For the Estate of J. Reyes example, if the decedent died on August 14, 2026, the return and the ₱75,000 tax due would need to be filed on or before August 14, 2027.

• The BIR Commissioner may grant a reasonable extension for filing — in practice up to 30 days on meritorious grounds — but the request must be submitted before the one-year deadline lapses, not after.
• If the estate lacks enough liquid cash to pay ₱75,000 immediately, the law separately allows payment by installment within two years from the statutory filing deadline, without civil penalty or interest, under NIRC Section 91(C) — see Can You Pay BIR Estate Tax in Installments? for that process.
• Missing the one-year deadline entirely adds surcharge and interest on top of the ₱75,000 tax due, and until the return is filed and settled, the estate’s real property — the family home and the commercial lot in this example — cannot legally be transferred to the heirs through the Registry of Deeds.

Frequently asked questions #

What is the estate tax rate under the TRAIN Law? #

Estate tax under the TRAIN Law (Republic Act No. 10963) is a flat 6% of the net taxable estate, applied under Section 84 of the National Internal Revenue Code, regardless of the size of the estate. This replaced the old graduated schedule, which ran from 5% up to 20% depending on the net estate’s value, with a single flat rate for every citizen, resident, and nonresident decedent.

How do you compute the net taxable estate before applying the 6% rate? #

Start with the gross estate — the fair market value of all property the decedent owned at death, including real property, bank deposits, and personal property. Subtract allowable deductions under NIRC Section 86, primarily the flat P5,000,000 standard deduction, the family home deduction (capped at P10,000,000), and any unpaid mortgages or claims against the estate. The result is the net taxable estate, and multiplying it by 6% gives the estate tax due.

Are funeral, judicial, or medical expenses still deductible from a Philippine estate under the TRAIN Law? #

No. The TRAIN Law removed funeral expenses, judicial expenses, and medical expenses as separate itemized deductions effective January 1, 2018. In their place, Revenue Regulations No. 12-2018 grants every citizen or resident estate a flat P5,000,000 standard deduction that requires no receipts or proof of actual expenses, replacing the old system of substantiating each expense category up to its own peso cap.

What documentation supports an unpaid mortgage or claims-against-the-estate deduction? #

An unpaid mortgage on estate property is deductible if the mortgage was contracted in good faith and for adequate consideration, supported by the loan agreement and the mortgagee’s statement of the outstanding balance as of the date of death. Claims against the estate — debts the decedent owed at death, such as an unpaid personal loan — require a notarized loan document or similar written evidence, plus a statement from the creditor confirming the unpaid balance, since the BIR examining revenue officer can disallow undocumented claims.

When must BIR Form 1801 be filed and the estate tax paid? #

BIR Form 1801, the Estate Tax Return, and the estate tax due must be filed and paid within one year from the decedent’s date of death. The BIR Commissioner may grant a reasonable extension for filing, in practice up to 30 days on meritorious grounds, but the request must be submitted before the one-year deadline lapses. Missing the deadline entirely adds surcharge, interest, and compromise penalties on top of the computed tax.

Can heirs withdraw the decedent’s bank deposit before the estate tax is settled? #

Yes, but a bank is authorized to release a decedent’s deposit to an heir before the estate tax is settled only if the withdrawing heir allows the bank to withhold a 6% final withholding tax on the amount withdrawn, which the bank remits to the BIR. This is a separate mechanism from the estate tax computed and paid through BIR Form 1801, and any tax withheld this way is later credited against the estate’s total estate tax liability.

Summary #

Philippine estate tax computation under the TRAIN Law follows one consistent sequence: total the gross estate at fair market value, subtract the ₱5,000,000 standard deduction and the family home deduction (capped at ₱10,000,000), subtract any documented unpaid mortgages or claims against the estate, and apply the flat 6% rate under Section 84 to what remains. In the worked example above, a ₱16,000,000 gross estate reduced to a ₱1,250,000 net taxable estate produced an estate tax due of ₱75,000. For a deeper look at how the standard deduction and family home deduction work and what qualifies, see Estate Tax Standard Deduction and Family Home Deduction; for the full BIR Form 1801 filing process and required documents, see How to File BIR Form 1801; and if the computed tax exceeds the estate’s available cash, see Can You Pay BIR Estate Tax in Installments? for the two-year installment option.