SIBLING = RE DEVELOPER

Let’s talk about a fascinating (and tricky) tax scenario.

Imagine this: you and your siblings co-own your beloved ancestral home. But here’s the catch: one sibling is registered with the BIR as someone engaged in real estate business (SERB).

Now, the big question: When you sell the ancestral home, does that automatically mean the whole property is considered an ordinary asset, subject to VAT and income tax?

If you asked the BIR, I bet their knee-jerk answer would be: “Yes! Ordinary asset! VAT! Income tax!” After all, the taxman will always try to apply the rules that generate the highest tax revenue.

But let’s break this down.

In my view, only the share of the SERB sibling should fall under the ordinary asset rules — at worst.

The other siblings, not engaged in any real estate business, should have their shares classified as capital assets. Capital assets, of course, mean no VAT and the more favorable capital gains tax treatment.

So where does this confusion stem from?

According to BIR Revenue Regulations No. 7-2003 (Sec. 3), all properties owned by a SERB — whether acquired before or after becoming a SERB — are classified as ordinary assets.

Yes, even the family home. Even if the SERB sibling lives there, it doesn’t matter in the eyes of this rule. The law doesn’t make exceptions for personal use.

The BIR probably wrote it that way since they don't have the means to distinguish which is the SERB's inventory and which is used for personal purposes. For example:

A real estate dealer buys a lot and builds a house, hoping to sell it. It doesn’t sell, so they use it instead. When they finally sell it, is the property classified as an ordinary asset, subject to VAT and income tax — despite it functioning as a private residence?

See the problem?

The Key Lesson

Never register yourself as a SERB; you're better off putting up a company. That status sticks — and it can drag your personal properties, even family heirlooms like an ancestral home, into the web of higher taxes.

This is one of those hidden traps in our tax system that many don’t see coming until it’s too late.

I truly do hope the BIR issues new regulations to resolve this matter.