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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE
- For real property, it shall be valued at the fair market value (FMV) of the property at the time of the gift.
- The appraised FMV of the property shall be whichever is higher between the FMV as determined by the Commissioner of Internal Revenue, otherwise known as the zonal value, or as shown in the schedule of values fixed by the Provincial and City Assessors.
- As for all other kinds of property, it shall be valued at the FMV of the property at the time of the gift.
The rule on valuation of gifts shall vary depending on the type of property.
For real property, it shall be valued at the fair market value (FMV) of the property at the time of the gift. The appraised FMV of the property shall be whichever is higher between the FMV as determined by the Commissioner of Internal Revenue, otherwise known as the zonal value, or as shown in the schedule of values fixed by the Provincial and City Assessors.
The law says:
“Section 102. Valuation of Gifts Made in Property. – If the gift is made in property, the fair market value thereof at the time of the gift shall be considered the amount of the gift. In case of real property, the provisions of Section 88(B) shall apply to the valuation thereof.” (Section 102, National Internal Revenue Code)
“Section 88. Determination of the Value of the Estate. –
(A) xxx
(B) Properties. – The estate shall be appraised at its fair market value as of the time of death. However, the appraised value of real property as of the time of death shall be, whichever is higher of –
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.” (Section 88, National Internal Revenue Code)
As for all other kinds of property, it shall be valued at the FMV of the property at the time of the gift, applying the provision of Section 102 of the National Internal Revenue Code (NIRC).
Valuation of gross gifts under the provisions of the NIRC on Donor’s Tax shall also follow the rules under the computation of gross estate, provided, that the reckoning point for valuation shall be the date when the donation is made. (Section 18, Revenue Regulation No. 12-2018)
Jurisprudence says:
The law requires the real property shall be assessed at its true and full value, or cash value, or fair market value. But in determining or fixing the fair market value of property for tax purposes it is essential that the rules of uniformity be observed. More important than the obligation to seek the fair market value of property is the obligation of the assessor to see to it that the “rule of taxation shall be uniform,” for this a rule which is guaranteed by the Constitution. A taxpayer should not be made to pay more taxes on his property while owners of surrounding properties, under the same circumstance pay less. (Allied Banking Corporation v. Quezon City Government, et. al., G.R. No. 154126, October 11, 2005)
What is meant by fair market value of a property?
Jurisprudence says:
“Fair market value” is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy,50 taking into consideration all uses to which the property is adapted and might in reason be applied. The criterion established by the statute contemplates a hypothetical sale. Hence, the buyers need not be actual and existing purchasers. (Allied Banking Corporation v. Quezon City Government, et. al., G.R. No. 154126, October 11, 2005)
Related article: What donations are taxable?
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