Home Mortgage Relief Act Of 2014 (Senate Bill No. 2148 full text) Proposes Tax Incentives For First-Time Homebuyers

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Last Friday, April 4, 2014, we heard over the radio that Sen. Sonny Angara filed Senate Bill No. 2148 (Home Mortgage Relief Act of 2014) which proposes that tax incentives be given to first-time homebuyers. But how exactly does the proposed bill intend to do this? I’ll try to answer this below, and I’ll also share the full text so you can read it and see for yourself.

What is the bill all about?

In Senator Angara’s Explanatory note, he starts with the following:

Nothing gives a person a sense of stability and security than having a place to call his or her own home. Unfortunately, due to the high cost of acquiring one’s own residence, more Filipinos are opting to rent instead.”

This reminds me of a quote from Suze Orman about real estate:

“Owning a home is a keystone of wealth… both financial affluence and emotional security”. -Suze Orman

“Owning a home is a keystone of wealth… both financial affluence and emotional security.” -Suze Orman

Senator Angara then presents more data and states that the proposed bill aims to “aid Filipino families in acquiring their first family home by providing for Home Mortgage Interest Relief, an individual income tax incentive”.

In a nutshell, the bill aims to encourage people to own their homes, instead of just renting, by making it more affordable for first-time homebuyers through a tax incentive.

Related: 8 Tips for first-time homebuyers (this is an article published in rappler.com which lists just 8 of many tips Jay and I shared at the Money Summit and Wealth Expo last July 13, 2013)

Specifically, the bill proposes that the interest expense on a loan taken by an individual (whether married, unmarried head of the family, or a solo parent) from a bank, Pag-IBIG, or a Cooperative, in order to purchase his/her first home be deductible from his/her gross income for income tax purposes. The maximum amount of the loan shall be P2.5 million.

In other words, for every monthly amortization, the portion pertaining to the interest expense shall be deductible for income tax purposes. Meaning, the homebuyers must still pay the interest, but only later, when income tax preparation and payment comes, will it be deductible from the income tax that the homebuyers need to pay. While it may not be a very big amount, any tax incentive is of course welcome.

How will this be operationalized?

Assuming that the bill will be passed into law (and I assume that this will get some opposition from the Department of Finance (DOF) since this would mean less revenues for the government), Implementing Rules and Regulations (IRR) will be issued by the DOF, Housing and Land Use Regulatory Board (HLURB), and the Bureau of Internal Revenue (BIR).

Coming from a tax background, my first thought is that since many homebuyers are employees, this act will change the computation of withholding tax on wages, so this will be a concern of the Human Resources (HR)/Compensation department.

Anyway, the expanatory note and full text of SB No. 2148 is reproduced below. You may read it and form your own opinions.

Explanatory note for Senate Bill No. 2148

SIXTEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

SENATE

S.B. No. 2148

___________________________________________________

Introduced by Senator SONNY M. ANGARA

___________________________________________________

AN ACT

PROVIDING FOR HOME MORTGAGE INTEREST RELIEF FOR THE FIRST

FAMILY HOME, AMENDING FOR THE PURPOSE SECTION 34 OF THE NATIONAL

INTERNAL REVENUE CODE OF THE PHILIPPINES, AS AMENDED.

EXPLANATORY NOTE

Nothing gives a person a sense of stability and security than having a place to call his or
her own home. Unfortunately, due to the high cost of acquiring one’s own residence, more
Filipinos are opting to rent instead. According to an initial study conducted by the Statistical
Research and Training Center of the National Economic and Development Authority (NEDA),
there are approximately 1.5 million households or 7.2% renters out of the total 21.5 million
households nationwide.

At present, more and more developers are offering affordable housing options through
low down payments and easy payment terms for potential home buyers. The only remaining
deterrent faced by would-be buyers is the financing aspect, more specifically, the interest rates
imposed by banking institutions and by these developers themselves .. This is where’ the .
government should step in by providing an incentive to those who would be purchasing their first
family home.

A family home provides an atmosphere of permanence, and serves as one’s sanctuary
from the outside world. Moreover, the wisdom of home ownership lies in the simple fact that
instead of throwing away money in monthly rents, one’s money can already be channelled into
paying for one’s own piece of property. Home ownership will not only ensure the future security
of one’s family but can also be considered as a profitable investment.

Along this line, this bill aims to aid Filipino families in acquiring their first family home
by providing for Home Mortgage Interest Relief, an individual income tax incentive.

This tax incentive makes any interest actually paid during a taxable year from any loan
obtained for the purpose of acquiring or constructing a family home deductible from the gross
income of a qualified taxpayer. By removing. interest rates in the equation, potential
homeowners will only have to pay the principal amount of the property, and thus avoid the stress
of dealing with ballooning interest payments. Moreover, this relief will provide tax savings for
the individual.

With the passage of this bill, it is hoped that the shortage of decent housing would be
addressed and our countrymen would have the opportunity to have a place of their own to call
home. The proposed bill is also a measure of equity to enable the lower classes to lead better
lives.

In view of the foregoing, early passage of this bill is earnestly sought.

(Sgd.) SENATOR SONNY M. ANGARA

Full text of Senate Bill No. 2148

SIXTEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

SENATE

S.B. No. 2148

_________________________________________________________

Introduced by Senator SONNY M. ANGARA

_________________________________________________________

AN ACT

PROVIDING FOR HOME MORTGAGE INTEREST RELIEF FOR THE FIRST

FAMILY HOME, AMENDING FOR THE PURPOSE SECTION 340F THE NATIONAL

INTERNAL REVENUE CODE OF THE PHILIPPINES, AS AMENDED.

 

            Be it enacted by the Senate and House of Representatives of the Philippines in Congress

Assembled:

1           SECTION 1. Title. - This Act shall be known as the “Home Mortgage Interest Relief
2 Act of2014″.
3
4           Sec. 2. Declaration of State Policy. – It shall be the policy of the State to encourage
5 home ownership and to provide financial assistance to Filipinos desiring to have their first family
6 homes.
7
8           Sec. 3. Definition of Terms. – For purposes of this Act, the following terms or phrases
9 shall mean or be understood as follows:
10
11           a. Family Home - shall refer to the dwelling house constituted jointly by the husband
12           and wife, or by an unmarried head of the family, including the land on which it is
13           situated, and as defined under Articles 152 and 153 of Executive Order No. 209 or the
14           Family Code of the Philippines, as amended.
15
16           b. First Family Home - shall refer to the first dwelling house, either bought or
17          constructed, and used as the primary residence of a family or by an unmarried head of
18          the family.
19
20           c. Unmarried Head of the Family - shall refer to any person, regardless of civil status,
21           who has one or more dependent/s upon him for chief support.
22
23           d. Dependent - shall refer to any, or a combination of two or more of the following
24           persons:
25
26                     i. A father or a mother or both;
27
28                     ii. One or more brothers or sisters who are unmarried, not gainfully employed, and
29                     less than twenty one (21) years of age;
30
31                     iii. One or more legitimate, illegitimate, adopted or foster children provided that
32                     such children are unmarried, not gainfully employed, and less than twenty one
33                     (21) years of age;
34
35
1                     iv. One or more siblings or children, regardless of age, who suffers from a mental
2                     or physical defect.
3
4           e. Solo Parent - shall refer to any person qualified as such pursuant to Section 3(a) of
5           Republic Act No. 8972 or the “Solo Parents’ Welfare Act of2000″.
6
7           f. Qualified Mortgage Loan - shall refer to a housing loan from any reputable bank
8           operating in the Philippines, including loans from the Home Development Mortgage
9           Fund (HDMF) or Pag-IBIG Fund, as provided under Republic Act (RA) No. 9679,
10           and cooperatives duly organized and registered with the Cooperative Development
11           Authority, as provided under RA No. 9520 or the “Philippine Cooperative Code of
12           2008″, obtained for the purpose of purchasing or constructing a family home, and
13           whose loan amount does not exceed two million and five hundred thousand pesos
14            (P2,500,000).
15
16           g. Mortgage Interest Relief - shall refer to an itemized tax deduction that allows
17           homeowners to deduct the interest they pay on a qualified mortgage loan used for the
18           purchase or construction of their first family home.
19
20           h. Qualified Taxpayer - shall refer to a taxpayer who is in good standing and has
21           obtained a housing loan for the purpose of acquiring or constructing his family home.
22
23           Sec. 4. Qualified Residence. – In order to be considered as the “first family home” as
24 contemplated under this Act, the following requisites must concur:
25
26           a. The residence being claimed as a first family home must meet the requirements set
27           under Articles 152-153 of the Family Code;
28
29           b. This must be the “first” family home of the taxpayer and be proven as such;
30
31           c. The value of the subject family home must not exceed Two Million Five Hundred
32           Pesos (P2,500,000); and
33
34           d. The claimant must submit all the requisite documents to qualify under this proposal,
35           such as but not limited to the notarized deed of sale, tax declaration, bank assessment,
36           loan documents, Income Tax Retums (ITR) and/or Sworn Statement of Assets,
37           Liabilities and Networth (SALN), and other documents as may be required under the
38           implementing rules and regulations.
39
40           Sec. 5. Exceptional Circumstances. – The qualified taxpayer may still claim the
41 privilege provided under this Act if his/her situation falls under any of the following instances:
42
43           a. If the qualified taxpayer is a solo parent as defined under Section 3(a) of Republic
44           Act No. 8972, otherwise known as “Solo Parents’ Welfare Act of 2000″;
45
46           b. If the original family home was destroyed, either completely or substantially, due to
47           force majeure or an act of God such as but not limited to storms, floods, earthquake,
48           volcanic eruption, fire, and other forms of natural calamities, and the taxpayer
49           constructs or purchases a new residential unit;
50
51           c. If the original family home was lost due to a valid expropriation by the Government.
52
53           Sec. 6. Home Mortgage Interest Relief. — Section 34 of the National Internal Revenue
54 Code (NIRC), as amended, is hereby further amended to read as follows::
55
56                     “SEC. 34. Deductions from Gross Income. – Except for taxpayers earning
57                     compensation income arising from personal services rendered under an employer-
1                     employee relationship where no deductions shall be allowed under this Section
2                     other than under SUBSECTIONS (M) AND (N) hereof, in computing taxable
3                     income subject to income tax under Sections 24(A); 26; 27(A), (B), and (C); and
4                     28(A)(1), there shall be allowed the following deductions from gross income:
5
6                               (A) Expenses. -
7
8                               XXX.
9
10                               (M) Premium Payments on Health and/or Hospitalization
11                               Insurance of an Individual Taxpayer. – XXX.
12
13                               (N) HOME MORTGAGE INTEREST RELIEF. ANY
14                               INTEREST ACTUALLY PAID DURING A TAXABLE YEAR
15                               FROM ANY LOAN OBTAINED FOR THE PURPOSE OF
16                               ACQUIRING OR CONSTRUCTING A QUALFIED
17                               TAXPAYER’S FIRST FAMILY HOME, AS MAY BE DEFINED
18                               BY EXISTING LAWS AND/OR RULES AND REGULATIONS
19                               TO BE ISSUED FOR THE PROPER IMPLEMENTATION OF
20                               THIS ACT.”
21
22           Sec.7. The necessary implementing rules and regulations (IRR) for purposes of this Act
23 shall be jointly issued by the Department of Finance (DOF), the Housing and Land Use
24 Regulatory Board (HLURB), and the Bureau of Internal Revenue (BIR), within sixty (60) days
25 from the effectivity of this Act.
26
27           Sec. 8. All laws, decrees, executive orders or any other issuances or parts thereof which
28 are inconsistent with the provisions of this Act are hereby repealed, amended or modified
29 accordingly.
30
31           Sec. 9. If any provision of this Act is held invalid or unconstitutional, any other
32 provision not affected shall continue to be in full force and effect.
33
34           Sec. 10. This Act shall take effect fifteen (15) days after its complete publication in the
35 Official Gazette or in at least two (2) newspapers of general circulation.
36
37
38           Approved,

{Source via senate.gov.ph}

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What do you think?

So what do you think of this bill? Do you think this will be approved and signed into law? I said my piece above, now it’s your turn. Let me know through the comments section below.

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About Cherry Castillo

is a Real Estate Broker (PRC Real Estate Broker License No. 3187), Lawyer (Roll of Attorneys No. 55239), and CPA (PRC CPA License No. 0102054). She is the 2013 Internal Education Head of REBAP-LMP

  • noel

    Does this mean its better to hold off buying a house for first time buyers until the bill is passed?

    • http://www.foreclosurephilippines.com Jay Castillo

      While waiting for the author(my wife Cherry) to reply (ahem…please answer!), I hope you won’t mind if I give my opinion. If you go for the maximum loan of 2.5M, you can potentially save Php144,880.95 on the first year alone (this is the total interest for the first year using the example I gave to answer Jesse’s comment).

      However, there is no assurance the bill will be passed anytime soon so it can be a long wait.

      • noel

        Hopefully the bill can be made in to law before 2016 elections. Thanks for the reply.

        Out of topic: Any advice if one should go into an assumed balance when buying a land property? Thank you

        • http://www.foreclosurephilippines.com Jay Castillo

          Hi Noel,

          What would be your agreement like in assuming the balance? Do you take-over the loan and will the bank recognize you as the new borrower? Or will it be just an internal arrangement between you and the seller?

  • Jesse_Bruce_Pinkman

    If the price of the house is, let’s say, $2 million, how much do we expect to save from this incentive?

    For OWFs, like me, does this bill offer any benefit?

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Jesse, I was making a sample computation for this while waiting for my wife to answer, and my sample computation is based on a Php2.5M loan at 6% interest rate @ 10 years to pay (sorry, I should have seen your comment earlier so I can use 2Million).

      Anyway, on the first year alone, the total interest would be Php144,880.95, which is very significant, assuming all would be tax deductible.

      I’ll make a separate follow-up post to illustrate this.

      For OFW’s, this would only apply if you are buying your first home.

  • inalorenzo91

    Ok yan lalo na sa mga nagtratrabaho na nagsisimulang magpundar. ayos!

  • chiquichix91

    This is wonderful, especially to those newly weds taht want to buy a new house. Thanks to Sonny Angara!