Deductions from

Gross Estate

TAXATION REVIEW

Mr. James Dane T. Adayo

DEDUCTIONS AMPLIFIED
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELIT)
Deductions Requisites for deductibility Amount deductible Deducted
from
a. Funeral a) Incurred up to the time for internment Actual funeral expenses or Common
expenses b) Not borne or defrayed by relatives or 5% of gross estate whichever Property
(Repealed) friends. is lower, but in no case to
c) Supported by receipts or invoices or exceed P200,000
other evidence.
b. Judicial a) Incurred during the settlement of the Expenses incurred in: Common
expenses estate a. Inventory taking of property
(Repealed) b) Incurred not beyond the last day assets comprising the gross
prescribed by law; or the extension estate;
thereof, for filing of estate tax return; b. Their administration
c) Incurred for the benefit of the estate; c. Payment of debts of the
d) Duly substantiated with receipts estate;
d. Distribution of the estate
among the heirs.
Illustrations
1. Nappa Tai died. The amount of his funeral expenses is covered by a memorial plan up to P120,000. Other
actual funeral expenses amounted to P75,000. The amount of his tangible properties upon death was
P3,700,000.
How much is the gross estate? How about the funeral expenses?
Gross Estate Funeral Expenses Gross EstateFuneral Expenses
a. P3,700,000 70,000 c. P3,820,000 191,000
b. 3,700,000 195,000 d. 3,820,000 195,000\
DEDUCTIONS AMPLIFIED
c. Losses a) Incurred during the settlement of the estate; Value of the property Common property if
b) Arising from fires, storms, shipwrecks, or other lost connected to common
casualties, or from robbery, theft or  
embezzlement Exclusive property if
c) Not compensated for by insurance or connected to exclusive
otherwise;
d) Not claimed as deduction for income tax
purposes in an income tax return;
e) Incurred not later than the last day for the
payment of the estate tax.
DEDUCTIONS AMPLIFIED
d. Indebted- a) The liability represents a personal obligation Debts or demands of Common property if
ness of the deceased existing at the time of his pecuniary nature which connected to common
death; could have been  
b) The liability was contracted in good faith enforced against the Exclusive property if
and for adequate and full consideration in deceased in his lifetime connected to exclusive
money or money’s worth and could have been
c) The claim must be a debt or claim which is reduced to simple
valid in law and enforceable in court; money terms
d) The indebtedness must not have been
condoned by the creditor or the action
collect from the decedent must not have
prescribed.
e) At the time of the indebtedness was incurred
the debt instrument was duly notarized.
f) If the loan was contracted within 3 years
before the death of the decedent, the
administrator or executor shall submit a
statement showing the disposition of the
proceeds of the loan
Illustrations
1. The following expenses and obligations were left by Bulbasaur upon his death:
Notes payable, not notarized P30,000
Loans payable, PNB 300,000
Accounts receivable, debtor not insolvent 40,000
Accounts receivable, debtor insolvent 60,000
Death benefits from employer 200,000
Mortgage paid 50,000
Income taxes on income of decedent’s estate 7,500
The total amount deductible from gross estate is-
a. 600,000
b. 550,000
c. 5,560,000
d. 560,000
DEDUCTIONS AMPLIFIED
e. Unpaid taxes The tax must have accrued before the Unpaid taxes that accrued Common
death of the decedent. before the decedent’s death but property if
not including: connected to
a)Any income tax upon common
income received after death of  
the decedent, or Exclusive prop-
b) Property taxes not erty if con-
accrued before his death nected to exclu-
c) Or any estate tax sive
f. Claims against a)Value of claims is included in the Claims that are not collectible Common
insolvent persons gross estate; property if
b) The incapacity of the debtors to connected to
pay their obligation is proven. common
 
Exclusive prop-
erty if con-
nected to exclu-
sive
Illustrations
1. One of the following is deductible against claim against the estate-
a. An obligation contracted by the decedent one (1) day before he died
b. An obligation of the decedent which prescribed while the decedent was still alive
c. An obligation which has not reduced in writing under the Statutes of Fraud
d. An obligation which shall be paid by the heirs

2. All of the following, except one are deductible from gross estate of a decedent who died on
September 30, 2015
a. Income tax earned from January to September 29, 2015
b. Real property taxes payable during the last quarter of 2015
c. Income tax earned during the last quarter of 2015
d. Gift taxes on donations given June 12, 2015
Illustrations
3. You were appointed by the court as an administrator of the Estate of Ms. Luna Moonfang, who has
been killed by an arrow shot of Ms. Drow Ranger, she died on March 15, 2018. The following unpaid
taxes were presented to you:
Unpaid real estate tax for the second, third and fourth quarters of 2018 P90,000
Unpaid tax on the income received by the estate of Luna 20,000
Estate tax on the estate of Luna 50,000
Unpaid tax on income received by Luna for the period January 1 to March 14, 2018 3,000
How much should be the deductible unpaid taxes?
a. P163,000 c. P90,000
b. P 93,000 d. NAE

4. The following selected data were taken from the estate of Sven:
Claims against insolvent person (fully uncollectible) P500,000
Claim against a person who absconded (fully uncollectible) 300,000
Claim against an insolvent person (20% collectible) 100,000
How much should be included in and deducted from the gross estate?
Amount to be included Amount to be deducted
a. P900,000 580,000
b. 900,000 880,000
c. 400,000 100,000
d. 100,000 80,000
DEDUCTIONS AMPLIFIED
g. Unpaid a) The fair market value of the mortgaged Amount of unpaid mortgage Common prop-
Mortgage property without deducting the mortgage erty if con-
indebtedness has been initially included as nected to
part of the gross estate; common
 
b) The mortgage indebtedness was contracted Exclusive prop-
in good faith and for an adequate and full erty if con-
consideration nected to exclu-
sive
Transfer for Public Use
Requisites for Amount deductible Deducted from
deductibility
The transfer must Amount of al bequest, legacies, devises or Exclusive property
be testatementary transfers to or for the use of the Government
in character or by way of of
donation mortis causa the Philippines, or any political subdivision for
executed by the dece- exclusively public purpose.
dent before his death
Property Previously Taxed (Vanishing Deduction)
Requisites for Deduction Rates (based on time gap) Format of computation
a. The date of death of the 100%- if not more than 1 year Value to take P xxx
present decedent must   Less: Mortgage paid by  
not exceed 5 years from 80%- if more than 1 year but not present decedent xx
the date of death of the more than 2 years Initial basis xx

prior decedent or date of  

Notes:
donation. 60%- if more than 2 years but not
Under conjugal partnership of gains
b. The property can be identified more than 3 years
vanishing deduction is a deduction
as the one received from prior   from exclusive property.
decedent, or from the donor, or 40%- if more than 3 years but not
the property acquired in more than 4 years Under absolute community of
exchange for the original property   property, vanishing deduction may
so received 20%- if more than 4 years but not be
more than 5 years deducted from exclusive property
or community property.
Illustration
a. Decedent was a citizen of the Philippines who was single at the time of death. The following information were
made available:
Properties inherited two- and- a- half years before death:
Located outside the Philippines P300,000
Located in the Philippines
FMV, when inherited 650,000
FMV, time of death 700,000
Unpaid mortgage on the property when inherited 150,000
Unpaid mortgage on the property at the time of death 100,000
Property acquired through own labor 2,000,000
Ordinary deductions from the gross estate (Excluding unpaid mortgage) 390,000
 
How much is the vanishing deduction?

Initial basis
Gross Estate X ELITE
Illustration
A non-resident alien decedent, single, left the following properties:
Car, Manila (inherited 4 years before he died, FMV, date of inheritance was P700,000) P 500,000
Car, USA 600,000
Shares of Stock, USA 600,000
Shares of Stock, Manila 400,000
House and Lot, USA 300,000
Bank Deposit, PNB-Manila 100,000
Other tangible personal properties, Manila 500,000
 
The administrator claimed the following deductions:
Loss of certain tangible personal properties 65,000
Claims against the estate 55,000
Unpaid taxes, accrued before death 15,000
Transfer for public use 10,000
Medical expenses 50,000
 

How much was the total deductions from Philippine gross estate in connection with Philippine estate
tax?
4. Family home (Special Deductions)
The family home, constituted jointly by the husband and the wife or by an unmarried head of the family, is the dwelling
house where they and their family reside and the land on which it is situated.
Conditions for the allowance of family deduction Amount deductible
1) The family home must be the actual residential home of 1) Exclusive property Full value included in the
the decedent and his family at the time of his death, as gross estate
certified by the Barangay Captain of the locality the 2) Conjugal/community One-half (1/2) of the
family home is situated property value included in the
2) The total value of the family home must be included as gross estate
3) Partly exclusive Exclusive part (full value)
part of the gross estate of the decedent; and
property, partly  
conjugal/community Conjugal/community
3) Allowable deduction must be in an amount equivalent to
property part
the current fair market value of the family home as declared
(1/2 x value)
or included in the gross estate, or to the extent of the
decedent’s interest(whether conjugal/community or exclusive Note: In all three (3) cases, the maximum amount of
property), whichever is lower, but not exceeding P10,000,000. family home deduction is P10,000,000
Family Home (Sample Problem)
1. The following real properties were owned by a decedent, head of family, who was a Filipino citizen at the
time of his death:
Vacation house USA P20,000,000
Beach house, Bohol 15,000,000
House and lot (family home), Masbate 9,000,000
House and lot (dwelling place when in the city), Manila 25,000,000
How much should be included in and deducted from the gross estate?
Amount to be included Family home deduction
a. 69,000,000 10,000,000
b. 49,000,000 10,000,000
c. 69,000,000 9,000,000
d. 9,000,000 9,000,000
2. The fair market value of the family home which is partly exclusive and partly common is as follows:
Family lot (exclusive) P500,000
Family house (common) 900,000
Total P 1,400,000
How much is the deductible amount for family home?
a. 1,400,000
b. 1,000,00
c. 950,000
d. 700,000
5. Standard Deduction
For Resident or Citizen – P5,000,000 beginning January 1, 2018
P1,000,000 prior to 2018
For Non resident alien- P500,000 beginning January 1, 2018
NIL prior to 2018
Standard Deduction Sample Problem
The following expenses and obligations were left by Bulbasaur upon his death:
Notes payable, not notarized P30,000
Loans payable, PNB 300,000
Accounts receivable, debtor not insolvent 40,000
Accounts receivable, debtor insolvent 60,000
Death benefits from employer 200,000
Mortgage paid 50,000
Income taxes on income of decedent’s estate 7,500

The total amount deductible from gross estate is-

A P5,560,000
b. P560,000
6. Medical expenses (Special Deduction)
Requisites for deduction Amount deductible
1) Incurred within one (1) year before the death of All medical expenses incurred (whether paid or unpaid),
the decedent. provided the total amount does not exceed P500,000.
2) Duly substantiated with official receipts for services  
rendered by the decedent’s attending physicians, Examples of medical expenses:
invoices, statements of account duly certified by 1) Cost of medicines
the hospital and such other supporting documents. 2) Hospital bills
3) Doctor’s fees

*Repealed under the TRAIN Law

7.Amount received by heirs under R.A No. 4917 (Special Deductions)

Requisites for deduction Amount deductible

The amount of the separation benefit is included as Any amount received by the heirs from decedent’s
part of the gross estate of the decedent employer as consequence of the death of the
employee-decedent.
Share of the Surviving Spouse (Special Deductions)

Gross Conjugal/community properties Pxxx

Less: Conjugal/community deductions Xxx
Net conjugal/ community properties (NCP) P xxx
Share of surviving spouse (1/2 x NCP) P xxx
Tax Credit for Estate Tax Paid to a Foreign Country
1. Entitled to tax credit Resident or citizen decedents
2. Deducted from estate The estate tax imposed in the Tax Code shall be credited with the amounts of
tax due any estate tax imposed by the authority of a foreign country.
3. Limitations on credit Only one foreign country is involved
Net estate, foreign x Philippine estate tax
Entire net estate
  
Two or more foreign countries are involved
Limit (a)- Per foreign country

Net estate, per foreign country x Philippine estate tax due

Entire net estate

Limit (b)- By total

 
Net estate (all foreign countries) x Philippine estate tax due
Entire net estate
  
 
Exercise:
The following data are made available from the estate of a resident citizen
decedent:

Net estate, Philippines P1,200,000

Net estate, Country A(after P12,000 estate tax paid) 188,000
Net estate, Country B(before P5,000, estate tax paid) 200,000

How much is the allowable estate tax credit?

Administrative Provisions
Notice of Death
a. Notice of death is required to be filed 1) In all cases of transfer subject to tax
2) Where, though exempt from tax, the gross value of the gross
estate exceeds P20,000
Repealed under the Train Law
b. Who will file? 1) Executor (Appointed by decedent)
2) Administrator (Appointed by court)
3) Any of the legal heirs
c. When is notice filed? Within 2 months after the decedent’s death, or within like period
after qualifying such executor or administrator.
Estate Tax Returns

a. Estate tax returns are filed 1) In all cases of transfer subject to tax
2) Where the said estate consists of registered or registrable property
(regardless of the value of the gross estate)
b. Persons to file returns 1) Executor
2) Administrator
3) Any of the legal heirs
c. Information shown in the 1) The value of the gross estate of the decedent at the time of his
returns death, or in case of non-resident alien of that part of his gross estate
situated in the Philippines;
2) The deductions allowed from the gross estate
3) Such part of such information as may at the time be ascertainable
and such supplemental data as may be necessary to establish correct
taxes;
d. Time of filing returns Within 1 year after the decedent’s death
e. Returns to be supported with When the estate tax returns show gross value exceeding P5,000,000,
statements certified by a CPA beginning 2018 (2,000,000 prior to 2018)
Estate Tax Returns
f. Contents of the 1) Itemized assets of the decedent with their corresponding gross value at the time of
statements certified by a his death, or in case of non-resident alien, of that part of his estate situated in the
CPA Philippines;
2) Itemized deductions
3) The amount of tax whether paid or still due and outstanding
g. Filing of certified copy of Within 30 days after the promulgation of such order.
the schedule of partition
and the order of the
court ordering the same
h. Extension for filing the The commissioner can, in meritorious cases, extend the filing or returns for a period not
returns exceeding 30 days.
i. Place of filing the returns 1. In case of resident citizen:
a) Accredited agent bank;
b) RDO;
c) Collection officer;
d) Duly authorized treasurer of the City or Municipality where the decedent was domi-
ciled at the time of death.
2. In case of Non-resident decedent:
e) RDO where the executor or administrator is registered;
f) RDO having jurisdiction over the executor or administrator’s legal residence (if ex-
ecutor or administrator is not registered)
g) Office of the Commissioner (RDO No. 39-South Quezon City) (if the estate does not
have any executor or administrator in the Philippines)
Payment of Tax
a. Time of payment At the time the returns are filed
b. Extension of time of payment 1) Estate is settled through the courts- not to exceed 5 years
2) Estate is settled extra-judicially- not to exceed 2 years
c. Extension of payment not When there is negligence, intentional disregard of rules and regulations
allowed and fraud on the part of the tax payer.
d. Liability for payment 1) Estate tax shall be paid by the executor or administrator before the
delivery of the distributive share in the inheritance to any heir or
beneficiary;
2) Where there are two or more executors or administrators, all of
them are severally liable for the payment of tax;
3) The executor or administrator of an estate has the primary obligation
to pay the estate tax but the heir or beneficiary has subsidiary liability for
the payment of that portion of the estate tax which his distributive share
bears to the value of the total net asset.
e. 6% final tax in case of partial
withdrawal in cash in bank of the
decedent is now allowed
Net Taxable Estate (Single)
The decedent is an unmarried head of family with the following data, died on 2018:
Real and personal properties P20,000,000
Family home 4,000,000
Ordinary deductions:
Losses P400,000
Other deductions 2,600,000 3,000,000
Medical expenses 1,200,000
The taxable net estate is:
a. 7,000,000
b. 6,000,000
c. 19,800,000
d. 1,500,000
Net Taxable Estate
Use the following data for the next two (2) questions:
The estate of Pedro Resident citizen decedent, married, who died on April 1, 2018 are as follows:
House and lot ( family home )
The lot was acquired at a cost of P3M before marriage while the house was
constructed on March 1, 2018, during marriage, at a cost of P10M from partnership P14,000,000
funds. The lot had a FMV of P4,000,000 after construction of the house.
Other properties acquired during marriage 6,000,000
Jewelry inherited on Feb. 14, 2017, during marriage, then with a fair market value 2,500,000
of P1,300,000
Property in U.S. , received as gift during marriage from a friend on Jan. 12, 2017 2,300,000
( the applicable donor’s tax was not paid by the donor )
Rental income on the above property up to time of death 1,200,000
Expenses / Claim
Funeral expenses 420,000
Judicial expenses 800,000
Casualty losses incurred on Dec. 10, 2018 600,000
Claims against the estate 1,600,000
Medical expenses within 1 year prior to death, only half was receipted 4,000,000

1. How much is the net taxable estate under Conjugal Partnership of Gains?
2. How much is the net taxable estate under Absolute Community of Property?
Net Taxable Estate
Battousai married Guardian Angel sa Likod in 2013 under the absolute community of property regime died on
August 30, 2015. He left the following properties and obligations:
Properties:
Cash in bank P10,200,000
Residential lot inherited from his father on June 12, 2012 1,200,000
Family home:
House (community property) 1,300,000
Lot (exclusive property of Battousai) 1,000,000
Personal properties acquired by the spouses during marriage 200,000
Receivable from his sister (insolvent) 100,000
Inter vivos donation from his mother on July 2015, revocable 150,000
Receivable from SSS as indemnity for hospitalization 12,000
Obligations:
Unpaid mortgage on the residential lot contracted by the father:
At the time of death of father 300,000
At the time of death of Battousai 100,000
Claims against the estate (includes unpaid medical expenses of P12,000) 35,000
Unpaid mortgage on the house(loaned to Battousai brother) 100,000
Casualty loss (50% was indemnified by the insurance company) 60,000
Donation to Barangay Engkantao (verbal donation) 25,000
 THANK YOU
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