Chap 3 - Deductions from GE

Question 1

Deductions from the GE are classified as follows:

Answer 1

1. Ordinary Deductions
2. Special Deductions
3. Share of the surviving spouse if married

Question 2

For the purpose of estate taxation, deductible losses from GE shall pertain to

Answer 2

“casualty losses”

Question 3

Requisites for deductibility of losses:

Answer 3

1. Arising exclusively from:
   1.1 Acts of God such as fire, storm, shipwreck, and other similar casualty
   1.2 Acts of man such as robbery, theft, embezzlement
2. Not compensated by insurance or otherwise
3. Not claimed as a deduction in an income tax return of the subject to income tax
4. Incurred during the settlement period of the estate.

Question 4

Settlement period pertains to the period prescribed by the law to file and settle the estate tax, which is, under the TRAIN law,

Answer 4

within one year from the date of death

Question 5

Losses should only be deducted if it happened

Answer 5

after the death of the decedent

Question 6

Ordinary Deductions pertain to

Answer 6

1. LITE (Losses, Indebtedness, Taxes, etc.)
2. Transfer for Public Use
3. Vanishing Deductions

Question 7

Indebted must exists when?

Answer 7

before the time of debtC

Question 8

Claims against the estate or indebtedness in respect of property may arise out of the following:

Answer 8

1. Contract
2. Tort
3. Operation of Law

Question 9

Requisites for deductibility of GE

Answer 9

1. The liability represents personal obligation of the decedent existing at the time of his death
2. The liability was contracted in good faith and for adequate and full consideration in money or money’s worth
3. The liability must be a debt or claim which is valid in law and enforceable in court
4. The debt must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed

Question 10

To be allowed as a deduction for unpaid mortgage or indebtedness on property, the GE must include

Answer 10

the FMV of the property encumbered

Question 11

The amount allowed as a deduction for unpaid mortgage or indebtedness on property would be

Answer 11

the outstanding debt or mortgage

Question 12

Unpaid taxes that accrued prior to the death of the decedent are deducted. However, the following are not allowed as a deduction:

Answer 12

1. Income tax on income received after death
2. Property taxes accrued after death
3. Estate tax

Question 13

Requisites for Deductibility of Vanishing Deductions

Answer 13

1. The present decedent died within 5 years from the date of death of the prior decedent or date of gift
2. The property can be identified as the one received from the prior decedent, or from the donor
3. The property must be located in the Philippines
4. The property must have formed part of the GE in the PH of the prior decedent or have been included in the total amount of the gifts of the donor made within 5 years prior to the present decedent’s death
5. The estate tax or donor’s tax on the prior succession must have been determined and paid by the prior decedent or donor
6. No previous vanishing deduction in the property from the prior decedent

Question 14

Value to take is

Answer 14

Whichever is the lower between the value of the property:
1. In the GE of the prior decedent or donor
2. In the GE of the present decedent

Question 15

Proportional deduction or 2nd deduction is computed as

Answer 15

(Initial basis/Gross Estate) x LIT + TFPU

Question 16

Vanishing deduction rates

Answer 16

Within one year - 100%
Beyond 1 year to 2 years - 80%
Beyond 2 year to 3 years - 60%
Beyond 3 year to 4 years - 40%
Beyond 4 year to 5 years - 20%

Question 17

What are the special deductions

Answer 17

1. Standard Deduction
2. Family Home
3. Amounts received by heirs under RA 4917

Question 18

Standard Deduction Rates

Answer 18

Citizen or Resident - Php5M
NRA - P500,000

Question 19

Family Home Deduction

Answer 19

Lower of P10,000,000 or FMV

Question 20

Requisites for family home deduction

Answer 20

1. The decedent was married or if single, was a head of the family
2. The family home as well as the land on which it stands must be owned by the decedent. Therefore, the FMV of the family home should have been included in the computation of the decedent’s gross estate
3. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the barangay captain of the locality where the family home is situated
4. Allowable deduction must be in an amount equivalent to the current FMV of the family home as declared on included in the GE, or the extent of the decedents interest, but not exceeding P10,000,000

Question 21

The net share of the surviving spouse in the conjugal partnership property is equal to

Answer 21

1/2 or 50% of the conjugal property after deducting the obligations chargeable (ordinary deductions only) to such property

Question 22

LITE deduction for NRA

Answer 22

Proportional Deduction only
Total LITE x (GE Phil/GE world)