CHAPTER 4 Flashcards
The value of the net estate of a citizen or resident alien of the Philippines shall be determined by deducting from the value of the gross estate the following items of deduction:
- Standard Deduction equivalent to P5,000,000. (Discussed after Family Home for illustration purposes.)
- Claims Against the Estate
- Claims of the Deceased Against Insolvent Persons
- Unpaid Mortgages, Taxes and Casualty Losses.
The deduction herein allowed in the case of claims against the estate, unpaid mortgages or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money’s worth. - Property Previously Taxed
- Transfers for Public Use
- Family Home maximum deduction of P10,000,000
- Amount Received by Heirs under Republic Act No. 4917
- Net Share of the Surviving Spouse in the Conjugal Partnership or Community Property. (To be discussed in Chapters 7 and 8.)
The value of the net estate of a non-resident not a
citizen of the Philippines shall be determined by deducting from the value of the gross estate situated in the Philippines at the time of death the following:
- Standard Deduction equivalent to P500,000
- Losses and Indebtedness subject to limitation
- Property Previously Taxed
- Transfers for Public Use
- Net Share of the Surviving Spouse in the Conjugal Partnership or Community Property
A ________ is an obligation contracted by the decedent when he was alive which he should have settled or paid during his lifetime
claim against the estate
The word _______ is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments.
claims
Claims against the estate or indebtedness in respect of property may arise out of:
contract, tort or operation of law.
Requisites for Deductibility
a. The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death such as unpaid funeral expenses and unpaid medical expenses;
b. The liability was contracted in good faith and for adequate and full consideration in money or money’s worth;
c. The claim must be a debt or claim which is valid in law and enforceable in court;
d. The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed.
In addition to the requisites above, substantiation requirements have to be complied with.
JUST READ
The ______ amends the deductions allowed to non-resident estate under Section 86(8) of the NIRC-now entitled to a Standard Deduction of P500,000.
TRAIN Law
Illustration: Mr. Manglapus during his lifetime obtained a loan of P500,000 from Mr. Escudero. The debt instrument was duly notarized. A year after, Mr. Manglapus died with the loan unsettled. The full amount of loan may be deducted from the gross estate of Mr. Manglapus. However, since the loan was obtained within the three-year period, the administrator or executor of the estate **must submit a statement of disposition of the loan proceeds. **
If the decedent’s loan was contracted WITHIN three years before his death. a statement of disposition of proceeds must be submitted by the executor or administrator.
The incapacity of the debtors to pay their debts due to insolvency must be proven. The amount of receivable which is uncollectible may be allowed as a deduction from the gross estate.
TRUE
________ exists when the decedent leaves property encumbered by mortgage.
Unpaid mortgage
For unpaid mortgage to be deductible, the fair market value of the property mortgaged must be included in the gross estate in full. The unpaid mortgage deductible shall be to the extent that it was contracted bona fide and for an adequate and full consideration in money or money’s worth.
TRUE
These are taxes which have accrued as of the death of the decedent but which were unpaid as of the time of death.
Unpaid Taxes
There shall also be deducted losses incurred during the settlement of the estate arising from: fires, storms, shipwreck, or other casualties, or robbery, theft or embezzlement,
Casualty Losses
Limitations on Amount Deductible
- Value of the property.
Limitations on Amount Deductible - Deduction for mortgage or other lien.
- Deduction for losses, etc.
- Percentage of deductions
The value as reduced in no. 2 above shall be further reduced by an amount which bears the same ratio to the amounts allowed as deductions for losses, indebtedness, taxes, and transfers for public use as the amount otherwise deductible for property previously taxed bears to the value of the decedent’s gross estate. Note that family home, standard deduction, and amounts received under R.A. 4917 are not among the deductions hereunder.
Deductions for losses, etc.
The vanishing deduction shall be the value (final basis) in no. 3 above multiplied by the following percentage of deduction:
Percentage of deductions
T or F
If there is no mortgage debt paid, the value taken of property previously taxed would be the initial basis. If only part of the mortgage is paid, then only that part is deductible.
T
There shall be allowed as deduction from gross estate the amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusive public purposes.
Transfers for Public Use
T or F
The amount deductible from the gross estate as family home shall be the current fair market value of the decedent’s family home at the time of death. However, if the said current fair market value exceeds P10,000,000, the excess shall be subject to estate tax (TRAIN).
T
The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. It is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein (Arts. 152 and 153, Family Code)
Family Home
It must be part of the properties of the absolute community or of the conjugal partnership, or of the exclusive properties of either spouse depending upon the classification of the property (_______) and the property relations prevailing on the properties of the husband and wife. It may also be constituted by an unmarried of a family on his or her own property (Art. 156, Family Code). For purposes of availing of a family deduction to the extent allowable, a person may constitute only one of this (Art. 161).
Family home
Beneficiaries of a Family Home:
- The husband and wife, or the head of a family; and
- Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support (Art. 154).
T or F
Section 6(7)(1) of Rev. Reg. 12-2018 defines “husband and wife” and “unmarried head of a family,” as follows:
- Husband and Wife - Legally married man and woman.
- Unmarried Head of a Family - An unmarried or legally separated man or woman with one or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural or legally adopted children living with and dependent upon him or her for their chief support, where such brothers or sisters or children are not more than twenty 21 years of age, unmarried and not gainfully employed or where such children, brothers or sisters, regardless of age are incapable of self-support because of mental or physical defect, or any of the beneficiaries mentioned in Article 154 of the Family Code who is living in the family home and dependent upon the head of the family for legal support.
T
Requisites for Deductibility
- 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;
- The total value of the family home must be included as part of the gross estate of the decedent; and
- Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or the extent of the decedent’s interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P10,000,000
A deduction in the amount of P5,000,000 shall be allowed as an additional deduction without need of substantiation. The full amount of P5,000,000 shall be allowed as deduction for the benefit of the decedent (TRAIN).
Section 8 of Rev. Reg. 12-2018 illustrates the proper presentation of Family Home deduction, ________ , and other allowable deductions from the gross estate of an unmarried head of the family. Note that deductions are being classified into ordinary and special.
Standard Deduction
Classification of deductions:
Ordinary and Special
Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee in accordance with Republic Act 4917 shall be deductible. Such amount must be included in the gross estate of the decedent.
Amount Received by Heirs Under R.A. 4917
After deducting the allowable deductions pertaining to the conjugal or community properties included in the gross estate, the one-half share of the surviving spouse must be removed to ensure that only the decedent’s interest in the estate is taxed.
Net Share of the Surviving Spouse
DEDUCTIONS FROM THE GROSS ESTATE OF A NON-RESIDENT ALIEN DECEDENT (Rev. Reg. 12-2018, TRAIN)
Section 86(B) provides that the value of the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines the following items of deductions:
- Standard deduction - A deduction in the amount of P500,000 shall be allowed without need of substantiation. The full amount of P500,000 shall be allowed as deduction for the benefit of the decedent.
- The proportion of the total losses and indebtedness which the value of such part bears to the value of his entire gross estate wherever situated. Losses and indebtedness shall include the following:
- 2.1. Claims against the estate.
- 2.2. Claims of the deceased against insolvent persons where the value of the interest therein is included in the value of the gross estate.
- 2.3. Unpaid mortgages, taxes and casualty losses. - Property Previously Taxed or Vanishing Deduction
- Transfers for Public Use
- Net Share of the Surviving Spouse in the Conjugal Partnership or Community Property
This deduction is being allowed to lessen the impact of successive taxation of the same property within a very short period due to the death of the decedent-transferee.
Property Previously Taxed or Vanishing Deduction
