Deductions from the Gross Estate

Question 1

Ordinary Deduction

Answer 1

For Citizen, Resident, and Nonresident Alien

1. LITe (Losses, Indebtedness, Taxes, etc)
2. Vanishing Deduction
3. Transfer for Public Use (TFPU)

** For NRA, LITe - proportional
>Total LITe x (GE Phils. / GE world)

Question 2

Special Deductions

Answer 2

1. Standard Deduction
   - Citizen/Resident - 5M
   - NRA - 500K
2. Family Home
3. RA 4917
   ^ Citizen/Resident only

Question 3

Share of the Surviving Spouse

Answer 3

For married decedents

Citizen, Resident, and NRA

Question 4

Ordinary Deduction

Losses

Answer 4

Pertains to Casualty Losses

Examples:
- Losses due to storms
- Shipwreck
- Losses arising from acts of man (robbery, theft, or embezzlement)

Amount deductible: VALUE OF THE PROPERTY LOST

Question 5

Requisites for Deductibility
(Losses)

Answer 5

a. Arising exclusively from:
- acts of God
- acts of man
b. Not compensated by insurance or otherwise
c. Not claimed as deduction in an ITR
d. Incurred during the settlement period of the estate

Question 6

Indebtedness or Claims against the Estate

Answer 6

May arise out of the following sources:
- Contract
- Tort
- Operation of Law

Question 7

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 judgements

Answer 7

Claims

Question 8

Requisites for Deductibility
(Indebtedness or Claims)

Answer 8

a. Liability represents personal obligation of the deceased existing at the time of his death
b. Contracted in good faith and for adequate and full consideration in money or money’s worth
c. A debt or claim which is valid in law and enforceable in court
d. Debt must not have been condoned by the creditor or the action to collect from the decedent must not have been prescribed.

Question 9

Funeral, Medical and Judicial Expenses

Answer 9

No longer allowed as deduction from the gross estate of a decedent.

Question 10

Unpaid Mortgages or Indebtedness on Property

Answer 10

To be allowed as a deduction, his gross estate must include the fair market value of the property encumbered.

Amount deductible = OUTSTANDING DEBT OR MORTGAGE

Question 11

Accommodation LOan

Answer 11

The value of the unpaid load must be included as a receivable of the estate.

Question 12

Claims arising after death are not allowed as deductions from Gross estate.

True or False

Answer 12

TRUE

Question 13

Taxes

Answer 13

Unpaid taxes that accrued prior to the death of the decedent.

Not allowed as a deduction:
- Income tax on income received after death
- Property taxes accrued after death
- Estate tax

Question 14

Claims against Insolvent Persons (CAIP)

Answer 14

Receivables due or owing from persons who are not financially capable of meeting their obligations.

Claims by the decedent during his lifetime that are not collectible.

Question 15

Requisites for Deductibility
(CAIP)

Answer 15

a. Incapacity of the debtor to pay his obligation should be proven

by. Full amount owed by the insolvent must first be included in the decedent’s gross estate and the amount uncollectible shall be allowed as a deduction

c. If the insolvent could only pay partial amount, the full amount owed shall be included in the gross estate and the amount uncollectible shall be allowed as a deduction

Question 16

Transfer for Public Use

Answer 16

Dispositions in a last will and testament or transfers to take effect after the death in favor of the PH government.

The same amount shall be included in the computation of the decedent’s GE in order to be allowed as a deduction.

Question 17

Vanishing Deduction

Answer 17

Property previously taxed

An amount allowed to reduce the taxable estate of a decedent where a property included in his gross estate was previously received either:

1. From a prior decedent by way of inheritance; or
2. From a donor by way of gift or donation

Question 18

Requisites for Deductibility
(Vanishing Deduction)

Answer 18

1. Present decedent died within 5 years from the date of the death of the prior decedent or date of gift
2. Property can be identified as received from the prior decedent or from the donor
3. Must be located in the PH
4. Must have formed part of the GE of the prior decedent or have been included in the total amount of the gifts of the donor
5. Previously taxed
6. No previous vanishing deduction

Question 19

Vanishing Deduction Rates

Answer 19

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

Question 20

Computation of Vanishing Deduction

Answer 20

Value to take (lower bet. value in the GE of prior and present decedent)
Less: Mortgage Paid
Initial Basis
Less: IB/GE x LIT + TFPU
Final Basis
x Vanishing Deduction %
Vanishing Deduction

Question 21

Standard Deduction

Answer 21

Citizen/resident - 5M
NRA - 500K

Question 22

Family Home

Answer 22

Whichever is lower of 10M or the FMV at the time of the decedent’s death

Question 23

Beneficiaries of a Family Home

Answer 23

• The husband and wife, or the head of a family
• Their parents, ascendants, descendants

Question 24

Limitation

Answer 24

For purposes of availing of a family home deduction to the extent allowable, a person may constitute only 1 family home.