SEC. 86. Computation of Net Estate.

Question 1

Net Taxable Estate

Answer 1

Gross Estate
Less: Ordinary Deductions
Less: Special Deductions
Less: Shares of the Surviving Spouse

Question 2

Ordinary Deductions

Answer 2

Claims Against the Estate
Claims of the Deceased Against Insolvent Persons
Unpaid Mortgages, Taxes, and Casualty Losses
Property Previously Taxed (Vanishing Deduction)
Transfers for Public Use

Question 3

Claims Against the Estate – Requisites of Deductibility

Answer 3

RR 12-18
2.1. Requisites for Deductibility of Claims against the Estate. —
2.1.1. The liability represents a personal obligation of the deceased existing at the time of his death;
2.1.2. The liability was contracted in good faith and for
adequate and full consideration in money or money’s
worth;
2.1.3. The claim must be a debt or claim which is valid in law and enforceable in court;
2.1.4. The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed.

Question 4

Claims of the Deceased Against Insolvent Persons – Computation

Answer 4

Total Claim

Less: Recoverable Amount

Question 5

Claims of the Deceased Against Insolvent Persons – Computation – Recoverable Amount – Computation

Answer 5

Total Claim
Less: Secured Portion

Multiply by: Recovery Ratio

Question 6

Unpaid Mortgages – Computation

Answer 6

Original Amount

Less: Paid Before Death

Question 7

Property Previously Taxed (Vanishing Deduction) – Procedural Computation

Answer 7

1. Initial Value
2. Initial Basis
3. Final Basis
   4 Vanishing Deduction

Question 8

Property Previously Taxed (Vanishing Deduction) – Procedural Computation – Initial Value – Computation

Answer 8

Lower of
FV of the property at the date of the first transfer and
FV at the date of death

Question 9

Property Previously Taxed (Vanishing Deduction) – Procedural Computation – Initial Basis – Computation

Answer 9

Initial Value

Less: Indebtedness assumed and paid before death

Question 10

Property Previously Taxed (Vanishing Deduction) – Procedural Computation – Final Basis – Computation

Answer 10

Initial Basis

Less: (Initial Basis / Gross Estate) x (Losses, Indebtedness, taxes, and transfer for public purpose)

Question 11

Property Previously Taxed (Vanishing Deduction) – Procedural Computation – Vanishing Deduction – Computation

Answer 11

Final Basis
Multiply by: (Vanishing percentage)

If the decedent died within
1 year from receipt of the property – 100%
2 years from receipt of the property – 80%
3 years from receipt of the property – 60%
4 years from receipt of the property – 40%
5 years from receipt of the property – 20%
More than five years – 0%

Question 12

Special Deductions

Answer 12

Standard Deductions
Family Home
Others (i.e. Benefits Under RA 4917)

Question 13

Family Home – Conditions for Deductibility

Answer 13

RR 12-18
7.2.1. 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;
7.2.2. The total value of the family home must be included as part of the gross estate of the decedent; and
7.2.3. 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.

Question 14

Share of Surviving Spouse – Computation

Answer 14

Gross Estate
Less: Ordinary Deductions

Divide by: 2

Question 15

Net Taxable Estate of a Non-Resident Alien

Answer 15

Gross Estate
Less: Ordinary Deductions
Less: Special Deduction (Standard Deduction only)
Less: Share of Surviving Spouse

Question 16

Ordinary Deductions of a Non-Resident Alien

Answer 16

Claims Against the Estate – Proportion
Claims of the Deceased Against Insolvent Persons – Proportion
Unpaid Mortgages, Taxes, and Losses – Proportion
Property Previously Taxed (Vanishing Deduction) – within the Philippines at the date of death
Transfers for Public Purpose – to the Philippine government

Question 17

Ordinary Deductions of a Non-Resident Alien – Computation

Answer 17

Philippine Gross Estate
Divide by: World Gross Estate

Multiply by: Losses, Indebtedness, and Taxes

Question 18

Standard Deductions

Answer 18

Residents and/or Citizens – ₱5,000,000.00*
Non-Resident Alien – ₱500,000.00

*Allocated in Each Country Based on Gross Estate

Question 19

Total Allowable Deductions for LIT Items for Non-Resident Aliens – Computation

Answer 19

1. Global LIT
2. Philippine Gross Estate Ratio
3. Philippine LIT
4. Allowable Percentage
5. Deductible LIT

Question 20

Total Allowable Deductions for LIT Items for Non-Resident Aliens – Computation – Allowable Percentage

Answer 20

Total Proportional Value Allowed

Divided by: Total Actual Philippine Value

Question 21

Total Allowable Deductions for LIT Items for Non-Resident Aliens – Computation – Deductible LIT

Answer 21

Actual

Multiply by: Allowable %

Question 22

Final Foreign Tax Credit – Computation

Answer 22

Lower of
[Limit 1] Total of the Tax Credit Allowable per Country and
[Limit 2] World Estate Tax Credit Limit

Question 23

Final Foreign Tax Credit – Computation – Tax Credit Allowable per Country – Computation

Answer 23

[Limit 1] Lower of
Actual Foreign Estate Tax Paid and
Foregoing Limit for Each Country

Question 24

Final Foreign Tax Credit – Computation – Tax Credit Allowable per Country – Computation – Foregoing Limit for Each Country – Computation

Answer 24

Foreign Net Taxable Estate
Divided by: World Net Taxable Estate
Multiply by: Philippine Estate Tax Due

Question 25

Final Foreign Tax Credit – Computation – World Estate Tax Credit Limit – Computation

Answer 25

Total Foreign Net Taxable Estate
Divided by: World Net Taxable Estate
Multiply by: Philippine Estate Tax Due