Taxation 2

Estate Tax
Format of Computation – Single Decedent
Gross Estate P xxx
Less: Ordinary Deductions (xxx)
Special Deductions (xxx)
Net Taxable Estate P xxx

Estate Tax Due P xxx

Less: Tax Credit (xxx)
Estate Tax Payable P xxx
Format of Computation – Married Decedent
Exclusive Common Total
Gross Estate P xxx P xxx P xxx
Less: Ordinary Deductions (xxx) (xxx) (xxx)
P xxx *P xxx xxx
Less: Share of Surviving Spouse
(Net Common estate divide by 2) (xxx)
xxx
Less: Special Deductions (xxx)
Net Taxable Estate P xxx
Deductions
Deductions Allowed to Estate (Sec.86)

1. Ordinary Deductions
2. Special Deductions
3. Other Deductions
 1. Ordinary Deductions
a. Expenses, losses, indebtedness, taxes,
etc. (ELITE)
b. Transfer for public use
c. Property previously taxed (vanishing
deduction
 2. Special Deductions

a. Family Home
b. Standard Deduction
c. Medical Expenses
 3. Other Deductions
a. Amount received by heirs under R.A.
No. 4917

b. Share of surviving spouse

 1. Ordinary Deductions
Resident or Citizen Non-resident Alien
Decedent Decedent
Expenses, losses, indebtedness, Deductible *
taxes, etc. (ELITE) Deductible
Phil. GE x ELITE
Entire GE
Transfer for public use Deductible Deductible

Property previously taxed Deductible

Deductible
(vanishing deduction)
 2. Special Deductions
Resident or Citizen Non-resident Alien
Decedent Decedent
Family Home
Deductible Not Deductible
Standard Deduction
Deductible Not Deductible

Medical Expenses
Deductible Not Deductible
 3. Other Deductions
Resident or Citizen Non-resident Alien
Decedent Decedent
Amount received by heirs
Deductible Not Deductible
under R.A. No. 4917
Share of surviving spouse
Deductible Deductible
Deductions
Amplified
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)

Deductions Requisites for deductibility Amount deductible Deducted

from
a. Funeral a. Incurred up to the time of Actual funeral Common
Expenses interment expenses or 5% of property
b. Not borne or defrayed by relatives gross estate
and friends whichever is lower,
but in no case to
c. Supported by receipts or invoices
exceed P200,000
or other evidence
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)

Deductions Requisites for deductibility Amount deductible Deducted

from
b. Judicial a. Incurred during the settlement of Expenses incurred in: Common
Expenses the estate a. Inventory-taking property
of assets comprising
b. Incurred not beyond the last day
the gross estate;
prescribed by law, or the extension
b. Their
thereof, for the filing of estate tax return
(6 months after death & 30 days extension) administration;
c. Payment of debts
c. Incurred for the benefit of the estate
of the estate
d. Supported by receipts or invoices d. Distribution of
or by a sworn statement of account the estate among
issued and signed by the creditor the heirs.
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
Deductions Requisites for deductibility Amount deductible Deducted
from
c. Losses a. Incurred during the settlement of Value of the Common
the estate property lost property if
b. Arising from fires, storms, connected to
shipwreck, or other casualties, or common
from robbery, theft or embezzlement
Exclusive
c. Not compensated for by insurance
property if
or otherwise
connected to
d. Not claimed as deduction for income exclusive
tax purposes in an income tax return
e. Incurred not later than the last
day for payment of the estate tax
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
Deductions Requisites for deductibility Amount deductible Deducted
from
d. Indebted- a. The liability represents a personal Debts or demands Common
ness (Claims obligation of the deceased existing of pecuniary nature property if
against the at the time of is death which could have connected to
estate b. The liability was contracted in been enforced common
good faith and for adequate and full against the
consideration in money or money’s deceased in his Exclusive
worth lifetime and could property if
have been reduced connected to
c. The claim must be a debt or claim
to simple money exclusive
which is valid in law and enforceable
terms
in court
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
Deductions Requisites for deductibility Amount deductible Deducted
from
d. Indebted- d. The indebtedness must not have been
ness (Claims condoned by the creditor or the action to
against the collect from the decedent must not have
prescribed
estate (10 years prescription period)
e. At the time the indebtedness was
incurred the debt instrument was duly
notarized
f. If the loan was contracted within three
(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.
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
Deductions Requisites for deductibility Amount deductible Deducted
from
e. Unpaid The tax must have accrued before Unpaid taxes that Common
taxes the death of the decedent accrued before the property if
decedent’s death but
not including:
connected to
a) Any income tax upon common
income received after
the death of the Exclusive
decedent, or property if
b) Property taxes not
accrued before his
connected to
death, exclusive
c) Or any estate tax.
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
Deductions Requisites for deductibility Amount deductible Deducted
from
f. Claims a) Value of claims is included in the Claims that are not Common
against gross estate collectible property if
insolvent b) The incapacity of the debtors to connected to
persons pay their obligation is proven common

Exclusive
property if
connected to
exclusive
1. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
Deductions Requisites for deductibility Amount deductible Deducted
from
g. Unpaid a) The fair market vale of the Amount of unpaid Common
mortgage mortgaged property without mortgage property if
deducting the mortgage connected to
indebtedness has been initially common
included as part of the gross estate
Exclusive
b) The mortgage indebtedness was property if
contracted in good faith and for an connected to
adequate and full consideration exclusive
2. Transfer for Public Use
Requisites for deductibility Amount deductible Deducted
from
The transfer must be testamentary in Amount of all bequest, legacies, Exclusive
character or by way of donation devises, or transfers to or for the property
mortis causa executed by the use of the Government of the
decedent before his death Philippines, or any political
subdivision for exclusively public
purpose
3. Property Previously Taxed (Vanishing Deduction)
Requisites for deductibility

a. The date of death of the present decedent must not exceed 5 years from the date
of death of the prior decedent or date of donation
b. The property can be identified as the one received from prior decedent, or from
the donor, or the property acquired in exchange for the original property so
received.
c. The property must have formed part of the prior decedent’s gross estate situated
in the Philippines or been included in the total amount of the gifts of the donor
made within 5 years prior to the present decedent’s death.
d. The estate tax must have been finally determined and paid by the prior decedent
or the donor’s tax must have been paid by the donor.
e. No vanishing deduction was allowed in determining the value of the net estate of
the prior decedent.
3. Property Previously Taxed (Vanishing Deduction)
Rates (based on time gap) Format of computation

Value to take P xxx

100% - if not more than 1 year Less: Mortgage paid by
80% - if more than 1 year but not more present decedent xxx
than 2 years Initial basis xxx
60% - if more than 2 years but not more
Less: Proportional deduction
than 3 years (Initial basis/Gross estate
40% - if more than 3 years but not more x Deductions) xxx
than 4 years Final basis xxx
20% - if more than 4 years but not more
Rate xxx
than 5 years
Vanishing deduction xxx
4. Family Home

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.
4. Family Home
Conditions for the allowance of family home

1. The family home must be the actual residential home of the decedent
and his family at the time of death, as certified by the Barangay Captain of
the locality the family home is situated. (located in the Philippines)
2. The total value of the family home must e included as part of the gross
estate of the decedent, and
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 to the extent of the decedent’s interest (whether conjugal/community or
exclusive property) whichever is lower, but not exceeding P1,000,000.
4. Family Home
Amount deductible

1. Exclusive property Full value included in the gross estate

2. Conjugal/community property One-half (1/2) of the value included in

the gross estate
3. Partly exclusive property, Exclusive part (full value)
partly conjugal/community
property Conjugal/community part
(1/2 x value)
Note: In all three (3) cases, the maximum amount of family home deduction
is P1,000,000.
5. Standard Deduction
Amount deductible P 1,000,000
Not available for Non-Resident Alien
6. Medical Expenses
Requisites for deductibility
1. Incurred within one (1) year before the
death of the decedent
2. Duly substantiated with official receipts
for services rendered by the decedent’s
attending physicians, invoices, statements
of account duly certified by the hospital
and such other supporting documents
Amount deductible
All medical expenses incurred (whether
paid or unpaid) provided the total
amount does not exceed P500,000
Examples of medical expenses:
1) Cost medicines;
2) Hospital bills;
3) Doctor’s fees.
7. Amount received by Heirs Under R. A. # 4917
Requisites for deductibility Amount deductible

The amount of the separation benefit is Any amount received by the heirs from
included as part of the gross estate of the decedent’s employer as a consequence
decedent. of the death of the employee-decedent
8. Share of the Surviving Spouse
Gross conjugal/community properties P xxx
Less: Conjugal/community deductions xxx
Net conjugal/community properties (NCP) P xxx
Share of surviving spouse (1/2 x NCP) P xxx