CHAPTER 4: DEDUCTIONS FROM

GROSS STATE

Marquez, May B.
Orbe, Avy Mae
Deductions:
 Are items allowed by Law to be deducted to the
gross estate in order to arrive at net taxable
estate.
 Only those allowed by Law shall be claimed as
deduction.
 These items must be able to justify and should be
proved that the expenses really exists.
Resident Citizen, Non-Resident Citizen, and Resident
Alien Decedents.

The value of the Net estate of a citizen or resident

alien of the Philippines shall be determined by
deducting from value of the gross estate of the
following deductions.
 Expenses (Funeral and Judicial)
Lossess Claims against the estate
Indebtedness
Taxes Claims against insolvent person
ORDINARY
Transfer for Public Use
Amount received by heir under RA 4917
Vanishing Deductions
Share of surviving spouse

Family Home Note: All these deductions are

SPECIAL Medical Expenses applicable to RC, NRC and RA
Standard Deduction decedents
Funeral Expenses:
• Deaths occuring on or after Jan. 01, 1998, actual
funeral expenses means cost incurred in
connection with the internment or burial of the
deceased with official receipts.
• The amount allowed as deductions shall equal to
the ACTUAL EXPENSES incurred OR the 5% of the
GROSS ESTATE whichever is LOWER but in NO
CASE shall exceed 200,000.
Example. Compute the amount deductible funeral expenses in each of the
following cases:
ANSWER:
Funeral expenses shall consist of the following:
1. Mourning Apparel of the surviving spouse and unmarried minor children
of the deceased bought and used on the occasion of the burial.
2. Expenses for the deceased’s wake, including food and drinks.
3. Publication charges to death notices.
4. Telecommunication expenses informing relatives of the deceased.
5. Cost of burial plot, tombstones, monument or mausoleum but not their
upkeep. In case the deceased owns a family estate or several burial
lots, only the value corresponding to the plot where he is buried is
deductible.
6. Internment and/or cremation fees and charges; and
7. All other expenses incurred for the performance of the rites and
ceremonies incident to internment
Example. Abu Sayaf gross estate is P3,000,000. Her executor is claiming the following as
funeral expenses related to the death of Abu:

* Hospitalization incurred during the last ANSWER:

3 months prior to Abu’s Death P50,000 X
* Burial Lot, 20% are paid from friend’s contribution 50,000 40,000
* Expenses for wake before burial 20,000 20,000
* Thank you cards for the symphatizers 2,000 X
* Telegrams and cables sent to the relatives 1,000 1,000
* Mourning apparel for the relatives 1,000 X
* Mourning apparel of the spouse and children 3,000 3,000
* Entertainment Expenses during the rites and
ceremonies during burial 2,500 2,500
How much is the allowable funeral expense? P66,500
Judicial Expenses
o Are allowed deductions incurred for the
administration, inventory taking of assets, and
settlement of the estate.
o To be deductible, judicial expenses should be
incurred during the settlement of estate but not
beyond the last prescribed by law, or the
extension thereof, for the filing of estate tax
return.
Include:
• Fees of executor or administrator
• Attorneys fee
• Court fees
• Accountant fees
• Appraisers fee
• Clerk hire
• Costs of preserving and distributing the estate
• Costs of storing or maintaining property of the estate
• Brokerage fees for selling property of the estate
Expenses not essential to the proper settlement of the estate but
incurred for the individual benefit of the heirs, legatees, or devisees
are not allowed as deductions. Thus the following are not allowed as
deductions:
1. Attorney’s fees incident to litigation incurred by the heirs in asserting
their respective rights or claims as to who are entitled to the estate left by
the deceased;
2. Premiums paid by the judicial administrator on his bond are not
deductible, because the ability of the appointee to give bond in the nature
of a qualification
3. Compensation of trustees such expenses being for the account and
benefit not of the estate but of the beneficiaries.
TRAIN LAW
Standard Deduction – An amount equivalent to
Five Million Pesos (P5,000,000.00)
Claims against the estate
• Pertains to debts which are properly chargeable and enforceable against the
estate.
• To be deductible, the following requisites must be complied:
a) the liability represents a personal obligation of the deceased
existing at the time of his death except unpaid funeral expenses and unpaid
medical expenses.
b) that the liability was contracted in good faith and for an 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
Claims against insolvent person

 A requisite for its deductibility is that the value of the

decedent’s interest therein is included in the value of
the gross estate and that the debtors are incapable of
paying their indebtedness
Example:
Malakas borrowed P150,000 from Maganda. After a month, the debtor paid
P50,000. before the remaining balance of 100,000 was paid, Malakas died.
Prior to his death, the court declared Malakas insolvent. The total assets and
liabilities of the debtor amount to P200,000 and P500,000. respectively. How
much bad debt is deductible from the estate of Malakas?

Remaining Debt of Malakas P100,000

Less: Recoverable Amount (2/5 x 100,000) 40,000
Amount Deductible P60,000
Unpaid Mortgages

• These are unpaid indebtedness or loans secured by

debtor’s property, contracted in good faith and for the
adequate and full consideration in money or money’s
worth.
• To be deductible, the property mortgaged must be part
of the gross estate at Fair market value.
Unpaid Taxes
 Refer to taxes incurred prior to the date of the decedent’s death and
remained unpaid as of the date of death.

DEATH

BEFORE AFTER
DEDUCTIBLE NON-DEDUCTIBLE
Casualty Losses
 All losses incurred during the settlement of the estate
arising from theft, robbery embezzlement, fire,
shipwrecks, storms and other calamities.
 Casualty losses can be claimed as long as: the amount
of the loss is not compensated for by any insurance or
extra judicial settlement; and
 They have not been claimed as deduction from gross
income for purposes of income tax computation
VANISHING DEDUCTION (Property previously taxed)
 To lessen the burden of paying tax due to the short period of
property transfers by reason of the early deaths
 Same property must be included in the estate
 To be deductible:
1. Present decedent died within 5 years from the receipt of
property through gratuitous transfer.
2. The property INVOLVE is within the Philippines
3. Tax must have been actually been paid for such property
4. It must came from a prior decedent
5. No similar deduction must have allowed to prior
decedent
Limitations on amount deductible:
1. Value of the property – previous transfer vs. present
(LOWER)
2. Deduction for mortgage or other lien – Value taken less
mortgage paid
3. Deductions for expenses, etc. = ELIT + TPU X (Initial
Basis/Gross Estate)
4. Percentage of deduction level
Rate of Vanishing Deduction:
100% - If within 1 year
80% - if > 1 year to 2 years
60% - if > 2 years to 3 years
40% - if > 3 years to 4 years
20% - if > 4 years to 5 years
Illustration:
Gina Dan, died on October 21, 2013 leaving a parcel of land which she inherited
from her mother, Pina Dan, who died May 20, 2010. The value of the property at
the time of death of her mother was 350,000 but it appreciated to 475,000 in
2013. The gross estate, deductions and other data consisted of the following;
Community Property 950,000
Exclusive Properties 650,000
Funeral Expenses 40,000
Judicial Expenses 25,000
Medical Expenses 15,000
Bequests to Phil. Govt. 10,000
Claims against the estate 15,000
At the time of death of Pina, the parcel land has an unpaid mortgage of 50,000 of
which 20,000 was paid by Gina. How much is the vanishing deductions?
 Solution:
Value in estate of prior decedent 350,000
Value in estate of present decedent 475,000
Lower Value 350,000
Less: Mortgage Paid (20,000)
Initial Basis 330,000
Less: Deductions (pro-rated)
Funeral Expenses 40,000
Judicial Expenses 25,000
Transfer for Public Use 10,000
Claims against estate 15,000
Unpaid Mortgage 30,000
Total 120,000
Deductible (330,000/1,600,000) x 120,000 24,750
Base 305,250
Rate ( more than 3 years to 4 Years) 40%
Vanishing Deduction 122,100
Transfer for Public Use
 All bequests, legacies, devises, or transfers to or for the use of
the Philippine Government
 Other than the Philippine Government, NOT Allowed as deduction
 Must be through TESTAMENTARY succession
 Deductible from exclusive portion of the estate; otherwise it is
conjugal (must have written consent of the other spouse)
 Deemed to have done by husband alone; otherwise there should
be express stipulation that the wife joins the donation
 If silent, it should be taken as an exclusive property
Family Home
• It is the dwelling house, including the Land on which it is situated.
• Requisites for Deductibility:
1. The family home must be the actual residential home at the time of
decedent’s death, as certified by the Barangay Captain of the locality where it is
situated.
2. The total value of the family home must be included in the gross
estate.
3. Allowable amount for deduction equivalent to the current fair
market value as 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 P1,000,000.
 Train Law
The Family Home – An amount equivalent to the current
fair market value of the decedent’s family home:
Provided , however, that if the said current fair market
value exceed Ten Million Pesos (P10,000,000), the
estate shall be subject to estate tax.
Medical Expenses
 Medical expenses incurred by the decedent, whether paid or unpaid, within one
(1) year prior to his death and duly substantiated with receipts shall be allowed
as deduction from gross estate.
 However, in no case shall be deductible medical expenses exceed five hundred
thousand pesos (P500,000.)

Note: Any amount paid or unpaid above the 500,000 threshold SHALL NOT
ALLOWED as deduction under any category.
Amount Received by Heirs Under R.A. 4917

 Any amount received by the heirs from the decedent’s

employer as a consequence of the death of the
decedent-employee in accordance with R.A. 4917 SHALL
BE DEDUCTIBLE. Such amount must be included in the
gross estate of the decedent.
Net share of the surviving Spouse

 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 the only
decedent’s interest in the estate is taxed.
Deductions from the Gross estate of a Non-
Resident Alien Decedent
 The estate of a non-resident alien decedent consists of the property in the
Philippines and in other country or countries.
 For estate Tax purposes, only his property in the Philippines shall be
considered in the gross estate computation.
 The estate is entitled to the following deductions:
1. ELIT to limitations as follows:
(Gross estate Phil. / Gross estate World ) x World ELIT = Allowed Deduction
2. Vanishing deduction on property situated in the Philippines
3. Transfer for public use of property in the Philippines
4. Net Share of the Surviving Spouse
Note: All other deductions, NRA Decedent ARE NOT ALLOWED.
TRAIN LAW

STANDARD DEDUCTION – An amount equivalent to

Five Hundred thousand pesos (P500,000.00)
May you have learned something today!
Thank you for listening.

-Avy & May