Tax 02-Lesson 03 - Deductions From Gross Estate

DEDUCTIONS FROM
GROSS ESTATE
DEDUCTIONS FROM GROSS ESTATE
Allowable deductions from gross estate (RR 12-

2018):
Citizens and resident aliens:

1. Ordinary deductions:
a. LITe (Losses, Indebtedness, Taxes, etc.)
b. Transfer for public use
c. Vanishing deduction
2. Special deductions
a. Standard deduction – P5M
b. Family home – FMV or P10M, whichever is
lower
c. RA 4917 – amount received by heir(s) from
decedent’s employer which are included as part
of gross estate
3. Share of surviving spouse (for married decedents)
– 50% of the conjugal property after deducting
ordinary obligations chargeable to the property
Non-resident aliens:
1. ordinary deductions:
a. Proportionate deductions for LITe (Losses,
Indebtedness, Taxes, etc.)
Gross estate Philippines x LITe world
Gross estate world
b. Transfer for public use
c. Vanishing deduction
2. Special deductions
a. Standard deduction – P500,000
3. Share of surviving spouse (for married

decedents) – 50% of the conjugal property after
deducting ordinary obligations chargeable to the
property
Deductible losses – casualty losses:

 Storms
 Shipwreck
 Robbery
 Theft
 Embezzlement
 Amount deductible = value of the property lost
Requisites for deductibility:

1. Arising exclusively from:
 Acts of God
 Acts of man such as robbery, theft, or
embezzlement
2. Not compensated by insurance
3. Not claimed as deduction in an income tax return
of the estate subject to income tax

4. Incurred during the settlement of the estate
Indebtedness or claims against the estate (including

mortgage payable):
Claims
 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.
 a personal obligation of the deceased existing at the time
of his death, contracted in good faith during his lifetime
for adequate and full consideration in money or money’s
worth.
Sources of indebtedness:
Contract
Tort
Operation of law

1. The liability represents personal obligation of the
deceased existing at the time of his death;
2. The liability was contracted in good faith and for adequate
and full consideration in money or money’s worth;
3. The liability must be a debt or claim which is valid in law
and enforceable in court;
4. The death must not have been condoned by the creditor or
the action to collect from the decedent must not have been
prescribed.
Substantiation requirements:
A. Simple loan or advances

1. Debt instrument must be notarized at the time
the indebtedness was incurred.
2. Duly notarized certification from the creditor
as to the unpaid balance of the debt including
interest as of the time of death.
Signatories of the notarized certification:

 Corporation – president, vice president, or other
principal officer of the corporation

 Partnership – any of the general partners
 Bank or other financial institutions – branch
manager of the bank/financial institution which

monitors and manages the loan
 Individual –the creditor him/herself
3. Proof of financial capacity of the creditor to lend

the amount at the time the loan was granted, as
well as its latest audited balance sheet with a
detailed schedule of its receivable showing the
unpaid balance of the decedent-debtor.
4. A statement under oath executed by the
administrator or executor of the estate reflecting
the disposition of the proceeds of the loan if said
loan was contracted within three (3) years prior
to the death of the decedent.
B. Debts from purchase of goods or services:

1. Pertinent documents evidencing the purchase of
goods or service
2. Duly notarized certification from the creditor as to
the unpaid balance of the debt, including interest as
of the time of death.
3. Certified true copy of the latest audited balance
sheet of the creditor with a detailed schedule of its
receivable showing the unpaid balance of the
decedent-debtor.
4. Pertinent documents filed with the Court

evidencing the claims against the estate, and
the Court Order approving the said claims, if
already issued, where the settlement is made
through the Court in a testate or intestate
proceeding.
C. Unpaid mortgages/indebtedness on property:

1. Gross estate must include the FMV of the property
encumbered.
2. Outstanding debt or mortgage is allowed as
deduction.
3. Verification must be made as to who the
beneficiary of the loan proceeds was. If it was an
accommodation loan, the value of the unpaid loan
must be included as a receivable of the estate.
Taxes :
 Unpaid taxes that accrued prior to the death of the
decedent except:
 Income tax on income received after death

 Property taxes accrued after death
 Estate tax
Other deductions:
 Claims against an insolvent person –

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

1. The incapacity of the debtor to pay his obligation
should be proven.
2. The full amount owed by the insolvent must first be
included in the decedent’s gross estate and the amount
of uncollectible shall be allowed as a deduction.
3. 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.
Transfer for public use:

 Dispositions in a last will and testament or
transfers to take effect after the death in favor of
the government of the Philippines or any political
subdivision thereof for exclusively public
purposes.
 Requisite for deductibility – same amount shall be
included in the computation of the gross estate.
Vanishing deductions (Property previously taxed):

 An amount allowed to reduce the taxable estate of
a decedent where the property received from a
prior decedent or donor by gift or by bequest,
device or inheritance, has been the object of
previous transfer taxation.
 Allowed as a deduction from the gross estate to
minimize the effect of or as a remedy against
double taxation.

1. Death – the present decedent died within 5 years
from the date of death of the prior decedent or
date of gift.
2. Identity of property – the property for which
deduction is sought can be identified as the one
received from the prior decedent or donor.
3. Location – must be located in the Philippines.
4. Inclusion of the property as gross estate or

amount of gifts of the donor within five years
prior to the present decedent’s death
5. Previous taxation of the property – the estate tax
or donor’s tax must have been finally
determined and paid by the prior decedent or by
the donor.
6. No previous vanishing deduction on the
property
Vanishing deduction rates:

Period from receipt to Rate
decedent’s death
Within one year 100%
> 1 year to 2 years 80%
> 2 years to 3 years 60%
Family home
 The dwelling house, including the land on which
it is situated where the husband and wife, or a

head of the family, and member of their family
reside, as certified to by the barangay captain of
the locality.
 Generally characterized by permanency
 Limitation: Only one (1) family home is
allowable as deduction.
Beneficiaries of a family home:

1. Husband and wife, or the head of a family; and
2. 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.

1. The decedent was married or, if single, was a
head of the family.
2. Along with the decedent, any of the beneficiaries
must be dwelling in the family home.
3. The family home as well as the land on which it
stands must be owned by the decedent.
4. 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;
5. The total value of the family home must be
included as part of the gross estate of the
decedent; and
6. Allowable deduction must be in an amount

equivalent to the current FMV of the family
home as declared or included in the gross estate
or the extent of the decedent’s interest
whichever is lower, but not exceeding P10M.

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DEDUCTIONS FROM

Allowable deductions from gross estate (RR 12-

Citizens and resident aliens:

a. Standard deduction – P500,000

3. Share of surviving spouse (for married

Deductible losses – casualty losses:

Requisites for deductibility:

3. Not claimed as deduction in an income tax return

of the estate subject to income tax

Indebtedness or claims against the estate (including

Requisites for deductibility:

A. Simple loan or advances

Signatories of the notarized certification:

principal officer of the corporation

 Bank or other financial institutions – branch

manager of the bank/financial institution which

3. Proof of financial capacity of the creditor to lend

B. Debts from purchase of goods or services:

4. Pertinent documents filed with the Court

C. Unpaid mortgages/indebtedness on property:

 Income tax on income received after death

 Claims against an insolvent person –

Requisites for deductibility:

Transfer for public use:

Vanishing deductions (Property previously taxed):

Requisites for deductibility:

4. Inclusion of the property as gross estate or

Vanishing deduction rates:

it is situated where the husband and wife, or a

 Limitation: Only one (1) family home is

Beneficiaries of a family home:

Requisites for deductibility:

4. The family home must be the actual residential

6. Allowable deduction must be in an amount

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