Chapter 3 – Deductions from the Gross Estate

Problem 3-1

Question #2
Answer: P500,000

Under Requisites of Deductibility for Losses:

4. Incurred during the settlement of the estate. Settlement period pertains to the period prescribed by
law to file and pay the estate tax, which is under the TRAIN Law, one (1) year from the date of death or
the extension (to file) thereof which is not more than 30 days after the lapse of the one-year period.

Problem 3-2

Uncollectible portion is only accounted for as a deduction.

Problem 3-6

VALUE TO TAKE
(whichever is lower between the value of the
property in the GE of the prior decedent and the
present decedent 937,500

LESS: MORTGAGE PAID 187,500

INITIAL BASIS 750,000

LESS: Proportional deduction (2nd deduction)

computed as:

Initial basis/ GE x **LITe + TPU

750,000/4,500,000 x 562,500 93,750

FINAL BASIS 656,250

x Vanishing deduction % 40%

VANISHING DEDUCTION P262,500

Problem 3-8

Case C: Exclusive Property of the surviving spouse

Under the Requisites for Deductibility of Family Home:

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 4. The family home as well as the land on which it stands must be owned by the decedent. Therefore,
the family home should have been included in the computation of the decedent’s gross estate.

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Problem 3-9 (COMPREHENSIVE PROBLEM 3-16 by Tabag 2018)

Requirement 1
*Family Home is located abroad, thus, it is not allowed as a deduction.

Requirement 2
*The decedent was not a Filipino Citizen but a resident of Davao City - Resident Alien

Classification of Taxpayers
1.Resident citizen - a citizen of the Philippines who has a perpetual home in the PH.
2. Nonresident citizen - his physical presence abroad with a definite intention to reside therein (ex.
employment on permanent basis; OFW).
3. Resident Alien - resident of the PH but not the citizen thereof.
1) not a sojourner; 2) no definite intention to leave; 2.) extended stay for accomplishment so makes
his home temporarily in the PH; 4) acquired residence; 5) Staying more than 1 year in the PH.
4. NRA - not a resident, not a citizen.
nature: promptly accomplished; for a definite purpose; mere transients

Problem 3-10 (COMPREHENSIVE PROBLEM by Tabag 2019)

No Vanishing Deduction if more than 5 years.

*Why is the amount P5,000,00 of donation mortis causa is disregarded???

*Loss, Indebtedness, Taxes, TPU, FH - deductible in full (amount: FMV @ death)???

T/F
Problem 3-12

4. An accommodation loan refers to an agreement that allows one co-signer to take responsibility for
the credit liability of the other.

MCQ
Problem 3-19

21. “Future Topic”. Is the property subject to property tax?

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 (Answer: D)

22. Not all transfer. Some transfers may be illegal

Predecessor - someone who has a task before someone else

Problem 3-20

27. Donation is synonymous to mortis causa

Problem 3-23

25. Family Home is included in the Gross Estate and also deductible to Gross Estate

Problem 3-24

Proportional deductions for LITe:

LiTe = Gross Estate Phils. x LITe

Gross Estate World

*Don’t forget the P500,000 standard deduction

Risks:
• Ratio of assets to liabilities x Claim = Collectible. Claim - Collectible amount = Uncollectible
• Vanishing Deduction
• Make a pro-forma for computation on Vanishing Deductions and Net Estate, in order to account for
the Standard Deductions.
• Included in GE and also deductible to GE: TPU; FH; CAIP - included in full, deductible in uncollectible
portion.
• In determining the estate tax due: 6% is the tax rate used
• Literally, no “Family Home” special deductions to nonresident aliens.
• Family Home - married, if single head of the family, not residential house.
• For Vanishing deduction of non resident alien, the proportioned LITE is used to be added in TPU.
• A bequest is an act of giving personal property or financial assets such as stocks, bonds, jewelry and cash to
an individual or organization

Additional from quiz:

• Totaled - That’s it

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 Ex. In 2019, Santaiga died, leaving a 20,000 sqm property in Laguna which he inherited 4 ½ years ago
from Juan. The assessed value of the property is P125 per sqm while the zonal value is P2,000,000. The
property’s fair market value at the time of Juan’s death was P3,000,000. An unpaid mortgage of
P500,000 was also assumed by Santiago which remained unpaid at the time of death. Other properties
of Santiago’s gross estate had a fair market value of P5,000,000. The losses indebtedness, taxes and
transfer for public purpose amounting to P1,500,000 including judicial expenses of P100,000 and family
home of P500,000.

*P500,000 unpaid mortgage is already included in P900,000 (net of P100,000 and P500,000)
*Another P500,000 is already included in P5,000,000

• Assessor:

Assessed either by CIR or independent assessor

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