DEDUCTIONS

Deductions from gross estate (C/RA: LIT PP VD / FH STD / SSS ; NRA: LIT PP VD / STD / SSS)
1. Losses, indebtedness and taxes (please refer to letter M).
a. If the decedent was a citizen or resident alien, deduct all LIT.
b. If the decedent was a non-resident alien, prorate LIT as follows:
Philippines gross estate
=Deductible LIT
World gross estate
2. Transfers for PUBLIC PURPOSE. These are bequests, legacies, devices or transfers for the use of the government of the Philippines or any
political subdivision thereof, exclusively for public purpose.
3. Deduction for the property previously taxed (VANISHING DEDUCTION)
4. The Family home not exceeding P10,000,000. (to be adjusted every 3 years).
5. Standard deduction for citizen or resident alien decedent of P5,000,000; and for non-resident alien decedent of P500,000.
6. Retirement benefits received by employees of private firms from private pension plan approved by the BIR under R.A. 4917.
7. Net share of surviving spouse in the conjugal partnership property or community property as diminished by the expenses properly
chargeable to such property shall be deducted from the estate.
Property previously taxed (VANISHING DEDUCTIONS)
1. Purpose. To minimize the effects of a double tax on the same property within a short period of time,
2. Condition for allowances:
a. There is a property forming part of the gross estate of the present decedent situated in the Philippines;
b. The present decedent acquired the property by inheritance or donation within 5 years prior to his/her death;
c. The property subject to vanishing deduction can be identified as the one received from the prior decedent, or from the donor, or
can be identified as having been acquired in exchange for the property so received;
d. The acquired property formed part of the gross estate of the prior decedent, or of the taxable gift of the donor;
e. The estate tax on the prior transfer or the gift tax on the gift must have been paid; and
f. The estate of the prior decedent has not previously availed of the vanishing deduction.
3. Percentage of vanishing deduction – the rate depends on the interval between the death of the present decedent and death of prior
decedent (if the property was acquired by inheritance) or death of present decedent and date of gift (if the property was acquired by
donation), as follows:
More than Not more than Percentage
Xxx 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years Xxx Xxx
4. Procedures in the computing vanishing deduction
a. Determine the initial value by comparing the FMV of the property used in computing the first transfer tax paid with the FMV of the
property in the present decedent. The lower of the two is the initial value.
b. From the initial value taken, deduct any mortgage or lien on the property previously taxed which was paid by the present decedent
prior to his death, where such mortgage or lien was deduction from the gross estate of the prior decedent or gross gift of the
donor. This is the initial basis.
c. The initial value taken, as reduced by step (b), shall be further reduced by prorated deductions for, losses, indebtedness, taxes (LIT)
and transfers for public purpose (PP) only, allocable to the property previously taxed as follows:
Init ial basis
x Deductions=Portion deductible
Gross estate
This is the final basis
d. Determine the time interval between the death of the present decedent and death of prior decedent (if the property was acquired
by inheritance) or death of present decedent and date of gift (if the property was acquired by donation) to find the applicable
percentage of vanishing deduction.
e. Multiply the final basis by the percentage of vanishing deduction to arrive at the VANISHING DEDUCTION.
The FAMILY HOME
1. Defined. The family home is the dwelling house where a person and his family reside, and the land on which it is situated.
2. Value included in the gross estate. The current fair market value or zonal value of the family home, whichever is higher, shall be included
in the gross estate of decedent.
3. Valuation date. The family home shall be valued as of the date of death.
4. Conditions for allowance of deduction:
a. Decedent must have died on or after January 1, 2018.
b. The total value of the family home must included in the gross estate of the decedent.
c. The family home must be the actual residence of decedent and his family at the time of death.
d. Deduction cannot exceed the fair market value or zonal value of the family home as included in the gross estate but not exceeding
P10,000,000.
Questions:
1-3. A resident citizen died with the properties constituting his gross estate of 8,000,000. Actual funeral expenses amounted to 220,000 and claims
against the estate amounted to 1,200,000.
1. The allowable deduction for funeral expenses is:
a. 220,000 b. 250,000 c. 200,000 d. None
2. The taxable net estate is:
a. 1,580,000 b. 1,800,000 c. 6,580,000 d. 6,800,000
3. The distributable estate was diminished by:
a. 1,420,000 b. 1,400,000 c. 1,200,000 d. 6,420,000
4. Statement 1: Losses can be deducted only if incurred during the settlement of the estate.
Statement 2: Losses can be deducted only if incurred prior to the last day for the filling of the estate tax return and payment of the estate tax.
a. Only the first statement is true c. Both statement are true
b. Only the second statement is true d. Both statement are false
5. Which statement is wrong? Losses are deductible from gross estate:
a. If arising from earthquake.
b. If not compensated by insurance or other form of indemnity.
c. Should be of property included in the Philippines gross estate.
d. Must be sustained during the settlement of the estate.
6. Alicia died with a receivable from Betrol. Betrol has properties worth 220,000 and obligation of 320,000. Included in the obligations are 20,000
owed to the Government of the Republic of the Philippines for unpaid taxes and 60,000 owed to Alicia. The estate of Alicia has a deduction for
claim against insolvent person of:
a. 60,000 b. 41,250 c. 20,000 d. 0
7. The following are the requisites in order that claims against the decedent’s estate may be deductible, except:
a. They must be existing against the estate.
b. They must have been prescribed.
c. They must be reasonably certain as to amounts.
d. They must be enforced by the claimants.
8. Kengkoy inherited property on November 1, 2018, with a fair market value and a mortgage at that time of 200,000 and 100,000 respectively.
He married on January 10, 2019, under the property relationship of conjugal partnership of gains. On March 5, 2019, he borrowed 200,000
from a bank and mortgaged the same property. Kengkoy died without paying any of the mortgage indebtedness. Disregarding accrued interest
on the mortgage indebtedness, deduction against exclusive property is:
a. 200,000 b. 100,000 c. 300,000 d. None of these
9. A resident decedent was married under the conjugal partnership of gains. An obligation of 100,000, incurred during the marriage and secured
by a mortgage of exclusive property is:
a. A deduction from the gross estate at 100,000 against conjugal property.
b. A deduction from the gross estate at 100,000 against exclusive property.
c. A deduction of 50,000 from the gross estate against conjugal property.
d. A deduction of 100,000 from the gross estate against exclusive property, but with a receivable of 50,000 from the surviving spouse.
10. Which of the following is not a deduction from the gross estate under the National Internal Revenue Code?
a. Taxes b. Losses c. Legacy to the government d. Legacy to a charitable institution
11. In determining the taxable net estate of a decedent, which of the following rules is correct?
a. Real estate abroad is not included in the gross estate of a decedent who was a resident alien.
b. Vanishing deduction must be subject to limitations.
c. Shares of stocks being intangible property shall be included in the decedent’s gross estate whenever situated.
d. Funeral expenses are deductible to the extent of 5% of the total gross estate but not exceeding 200,000.
12. A resident decedent, during his lifetime, was under the conjugal partnership of gains. Among his allowable deductions from the gross estate is
vanishing deduction and the following:
Funeral expenses 80,000
Judicial expenses 100,000
Claim against conjugal properties 120,000
Mortgage on exclusive property 40,000
Bequest to charitable institution 5,000
Bequest to the Philippine Government 60,000
Medical expenses 300,000
Amount received under R.A. 4917 60,000
In the formula for vanishing deduction where:
Initial basis of property
x Deduction
Gross estate
The multiplier “deduction” is:
a. 220,000 b. 280,000 c. 400,000 d. 765,000
13. A citizen of the Philippines and resident of Baguio City, died testate on May 10, 2018. Among his gross estate are properties inherited from his
deceased father who died on April 4, 2015. What percentage of deduction will be used in computing the amount of vanishing deduction?
a. 80% of the value taken as basis for vanishing deduction.
b. 100% of the value taken as basis for vanishing deduction.
c. 60% of the value taken as basis for vanishing deduction.
d. 40% of the value taken as basis for vanishing deduction.
14. Statement 1: For a vanishing deduction, there should always be two deaths within five years from receipt of property.
Statement 2: For two acquisition by gratuitous title at different dates, but both within five years to present death, there may be one
consolidated computation for the vanishing deduction.
a. Only the first statement is true c. Both statement are true
b. Only the second statement is true d. Both statement are false
15. A citizen and resident of the Philippines, married, died, leaving the following properties.
Real and personal propertied acquired during the marriage 3,000,000
Land and building inherited from the father 1-1/2 years ago (with a fair market value at that time
of 1,500,000), and used at the time of his death as home for his family 2,000,000
Car, purchased with car received as gift from the mother during the year 500,000
 Cash (including 500,000 received by inheritance from the father) 1,500,000
Claims against conjugal properties 600,000
Unpaid mortgage on the land and building inherited (from an original of 600,000 when inherited) 100,000
The vanishing deduction is:
a. 1,530,000 b. 1,080,000 c. 450,000 d. 1,130,000
16. Statement 1: Vanishing deduction for the estate of a non-resident, not citizen of the Philippines, is allowable only if the property is located in
the Philippines.
Statement 2: Deduction for transfers for public purpose for the estate of a non-resident, not citizen of the Philippines, is allowed only if the
property is located in the Philippines.
a. Only the first statement is true c. Both statement are true
b. Only the second statement is true d. Both statement are false
17. Only one statement is correct. Deduction for family home of citizen or resident alien decedent:
a. Shall be allowed if the family home is in the Philippines or outside the Philippines.
b. Shall be at a maximum of 10,000,000, based on cost.
c. Ma be allowed for two family homes (one in the City and another in the Province), both in the Philippines and with certifications of
Barangay Captains.
d. Shall be deducted at lesser than 10,000,000 if, with vanishing deduction and unpaid mortgage or indebtedness, the value of the family
home is already reduced to zero.
55-56. A Filipino decedent died single (but head of family), leaving a family home which consist of a piece of land that he inherited 3-1/2 years ago
(with a value at that time of 6,000,000) with a fair market value of 8,000,000 at the time of his death, and a house thereon which built at a cost of
6,500,000, and a fair market value at the time of his death of 4,500,000. Other properties in his gross estate have a fair market value of 5,500,000.
Unpaid obligation at the time of death amounted to 3,000,000.
18. The vanishing deduction is:
a. 2,000,000 b. 5,000,000 c. 4,000,000 d. 2,250,000
19. The total deduction for family home is:
a. 4,500,000 b. 5,500,000 c. 10,000,000 d. 12,500,000
20. A resident decedent was married at the time of death and under the system of conjugal partnership of gains. Among the properties in the
gross estate were:
Land, inherited before the married, fair market value 5,000,000
Family home built by the spouses on the inherited land 8,000,000
Deduction for family home is:
a. 8,000,000 b. 9,000,000 c. 10,000,000 d. 13,000,000
21. A, non-resident, not citizen of the Philippines, single, who died with a gross estate in the Philippines of 4,000,000 and outside the Philippines
of 6,000,000 left the following obligations and charges:
Medical expenses, Philippines, in the year of death 1,000,000
Funeral expenses, Foreign 800,000
Claim against insolvent person, Philippines 250,000
Judicial expenses of testamentary proceedings, Philippines 300,000
Judicial expenses of testamentary proceedings, Foreign 350,000
Other claims against the estate, Philippines 900,000
Transfer to the Philippine Government, for public use of property in the foreign country 400,000
Unpaid taxes, foreign country 20,000
Mortgage payable foreign country 180,000
Losses, Philippines 100,000
The deduction from the Philippines gross estate is:
a. 580,000 b. 1,080,000 c. 1,450,000 d. 980,000