Mabini Colleges c.

Expenses incurred, shouldered, borne, defrayed by

Daet, Camarines Norte relatives and friends of deceased are not deductible.
d. TAKE NOTE: ALWAYS COMPUTE THE LOWEST OF THE THREE FOR
TAXATION 2 VERIFICATION PURPOSES

SUGGESTED HANDOUT #2 2. Judicial Expenses

a. Court/litigation expenses
Deductions Citizens/Resident Non-Resident b. Expenses of collection and administration of assets,
Aliens Alien payments of liabilities, and distribution of net estate.
A. ELIT *** c. Incurred during the settlement but not beyond the filing
1. Funeral Expense YES YES of the estate tax returns
2. Judicial Expense YES YES
3. Claims Against the YES YES 3. Claims Against the Estate
Estate a. Decedents personal obligations arising from sources of
4. Claims against YES YES obligations (only 3)
insolvent persons b. This must be incurred in good faith
5. Unpaid mortgages YES YES c. Does not include excess of funeral & medical expenses
6. Taxes YES YES d. If it is in a form of loan, COMPLIANCE of ff is required:
7. Losses YES YES i. The instruments must be notarized
B. Transfer for Public Use YES YES ii. Notarize certification from creditor of unpaid
C. Vanishing Deduction YES YES balance with interest
D. Special Deductions iii. Proof of financial capacity of creditor to lend
1. Family Home YES NO iv. If contracted 3 years prior to death, statement
2. Medical Expenses YES NO under oath of executor/administrator stating
3. Standard Deductions YES NO disposition of proceeds of loan is a must.
4. Amounts received YES NO
from RA 4917 4. Claims against insolvent person
5. Share of Surviving YES YES
Spouse a. The creditor is the decedent but unable to collect due to
insolvency of the decedent’s debtor
***-means allowable ELIT of NRA should be prorated base on GROSS b. Take note that claims should be added to gross estate
ESTATE WITHIN & GROSS ESTATE WITHOUT first
c. Only portion of claims is deductible from gross estate
Philippine Gross Estate x ELIT = ELIT allowed for WITHIN d. These are mortgages to be settled by the decedent but
Entire Gross Estate failed to due to death
e. The FMV of property mortgaged must added first to gross
Ordinary Deductions estate in order unpaid mortgages to be deductible, if not
included, don’t deduct unpaid mortgages because the
1. Funeral Expenses reason is to make an allotment for the said balance
a. Lowest of ACTUAL expense, 5% of GROSS ESTATE, or 200,000 5. Unpaid Taxes
b. Expenses incurred AFTER the burial is not allowed as a. Must not be paid before death of decedent to be
Funeral expense deductible

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 b. All taxes accruing before the death can be deducted
provided it is not yet paid Mr A died on September 11, 2018 inherited land to Mr. B worth
6. Losses 1,000,000. On December 15, 2020, Mr. B died and the fair value of the
a. These are losses due to fortuitous events land is 900,000. Also, Mr. A inherited car to Mr. B worth 500,000.
b. Must not be compensated by insurance When B dies, the value is 600,000.
c. Not yet claimed as deductions for income tax purposes
d. Not incurred after the lapse of filing period
CURRENT 2020-12-15
Transfer for Public Use PRIOIR 2018-09-11
a. Transfer given to government or any charitable institutions Gap 2 years 3 months and 4 days
b. Not for religious organization

Vanishing Deductions PRIOR 1,000,000 500,000 1,500,000

a. Current decedent must die 5 years from the death of prior CURRENT 900,000 600,000 1,500,000
decedent
b. Property must be included in the gross estate 900,000+500,000=1,400,000
c. Estate tax of property must be paid
d. The previous decedent must not availed vanishing deductions 2. From step 1 deduct any mortgage PAID by present decedent
a. The difference between step 1 and 2 = initial basis
Applicable rates
0-1 year = 100% Land has mortgage payable of 500,000 when A dies and only 300,000
1-2 years = 80% when B dies. MP 200,000
2-3 years = 60%
3-4 years = 40% Value of PPT 1,400,000
4-5 years = 20% Less: Mortgage Paid (200,000)
5 years up = 0% Initial Basis 1,200,000

PRIOR DECEDENT DIED September 21, 2019 3. Proration of expenses

CURRENT DECEDENT DIED November 15, 2022
Initial Basis x (ELIT + Transfer for Public Use)
CURRENT 2022-10-15+30 Gross Estate
PRIOR 2019-09-21
GAP 3 YEARS 1MONTH 24 DAYS GE 5,000,000 1,200,000/5,000,000x600,000=144,000
ELIT 600,000

STEPS IN COMPUTING VANISHING DEDUCTIONS 4. Compute for Vanishing Deduction

Value of PPT 1,400,000
1. Determine the Value of the Property Less: Mortgage Paid (200,000)
a. If PPT was INHERITED, LOWER of FMV in the estate of prior Initial Basis 1,200,000
decedent or FMV in the estate of present decedent Less: Prorated Expenses (144,000)
b. If PPT was DONATED, LOWER of FMV at date of donation or Final Basis 1,056,000
FMV in the estate of present decedent Multiply: Applicable Rate 60%
c. If two or more properties, item per item basis. VANISHING DEDUCTIONS 633,600

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 Pre-nuptial agreements became widely used when ACP was constituted.
SPECIAL DEDUCTIONS (FMSAS)
To compute for NET TAXABLE ESTATE
1. Family Home 1. Single
a. FMV must be included in Gross estate a. Look for residency & Citizenship
b. Must be actual residence of the decedent as certified by b. Collect all data once letter A is found
the Brgy. Captain c. Consider threshold/limits of deductions
c. Lower of d. Compute for tax due
i. FMV of Family Home 5,000,000 2. Married
1. If exclusive property of decedent=FMV a. Look for residency & property regime
2. If conjugal=FMV/2 b. Arrange the properties in exclusive & conjugal column
3. If land is exclusive & family home is c. Use limits of deductions & compute tax due
conjugal=FMV of land + FMV of home/2 Properties Acquired by CONJUGAL PROPERTY ABSOLUTE COMMUNITY
4. If land is conjugal & home is exclusive= FMV GAINS GAINS
of Land/2 + FMV of family home Exclusive Conjugal Exclusive Community
OR Before Marriage
ii. 10,000,000 1. Gratuitous Title YES NO NO YES
d. Medical Expenses 2. Onerous Title YES NO NO YES
i. Paid or unpaid can be deducted 3. Property with
ii. Incurred 1 year before death of the decedent legitimate YES NO YES NO
iii. Must be supported by receipts descendants in
iv. Lower of actually incurred or 500,000 previous marriage
v. Not present in TRAIN LAW 4. Property Acquired YES NO NO YES
e. Standard deductions by exclusive
i. 5,000,000 for RC, NRC and RA property
ii. 500,000 for NRA under TRAIN LAW During Marriage
f. Amounts Received from RA 4917 1. Gratuitous Title YES NO YES NO
i. Benefits received by heirs from employer 2. Income from
ii. Must be included in the gross estate also exclusive NO YES YES NO
iii. If included in the gross estate, 50% is allowed as property
deductions 3. Onerous title NO YES NO YES
g. Share of Surviving Spouse 4. Exchange of
i. This is not taxable Exclusive YES NO NO YES
ii. Conjugal properties less obligations or conjugal 5. Exchange of
deductions/2 commu/conju NO YES NO YES

CONJUGAL & ABSOLUTE COMMUNITY

ESTATE TAX TABLE
Before August 3, 1988 = CPG conjugal property gain OVER But not over Tax shall be Plus Excess of
On or after August 3, 1988 = ACP absolute community property 200,000 Exempt
200,000 500,000 0 5% 200,000
If problem is silent, use ACP
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000

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 5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 1,215,000 20% 10,000,000

Gross estate-deductions

Net estate x 6%=Estate tax

END OF HANDOUT

NEXT ISSUE: CREDIT FOR FOREIGN ESTATE TAXES PAID & OTHER PROVISIONS

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