TRANSFER AND BUSINESS TAX

TAX002
ALLOWABLE DEDUCTIONS
FROM GROSS ESTATE
RESIDENT AND CITIZEN
1. EXPENSES, LOSSES AND INDEBTEDNESS AND TAXES
• Funeral Expenses (deleted in TRAIN LAW)
• Judicial Expenses of the testamentary / intestate proceedings (deleted in
TRAIN LAW)
• Claims against the estate
• Claims of the deceased against insolvent persons
• Unpaid mortgages / indebtedness
• Unpaid taxes
• Casualty losses

2. Property previously taxes or vanishing deduction

RESIDENT AND CITIZEN
3. Transfer for public use

4. Family home (PRE TRAIN – MAX OF 1M ; TRAIN LAW – MAX OF 10M)

5. Standard deduction equivalent to 1M (TRAIN LAW: PHP 5 MILLION)

6. Medical Expenses (deleted in TRAIN LAW)

7. Amount received by heirs under Republic Act 4917

8. Net share of surviving spouse in the conjugal partnership

RESIDENT AND CITIZEN
FUNERAL EXPENSES - ALLOWABLE
PRE-TRAIN TRAIN LAW
1. Mourning apparel of the surviving

NONE
spouse and unmarried minor children
of the deceased bought and used on
the occasion of burial
2. Expenses for the wake, including
foods and drinks
3. Publication charges for death notice
RESIDENT AND CITIZEN
FUNERAL EXPENSES - ALLOWABLE
PRE-TRAIN TRAIN LAW
4. Telecommunication expenses in

NONE
informing relatives
5. Cost of burial plot, tombstones,
monument or mausoleum but not their
upkeep (in case the deceased owns
family estate or burial lots, only the value
corresponding to the plot where the
deceased is buried is deductible.
RESIDENT AND CITIZEN
FUNERAL EXPENSES - ALLOWABLE
PRE-TRAIN TRAIN LAW
6. Interment and/or cremation fees and

NONE
charges
7. All other expenses incurred for the
performance of the rites and ceremonies
incident to interment. (expenses after
interment are not deductible)
RESIDENT AND CITIZEN
FUNERAL EXPENSES
PRE-TRAIN TRAIN LAW

NONE
Amount allowed as deduction
Period Covered
Lower Between
not exceeding
Up to December 31, 1972 none
January 1, 1975 to July 27,
1992 50,000.00 Actual
5% of Gross Estate
July 28, 1992 to December Amount
31, 1997 100,000.00
January 1, 1998 to
December 31, 2017 200,000.00
RESIDENT AND CITIZEN
FUNERAL EXPENSES
Illustration:
CASE
A B C
Gross Estate 2,500,000.00 3,500,000.00 4,500,000.00

5% of gross estate 125,000.00 175,000.00 225,000.00

Max Limit 200,000.00 200,000.00 200,000.00
Actual Funeral Expenses 100,000.00 185,000.00 250,000.00

Allowable Deduction 100,000.00 185,000.00 200,000.00

RESIDENT AND CITIZEN
JUDICIAL EXPENSES - ALLOWABLE
PRE-TRAIN TRAIN LAW
1. Fees of executor / administrator

NONE
2. Attorney’s fees
3. Court fees
4. Accountant’s fees
5. Appraiser’s fees
6. Clerk hire
RESIDENT AND CITIZEN
JUDICIAL EXPENSES - ALLOWABLE
PRE-TRAIN TRAIN LAW
7. Cost of preserving and distributing the estate

NONE
8. Cost of storing and maintaining property of the
estate
9. Brokerage fees for selling property of the
estate

NOTE: unpaid portion claimed should be supported

by sworn statement of account issued
and signed by the creditor
RESIDENT AND CITIZEN
JUDICIAL EXPENSES - ALLOWABLE
PRE-TRAIN TRAIN LAW
Incurred in the:

NONE
1. Inventory taking of assets comprising of
gross estate
2. Their administration
3. The payment of debts of the estate
4. Distribution of the estate among the heirs
RESIDENT AND CITIZEN
FUNERAL EXPENSES
Illustration:

Mr. Escudero, the executor appointed by Mr. Manglapus in his will, incurred
the following expenses after Mr. Manglapus’ death:
Amount
Administrative expenses to gather the assets 20,000.00
Admistrative expenses to pay debts and taxes 10,000.00
Fees charged by Mr. Escudero 10,000.00

Total 40,000.00
RESIDENT AND CITIZEN
CLAIMS AGAINST ESTATE
Obligation contracted by decedent during his lifetime which is still not fully
paid until his death.

Requisites:
1. The liability represents a personal obligation
2. Liability was contracted in good faith and for adequate and full
consideration in money or money’s worth
3. Claim must be a debt or claim which is valid in law and enforceability in
court
4. The indebtedness must not have been condoned by the creditor or the
action must not have prescribed.
RESIDENT AND CITIZEN
CLAIMS AGAINST ESTATE
Illustration:

Mr. Manglapus during his lifetime obtained a loan of Php500,000 from Mr.
Escudero. The debt instrument was notarized. A year after, Mr. Manglapus
died with the loan unsettled.

Amount Deductible 500,000.00

RESIDENT AND CITIZEN
CLAIMS AGAINST INSOLVENT PERSONS
Illustration:

Mr. Fernan’s estate has a claim of Php600,000 against Mr. Mitra, a debtor
declared insolvent. Mr. Mitra’s assets are worth Php3M while his liabilities
Php9M.

1. Claim should form part the gross estate

2. The amount deductible should only be the uncollectible portion
Collectible Amount = 600,000.00 x 3,000,000.00
9,000,000.00
RESIDENT AND CITIZEN
CLAIMS AGAINST INSOLVENT PERSONS
Illustration:

Mr. Fernan’s estate has a claim of Php600,000 against Mr. Mitra, a debtor
declared insolvent. Mr. Mitra’s assets are worth Php3M while his liabilities
Php9M.
Collectible Amount = 200,000.00
Total Claim / Loan 600,000.00
Collectible - 200,000.00
Uncollectible / Deductible 400,000.00
RESIDENT AND CITIZEN
UNPAID MORTGAGES
In case unpaid mortgage payable is being claimed by the estate,
verification must be made as to who was the beneficiary of the loan
proceeds:

1. If loan is merely an accommodation loan, the value of the unpaid loan

must be included as a receivable of the estate.
2. If there is a legal impediment to recognize the same as receivable of
the estate, shall not be allowed as a deduction from the gross estate.
3. In all instances, the mortgaged property, to the extent of the
decedent’s interest, should form part of the gross estate.
RESIDENT AND CITIZEN
UNPAID MORTGAGES
Illustration:

Mr. Manglapus mortgaged his house and lot to BDO for Php1.5 million. He
died paid only 50% of the mortgage loan. The fair market value of the
house and lot at the time of his death is Php2.5 million.

1. Property should be included as part of gross estate at FMV.

2. Unpaid mortgage payable as of decedent’s death is 50% of 1.5M or
Php750 thousand. Thus allowable deduction is only Php750 thousand.
RESIDENT AND CITIZEN
UNPAID TAXES
Taxes that have accrued and unpaid as of time of death.

Does not include the ff:

1. Income tax on income received after death
2. Property taxes not accrued before his death
3. Estate tax due from the transmission of his estate

These exclusions are chargeable against the income of the estate.

RESIDENT AND CITIZEN
UNPAID TAXES
Illustration:

On April 15, 2015, Mr. Manglapus, while on his way to BIR to file and pay
his ITR for his tax due of Php20,000 for 2014, figured in a car accident and
died.

Since the tax due is for 2014, which means that tax due has been accrued
and unpaid, the tax due should be allowed as deduction from gross estate.
RESIDENT AND CITIZEN
CASUALTY LOSSES
Losses arising from acts of God and acts of Man

Requisites:
1. Losses must be incurred during the settlement of the estate
2. Must not be compensated for by insurance or otherwise;
3. At the time of filing of the return, have not been claimed as a deduction
for income tax purposes in ITR
4. Were incurred not later than the last day for payment of the estate tax
RESIDENT AND CITIZEN
CASUALTY LOSSES
Illustration:

5 months after Mr. Manglapus death died and while the estate is being
settled, a house which he owned was appropriately declared as forming his
gross estate was totally destroyed on fire with FMV of Php1.5M at the
time of death.
RESIDENT AND CITIZEN
CASUALTY LOSSES
CASE 1 : CASE 2:

If the loss on fire had formed part as If the house was insured and the loss on
deduction in his income tax filing, the fire was compensated, the loss incurred
losses is not allowed as deduction from should not be allowed as deduction from
gross estate. gross estate.
RESIDENT AND CITIZEN
CASUALTY LOSSES
CASE 3:
If the loss occurred during the settlement
of estate however the occurrence is
beyond the six-month period during which
the estate tax is supposed to be paid, the
loss shall not be deductible.
CASE 4:
If the loss is not compensated for by
insurance, incurred during the settlement
of the state and before the deadline of
estate tax due payment, the loss is
allowed as deductible at FMV of the
house at the time of death which is
Php1.5M.
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Deduction allowed to lessen the impact of successive taxation of the
same property within the short period due to the death of the decedent-
transferee.

Requisites:
1. Present decedent died within 5 years from date of death of prior
decedent or date of gift.
2. Identified property formed part of the gross estate of the prior
decedent or taxable gift of the donor.
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
3. The property must be identified as the same property received from prior
decedent or donor or the one received in exchange therefor.
4. The estate taxes of the prior decedent must have been fully determined
and paid.
5. No vanishing deduction on the identified property or property given in
exchange therefor was allowed to the prior estate.
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Limitations:
1 Value of Property previously taxed or aggregate value of property if more than 1 item xxx WHICHEVER
Value of such property in present decedent's gross estate xxx IS LOWER

2 Value taken of PPT xxx

Less: Mortgage debt (or other lien paid, if any (1st deduction) (xxx)
Initial Basis xxx
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Limitations:
3 Initial Basis xxx
Divide: Value of gross estate of present decedent xxx
Percentage Ratio of allowed deduction %

Expenses, etc. and transfer public purposes xxx

Multiply: Ratio %
2nd Deduction xxx

4 Initial Basis xxx

Less: 2nd Deduction (xxx)
Final Basis xxx
Multiply: Percentage of Deduction %
Vanishing Deduction xxx
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Limitations:
Percentage of Deduction

% Transfer more than But not more than

100% - 1 year
80% 1 year 2 years
60% 2 years 3 years
40% 3 years 4 years
20% 4 years 5 years
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Illustration:

On August 14, 2012, Mr. Sancho died leaving his house and lot and van to
Junior, his only son who is still a bachelor. The estate tax corresponding to
the transmission of these property were paid.

On October 19, 2015 Junior died. His gross estate including the house and
lot, and van were declared at Ph9.6M while deductions (for expenses,
losses, indebtedness, taxes, etc. and transfer for public purpose)
amounted to Php 1.8M.
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Illustration:

Unpaid Mortgage at the

FMV at the time of death time of death
Property Sancho's Junior's Sancho's Junior's
House and Lot 2,400,000.00 2,550,000.00 240,000.00 30,000.00
Van 360,000.00 210,000.00 - -
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Illustration:
House and Lot Van
Value of Property previously taxed or aggregate value of
WHICHEVER
1 property if more than 1 item 2,400,000.00 360,000.00
IS LOWER
Value of such property in present decedent's gross estate 2,550,000.00 210,000.00

Value taken of PPT 2,610,000.00

RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Illustration:

2 Value taken of PPT 2,610,000.00

Less: Mortgage debt (or other lien paid, if any (1st deduction) - 210,000.00
Initial Basis for Deduction 2,400,000.00
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Illustration:
3 Initial Basis for Deduction 2,400,000.00
Divide: Value of gross estate of present decedent 9,600,000.00
Percentage Ratio of allowed deduction 25%

Expenses, etc. and transfer public purposes 1,800,000.00

Multiply: Ratio 25%
2nd Basis for Deduction 450,000.00
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
Illustration:

4 Initial Basis for Deduction 2,400,000.00

Less: 2nd Basis for Deduction - 450,000.00
Final Basis 1,950,000.00
Multiply: Percentage of Deduction 40%
Vanishing Deduction 780,000.00
RESIDENT AND CITIZEN
TRANSFER FOR PUBLIC USE
Allowed deduction from gross estate the amount of all bequests, legacies,
devises or transfers to or for the use of the Government of the Republic of
the Philippines, or any political subdivision thereof, for exclusive public
purposes.

Illustration:
Mr. Manglapus, in his will, transferred a 1,000 sqm lot with FMV of Php 2M
to the provincial government of Laguna to be developed as a public park.
RESIDENT AND CITIZEN
FAMILY HOME
PRE-TRAIN TRAIN LAW

Amount deductible from the gross estate as Amount deductible from the gross estate as
family home shall be the current FMV of the family home shall be the current FMV of the
decedent’s family home at the time of death. decedent’s family home at the time of death.

Allowed max deduction is up to Php 1M, any Allowed max deduction is up to Php 10M, any
excess is subject to estate tax. excess is subject to estate tax.
RESIDENT AND CITIZEN
FAMILY HOME
• Permanent dwelling house of the decedent including the land.

• Certified by the Brgy. Captain

• Deemed constituted on the house and lot from the time it is actually
occupied as family residence and is considered as such as long as any
of its beneficiary resides therein.
RESIDENT AND CITIZEN
FAMILY HOME
• Actual occupancy is not considered interrupted or abandoned in such
cases as temporary absence from family home due to travel, studies or
work abroad.

• Place to which one still intends to return

RESIDENT AND CITIZEN
FAMILY HOME
Requisites:

1. Must be actual residential home of the decedent and his family at the
time of his death certified by the Brgy. Captain where the family home
is situated

2. Value of family home must be part of the gross estate of the decedent
RESIDENT AND CITIZEN
FAMILY HOME
Requisites:

3. Allowable deduction must be equivalent to the current FMV of the family

home as declared / included in the gross estate or extent of decedent’s
interest (whether conjugal/community or exclusive property), whichever is
lower but not exceeding threshold.
RESIDENT AND CITIZEN
STANDARD DEDUCTION
PRE-TRAIN TRAIN LAW

PHP 1,000,000 PHP 5,000,000

RESIDENT AND CITIZEN
STANDARD DEDUCTION
Deduction without the need of substantiation.
RESIDENT AND CITIZEN
MEDICAL EXPENSES
PRE-TRAIN TRAIN LAW

Incurred by decedent, whether paid or unpaid,

within 1 year prior his death and duly
substantiated with receipts with threshold up to

NONE
Php500,000.00
RESIDENT AND CITIZEN
AMOUNT RECEIVED BY HEIRS UNDER
R.A. 4917
Any amount received by heirs from decedent’s employer as consequence
of the death of the decedent shall be deductible and most form part of the
gross estate.
NON RESIDENT ALIEN
1. Expenses, losses and indebtedness and taxes (Subject to limitation)

2. Property previously taxes or vanishing deduction

3. Transfer for public use of property situated in the PH

4. Net share of surviving spouse in the conjugal partnership

5. Standard deduction (only effective during TRAIN LAW – PHP

500,000)
NON RESIDENT ALIEN
EXPENSES, LOSSES, INDEBTEDNESS AND TAXES

PRE-TRAIN TRAIN LAW

Deduction Allowed = Gross Estate in PH World, expenses, losses, Deduction Allowed = Gross Estate in PH (Claims against the estate + Claims
x
Gross Estate World indebtedness & taxes Gross Estate World x against insolvent persons + Unpaid
mortgages, taxes and casualty losses)
RESIDENT AND CITIZEN
PROPERTY PREVIOUSLY TAXED
Vanishing deduction on property situated in PH.
RESIDENT AND CITIZEN
TRANSFER FOR PUBLIC USE
Same concept with Resident and Citizen
RESIDENT AND CITIZEN
NET SHARE OF SURVIVING SPOUSE
Same concept with Resident and Citizen