a Cues cs Deductions from the Gross Estate To compute the net estate of the deceased, there are certain items that can be deducted from the value of the gross estate under the Tax Code. RR 12-2018 in relation to sections 86(A) and 86(B) of the Tax Code as amended under TRAIN Law, allows deductions from the gross estate to arrive at the taxable estate which is used as a basis in determining the applicable estate tax due. Deductions from the gross estate are classified as ordinary and special deductions (RR 12-2018) as summarized below: Beginning January 1, 2018 or upon the effectivity of the TRAIN Law, the allowable deductions from the gross estate are summarized as follows: TABLE ALLOWABLE DEDCUTIONS FROM THE GROSS ESTATE eke) Maia OLN daa ANS cal ee Citizen and Resident Decedents Nonre int Alien Decedents 1. — ORDINARY DEDUCTIONS: IL ORDINARY DEDUCTIONS: 1. Expenses, Losses, Indebtedness, 1. Proportional Deductions for Losses, Taxes, etc. (L{Te) Indebtedness, Taxes, claims against a. Losses insolvent persons (LITe): b. Indebtedness/Claims against the estate | c. Taxes Gross Estate world | d. Claims against insolvent person J 2. Transfer for Public Use 2. Transfer for Public Use 3. Vanishing Deduction 3. Vanishing Deduction i SPECIAL DEDUCTIONS I. SPECIAL DEDUCTIONS 4, Standard Deduction (P5M) * Standard Deduction of P500,000 2. Family Home (max, P10M) 3. RA4917 fll, SHARE OF THE SURVIVING Ill SHARE OF THE SURVIVING SPOUSE (for married decedents) SPOUSE (for married decedents) 85ORDINARY DEDUCTIONS Deductions prom the Gress Estate A. LiTe (Losses, Indebtedness, Taxes, etc.) Losses For purposes of estate taxation, deductible losses ffrom the gross estate shall pertain to “casualty losses”. Casualty losses include, storms, shipwreck or other casualties, or from robbery, theft or embezzlement. The amount deductible is the value of the property lost. Requisites for Deductibility: a) Arising exclusively from: * acts of God such as fire, storm, shipwreck and other similar casualty acts of man such as robbery, theft, embezzlement b) Not compensated by insurance or otherwise c) Not claimed as a deduction in an income tax return of the estate subject to income tax d) 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 date of death or the extension (to file) thereof which is not more than 30 days after the lapse of the one-year period. “ILLUSTRATION 4; “Sas ee ae ‘Among the properties included in the gross estate of the decedent at the time of his death was a newly developed resort in Siargao valued at P20,000,000. George is the sole heir to the property. During the settlement of the estate and before the last day of filing the estate tax retum, a super typhoon hit Siargao destroying entirely the newly developed resort. It was determined that the fair value of the property after the incident was reduced to P500,000. Question 1; What amount should be included as part of the decedent's gross estate? Answer: P20,000,000 (FMV at the time of death) Question 2: What amount should be included as part of the allowable deductions from | the gross estate? “Answer: P19,500,000. The difference on the fair market value before and after incurring the loss.Deductions from the Gross Estate Question 3: What amount should be included as part ofthe allowable deductions from the gross estate assuming the property was insured for P25,000,000 | “Answer: PO Since the loss was fully compensated by insurance, no deduction shall be | claimed against the gross estate of the decedent. Question 4: What amount should be included as deductible loss assuming that the incident happened beyond the settlement period of one (1) year, and the property was ‘ot insured. Answer: PO. Only losses incurred during the seltlement period (within 1 year after death) are allowed as deduction from the gross estate. Question 5: What amount should be included in the gross estate of the decedent assuming the incident happened one (1) day before the death of the decedent? “Answer: PO. | | Question 6: In relation to question # 5, what amount should be included as deduction | from the gross estate of the decedent? l “Answer: PO. 2. Indebtedness or Claims against the Estate (including mortgage payable) “Claims” is generally construed to mean 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. The liability represents 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. Claims against the estate (CAE) or indebtedness in respect of property may arise out of the following sources: * . Contract = Tort * Operation of Law REQUISITES FOR DEDUCTIBILITY (RR 12-2018): a. The liability represents personal obligation of the deceased existing at the time of his death; b. The liability was contracted in good faith and for adequate and full consideration in money or money's worth; c. The liability must be a debt or claim which is valid in law and enforceable in court; 87i | Deductions from the Gross Estate ‘a. The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have been prescribed. SUBSTANTIATION REQUIREMENTS: All unpaid obligations and liabilities of the decedent at the time of his death are allowed as deduction from gross estate Provided, however, that the following requirements/documents are complied with/submitted: in case of simple loan (including advance: a) The debt instrument must be duly notarized at the time the indebtedness was incurred, such as promissory note or contract of loan, except for loans granted by financial institutions where notarization is not part of the business practice/policy of the financial institution-lender. b) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death. If the creditor is a corporation, the sworn certification should be signed by the President, or Vice President, or other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any of the general partners. if the creditor is a bank or other financial institutions, the Certification shall be signed by the branch manger of the bank/financial institution which monitors and manages the loan of the decedent-debtor. Wf the creditor is an individual, the sworn certification should be signed by him. in any of these cases, the one who should certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity, except when the requirement below is complied with: When the lender, or the Presiden/Vice-President or principal officer of the creditor-corporation, or the general partner of the creditor partnership is a relative of the debtor in the degree mentioned above, a 88ie re Deductions om the Grass Estate Copy of the promissory note or other evidence of indebtedness must be filed with RDO having jurisdiction over the borrower within fifteen days from execution thereof. c) In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances, 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. In case the creditor is individual who is no longer required to file an income tax return with the Bureau, a duly notarized Declaration by the creditor of his capacity to lend at the time when the loan was granted without prejudice to verification that may be made by the BIR to substantiate such declaration of the creditor. If the creditor is a non-resident, the executor/administrator or any of the legal heirs must submit a duly notarized declaration of his capacity to'lend at the time when the loan was granted, authenticated or certified to as such by the tax authority of the country where the non-resident creditor is a resident. 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. If the unpaid obligation arose from purchase of goods or services: a) Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery receipt (for sale of goods), or contract for the services agreed to be rendered (for sale of service), as duly acknowledged, executed and signed by decedent-debtor and creditor, and statement of account given by the creditor as duly received by the decedent-debtor, d Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death. b) 89Deductions rem ae Gross Estate If the creditor is a corporation, the sworn certification should be signed by the President, or Vice President, or other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any of the general partners. If the oreditor is a bank or other financial institutions, the Certification shall be signed by the branch manger of the bank/financial institution which monitors and manages the loan of the decedent-debtor. If the creditor is a sole proprietorship, the sworn certification should be signed by the owner of the business. In any of these cases, the one who should certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity, except when the requirement below is complied with: When the lender, or the President/Vice-President or.principal officer of the creditor-corporation, or the general. partner of the creditor- partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of indebtedness must be filed with RDO having jurisdiction over the borrower within fifteen days from execution thereof. c) Certified true copy of the latest audited balance sheet of the d creditor with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. Moreover, a certified true copy of the updated latest subsidiary ledgers/records of the debt of the debtor-decedent (certified by the creditor, i.e. certified by the officers in the preceding paragraphs) should likewise be submitted. - Where the settlement is made through the Court in a testate or intestate proceeding, pertinent documents filed with the Court evidencing the claims against the estate, and the Court Order approving the said claims, if already issued, in addition to the documents mentioned in the preceding paragraphs. we —Dedacti [ILLUSTRATION A resident decedent died on November 1, 2020. He availed of a 500,000 salary loan from ABC Manufacturing Corporation (his empl loan | during his lifetime. oration (his employer) by issuing a promissory Question 1: Afall the requisites in order to be allowed as a deduction as claims against the estate were present, what amount may be deducted from the gross estate? + Answer: P500,0000 Question 2: If the obligation has Prescribed as at the time of his death, what amount may be deducted from the gross estate? Answer: PO Question 3: If the loan document (promissory note) was not duly notarized, what amount may be deducted from the gross estate Pertaining to the claim? |, “+ Answer: RO It the indebtedness arises from a debt instrument (ie. loan document), it must be Notarized to be deductible, except for loans granted by financial institutions where ‘otarization is not part ofthe business policy of the financial institution ender. Question 4: If the loan document (promissory note) was not duly notarized as the same is not normally required by ABC Corporation in granting salary loans to its officers and employees, what amount may be deducted from the gross estate pertaining to the claim? 4 Answer: PO The exception on notarization of loan documents is applicable only for loans granted by financial institutions. In the case provided, the creditor (ABC Corporation) is not a financial institution. Question 5: If the loan was contracted three (3) years ago and the executor cannot determine how the loan proceeds were disposed of, what amount may be deducted from the gross estate pertaining to the claim? “Answer: PO RR 2-2003/RR 12-2018 provides that if the loan was contracted within three (3) ‘of the decedent, a statement under oath (by the estmaarrab) st be executed and must be attached therewith a le statement showing the disposition ofthe proceeds of the loan. OR INDEBTEDNESS ON PROPERTY ot ee ae deductions allowed.when a decedent leaves Property encumbered by a mortgage or indebtedness contracted in good faith and for adequate and full consideration. To be allowed as a deduction, his gross estate must include the fair market value of the Property encumbered. The amount allowed as a deduction would be the 91oo Deductions from the Gross Estut outstanding debt or mortgage. 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. If the loan is found to be merely an accommodation loan where the loan proceeds went to another person, the value of the unpaid loan must be included as a receivable of the estate. |; there is a legal impediment to recognize the same as receivable of the estate, said unpaid obligation/mortgage payable shall not be allowed as a deduction from the gross estate. In all instances, the mortgaged property to the extent of the decedent's interest therein, should always form part of the gross estate. ILLUSTRATION 3: CASE A: A resident decedent lft the following upon his death: Cash in bank (from various peso accounts) 8,000,000 Cash in bank (ftom various FCDU accounts) 9,600,000 Real properties, Philippines 10,000,000 Real properties abroad 10,000,000 The real properties located in the Philippines and other countries were mortgaged for 8,000,000. Determine the following: 1. Gross estate of the decedent 2. Deductions for “unpaid mortgages" Answers: 1. 37,600,000 Cash in bank (peso accounts) 8,000,000 Cash in bank (FCDU accounts) Real properties Philippines Real properties abroad Gross Estate 2. P8,000,000 CASE: Pedro died in 2020. The following claims a igainst Pedro's estate were claimed by his heirs as deductions from his gross estat. Notes payable (notarized) 000 Notes payable (not notarized) rane | Unpaid property taxes before his death 300,000 | Unpaid property taxes on his estate (ater death) 400,000 Unpaid judicial expenses 80,000 Unpaid funeral expenses ‘ 75,000 | Unpaid mortgage on his properties before death 50,000 | Debts from gambling losses questioned by decedent while still alive 50,000 | 92| How much is the correct amount Answer:-P850,000 3. | ILLUSTRATION 4: divns fom the Gross Estate Se of deduction as ‘claims against the estate"? | computed as follows: | Notes payable (notarized) 500,000 | Unpaid property taxes before death 300,000 | Unpaid mortgage before death 50,000 | Claim against the estate P 850,000 * Even prior to TRAIN Law, unpaid funeral and judicial expenses are not Classified as “claim a 2 : i \ igainst the estate”. They are deductible separately | a funeral and judicial expenses. However, upon effectivity of the TRAIN | Law, funeral, judicial and medical ‘expenses are no longer deductible from the gross estate, | Claims against the estate should pertain only to valid claims as of the | date of death. Claims arising after death are not allowed as deductions | from gross estate. | Receivables from gambling (wagering gains) before death are inclusions | from the decedent's gross estate, however, debts from wagering or | gambling losses are not allowed as deductions from the gross estate. | Taxes These are unpaid taxes that accrued prior to the death of the decedent. . However, the following are not allowed as a deduction: = Income tax on income received after death = Property taxes accrued after death = Estate tax | Which among the following should be allowed as deduction from the Gross Estate of a | Filipino | re 1 2 3 4 decedent who died on March 30, 2020? M PARTICULARS Unpaid donor's tax on donations made during the previous year Unpaid donor's tax on donations made during current year Unpaid income tax on decedent's income for 2019 Unpaid income tax on decedent's income from January to March 2020 Unpaid income tax attributable to the estate's income from April to December 31, 2020 Unpaid business tax for 2019 taxable year. Unpaid business tax from January to March 2020 : Unpaid business tax on the decedent's estate from April to December 31, 2020___ 93> nae Dea pctions from the Gross Estate Capa municipal taxes from January to March 2020 id municipal taxes from January to Marc! | 0 Unpaid murihal taxes on the decedent's estate (business) from fil to December 31, 2020 a 1 Unpeid import duties on importations made from January March 2020 | re | 12 Tax assessmentideficiencies prior to deal Answer: Items 4,2,3,4,6,7,9)14 and 42____ Other deductions such as Claims against an insolvent person Claims against the estate are “receivables due or owing from persons who are not financially capable of meeting their obligations". Hence, these are claims by the decedent during his lifetime that are not collectible. An insolvent is a person’ whose properties are not sufficient to satisfy, whether fully or partially, his debt(s). REQUISITES FOR DEDUCTIBILITY : ‘ For purposes of estate taxation, a judicial declaration of insolvency is not required but a) The incapacity of the debtor to pay his obligation should be proven. b) The full amount owed by the insolvent must first be included in the decedent's gross estate and the amount uncollectible shall be allowed as a deduction. c) 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. | ILLUSTRATION 5: Case A: Juan is indebted to Pedro for P1,000,000. For the past ten (10) several collection/demand lettérs from Pedro. In 2019,'Pedro died. Question 1: a f years, the credit | Standing and reputation of Juan is outstanding. However, during 2018, the relationship | | of Juan and Pedro was tainted by a personal disagreement. Consequently, Pedro was unable to collect the amount of P1,000,000 due from Juan, Juan intentionally ignored Should the P1,000,000 collectible from Juan be included in the gross estate of Pedro? “Yes. The P1M isa valid and enforceable claim of Pedro as of the date of his death. 94P a : D actions fom the Gross Estate [Question 250 pau : ba Hh 0,000 Collectible from Juan be deducted in Pedro's gross estate? eae ny treectble Claims against insolvent persons are deductible from the gross the case provi is Papo Provided, Juan is obviously not an insolvent person for estae tax | Case B: any oe eae data in Case A, except that during 2019, Juan experienced financial ‘han was oh able ope longer Sufficient to settle his labilties. Consequently, pay ,000 to ir competent court for a i Pedro in 2019, In the same year, Juan asked a dicial declaration that he is insolvent. The court is yet to decide | on Juan's petition. In 2020, Pedro died, : Question 1 | Should the remaining | gross estate of Pedro? > Yes | ‘amount of P500,000 collectible from Juan be included in the Question 2: Should the unpaid amount of 500,000 collectible from Juan be deducted in Pedro's gross estate? ‘Yes. Juccia! declaration of insolvency isnot required to considera person insohven | Itis sufficient that the. ‘Person's insolvency is proven. Case C: | Pedro died in 2020. At the time of his death, he has a collectible sum of 21,000,000 | | from a debtor who was subsequently declared by a court as insolvent for having total liabilities of 4,000,000 against his total properties valued at P800,000 only. | Question 1: How much should be included in the gross estate of Pedro? | * Answer:—P1,000,000. Question 2: How much may be claimed as deduction from the gross estate of Pedro? ‘Answer: P800,000 computed as follows i | | ‘Amount of Claim 1,000,000 | | Collectible: % x P800,000 (200,000) | Uncollectible portion P800,000 | OR: ‘Amount of Claim 1,000,000 | Collectible: P8OO/P4,000 x P1M (200,000) ____Uncollectible portion PROD 00k | 95Diduetions prom the Gross Estate B. 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 (e.g. barangay, province, city/municipality) for exclusively public purposes. Before a transfer for public use is allowed as a deduction from the gross estate, same amount shall be included first in the computation of the gross estate. Legacies to the Philippine Red Cross (PRC) Under RA 10072 (An Act Recognizing the Philippine Red Cross as an independent, autonomous, nongovernmental organization auxiliary to the authorities of the Republic of the Philippines in the Humanitarian Field, to be known as “The Philippine Red Cross Act of 20087), all donations, legacies and gifts made legacies to the PRC to support its purposes and ‘objectives shall be exempt from donor's tax and shall be deductible from the gross income of the donor for income tax purposes or from the computation of the donor-decedent's net estate as a “transfer for public use” for estate tax purposes. C. Vanishing Deductions (Property previously taxed) This deduction is also referred to as a deduction for “property previously taxed”. It-is an amount allowed to reduce the taxable estate of a decedent where the property received by him from a prior decedent or donor by: (1)gift or by (2)bequest, device or inheritance, has been the object of previous transfer taxation. Hence vanishing deduction is allowed as a deduction from the gross estate to minimize the effect of or as a remedy against double taxation. REQUISITES FOR DEDUCTIBILITY: 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 with respect to which deduction is sought can be identified as the one received from the prior decedent, or from the donor, or as the property acquired in exchange for the original property so received. 3. Location — the property on which vanishing deduction is being claimed must be located in the Phil pines. Inclusion of the property — the Property must have formed part of the gross estate situated in the Philippines of the prior decedent or have been included in the total amount of the gifts of the donor made within five (5) years prior decedent's death. r eacenen 96Dedactions fom the Gross Estate 5. Previous taxation of the property - the estate tax on the prior Succession or the donor's tax on the gift must have been finally determined and paid by the prior decedent or by the donor as the case maybe and 6. No previous vanishing deduction on the property - no such deduction on the Property, or the property given in exchange therefore, Was allowed in determining the value of the net estate of the prior decedent. VANISHING DEDUCTION RATES: Period from receipt to decedent's death Rate Within one year 100% Beyond one year to 2 years 80% Beyond 2 years to 3 years 60% Beyond 3 years to 4 years 40% Beyond 4 years to 5 years 20% PRO-FORMA COMPUTATION OF VANISHING DEDUCTION: VALUE TO TAKE (The lower amount between the value of the property in the gross estate of the prior decedent or value of the gift and value of the same property in the gross estate of the present decedent.) LESS: MORTGAGE PAID (1s‘deduction) (Paid by the present decedent from the mortgage assumed when the property was inherited or received as donation) INITIAL BASIS Less: Proportional deduction (24 deduction) computed as: Initial basis Gross estate x Pxxx “LIT + Transfer for Public Use FINAL BASIS x Vanishing deduction % VANISHING DEDUCTION ** Under the Tax Code, as amended under the TRAIN Law, the multiplier to the ratio of Initial Basis over the Gross Estate is the total of LITe, plus Transfer for Public Use. Expenses (Funeral and Judicial expenses) are no longer allowed as deductions from the gross estate of a decedent upon the effectivity of RA10963 (TRAIN Law). Hence, these expenses shall be excluded in the Computation in case the decedent died in 2018 onwards. Special deductions shall likewise be ignored for Purposes of computing the vanishing deduction. oTDeductions from the Gross Estate ILLUSTRATION 6: CASE A Pedro received a car as a gift from Juan on January 1, 2016. The value of the car at | the time it was donated to Pedro was P1,000,000. However, Pedro assumed a | 200,000 mortgage on the car. The corresponding donor's tax was paid by Juan | Pedro paid a total of P100,000 on the mortgage in 2016 and 2017 | | ‘On Nov. 1, 2018, Pedro died. His gross estate at the time of his death amounted to | P5,000,000 including the car received from Pedro valued at 700,000. The following deductions were also claimed by his beneficiaries Funeral expenses 250,000 | Losses 100,000 | Unpaid mortgage (including the mortgage on the car) 200,000 | | Unpaid taxes before death 100,000 Unpaid taxes after death 25,000 Unpaid medical expenses 300,000 | Donation morts causa to Quezon City for public purpose 500,000 | | Question 1: How much is the allowable vanishing deduction? Answer: 295,200 computed as: Value to take (lower amount) 700,000 1 Deduction 3 _(100,000) Initial basis 600,000 Less: 2» deduction (600/5,000 x (P900,000"*)) (108,000) | Final Basis 492,000 x rate (within 3 years) 60% Vanishing deduction 'P295,200 Funeral expenses (no longer allowed) : | Losses 100,000 | Unpaid mortgage 200,000 Unpaid taxes before death 100,000 Transfer for Public Use 500,000 {Donation mortis causa to Quezon City) TOTAL *** 900,000 | Question 2: Assume the corresponding donor's tax was not paid by Juan upon» | perfection of the donation, how much is the allowable vanishing deduction? * Answer: PO Vanishing deduction is a mode of "ax reliet from multiple imposition of indirect | axes, This is the reason why payment of donor's tax or estate tax from the | grantor is a requisite before vanishing deduction is allowed, Hence, if the ‘donor's tax was not paid at the time of the perfection of the donation, vanishing i, ‘deduction is not allowed due to the absence of ‘indirect double taxation”. 98Deductions from the Gress Estate | Question 3: Assume the corresponding donor's tax was paid by Juan upon perfection of he donation. Assume futher hat the dana was made on January 1, 2010. How | much is the allowable vanishing deduction? Answer: PO The donation was made more than five (5) years prior to | Pedro's death, | CASE B: | | In 2019, Pedro died, leaving a property worth P'1,000,00 which he inherited 4 ‘4 years ago from Juan. The property's fair market value at the time of Juan's death was | 800,000. An unpaid mortgage of P100,000 was also assumed by Pedro which remained unpaid at the time of his death, Other properties in Pedro's gross estate had fair market value of P3,000,000. The losses, taxes and transfer for public purpose amounted to P800,000 including P100,000 medical expenses and family home of 400,000 Question 1: What is the correct amount of vanishing deduction? | Answer: P144,000 computed as folows: | Valve to take 800,000 4 Deduction ae, Initial basis 800,000 Less: 2 deduction (800/4,000* x (400,000 ***)) ____ (80,000) | | Final Basis | xrate Vanishing deduction | Correct amount of GE” . FV of the property inherited upon Pedro's death Other properties in Pedro's estate Total GE |__Life as provided in the problem ** | Less: Metal expenses (shoul ot be partof LiTe) | Family home (should not be part of LITe) ‘Add: Unpaid mortgage (Not yet included in the 800,000) Cone 99aa hckitul from the Gross Estate SPECIAL DEDUCTIONS A. Standard deduction The law allows a standard deduction without qualification, condition Nor requisite whatsoever. This amount shall be allowed as an additional deduction without need of substantiation. The full amount shall be allowed as deduction for the benefit of the decedent. Allowable amount under the TRAIN La' "Ifthe decedent is a citizen or resident — P5,000,000 = Ifthe decedent is a nonresident alien - P500,000 This is the only special deduction allowed to a nonresident alien decedent. The other special deductions (family home and RA 4917) can be claimed only by citizen and resident decedents. B, Family Home The amount of family home allowable Lt as a deduction would be whichever is Family Home lower of 10,000,000 or the fair market ie value at the time of the decedent's death, of the family home and the land on which it stands (1,000,000 prior to the effectivity of RA10963, otherwise known as TRAIN Law). * The family home is deemed constituted in aa em ted onthe house and lot from the time: it is by the Barangay Caplain of actually occupied as a family residence the locality. and is considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code) The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the Actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad. In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent for business or pleasure, one still intends to return. The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the exclusive properties of either spouse, depending upon the classification of the property (family home) and the property relations prevailing on the properties of the husband and 100Deductions from the Gross Estate vA wife. It may also be " Ps his or her own rope ued by an unmarried head of a family on Unmarried Head of a Family Married or legally man or woman with one or both parents, An uni eon ae more brothers or sisters, or with one or more and dependent ima Natural or legally adopted children living with protien upon him or her for their chief support, where such rothe! . Or sisters OF children are not more than twenty one (21) yale oF ge, unmarried and not gainfully employed or where such children, brothers or Sisters, regardless of age are incapable of self- Support because of mental. or physical defect, or any of the beneficiaries mentioned in Article 154 of the Family Code who is living in the family home and dependent th id of the famih for legal supper ‘Pendent upon the head of the family The beneficiaries of a family home are: "The husband and wife, or the head of a family; and " 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. Limitation For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one (1) family home. REQUISITES FOR DEDUCTIBILITY: 1. The decedent was married or if single, was a head of the family 2. Along with the decedent, any of the beneficiaries (as listed above) 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. Therefore, the fair market value of the family home should have been included in the computation of the decedent's gross estate. 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 STs bal ai 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 fair market value of the family home as declared or 101y (Ges - Deductions from the Gross Estate included in the gross estate, or the extent of the decedent's interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P10,000,000, as amended [ILLUSTRATION - — = Determine the allowable deduction for Family Home (FH) from the following | independent cases: | Case A: FH valued at P15,000,000. Decedent was single. “Answer: PO. Case B: FH valued at P15,000,000. Decedent was head of the family. > Answer: P10,000,000. Case C: FH valued at P5,000,000. Decedent was head of the family, + Answer: P5,000,000 Case D: FH valued at P15,000,000 (exclusive). Decedent was married. _ Answer: P10,000,000 } Case E: FH valued at P15,000,000 (conjugal). Decedent was married “Answer: P7,500,000. For married decedents, the FMV of the family home should be divided by two (2) if the i same is conjugal or community property. | Case F: FH valued at P15,000,000 of which, P10,000,000 is allocated to the land | (exclusive), P5,000,000 to the house (conjugal). Decedent is married + Answer: 10,000,000 Land (exclusive) 10,000,000 House (conjugal) P5,000,000/2 2,500,000, Total Pt 000 GQ Maximum deductible amount is P10,000, Case G: The fair market value of the family home which is partly exclusive and partly | common follows: | Family lot (exclusive) 5,000,000 Family house (common) 9,000,000 | % Answer: P9,500,000 Land (exclusive) 5,000,000 House (common) P9,000,000/2 4,500,000 Total 9,500,000Deductions from the Gross Estate C. Amounts received by heirs under RA 4917 Any amount received by heir(s) from the decedent's employer as a consequence of the death of the decedent-employee in accordance with R.A. No. 4917 (An Act Providing that Retirement Benefits of Employees of Private Firms shall not be subject to Attachment, Levy, Execution or Any Tax Whatsoever), provided such amount is included as part of the gross estate of the decedent. NET SHARE OF THE SURVIVING SPOUSE The amount deductible under this category is the net share of the surviving spouse in the conjugal partnership property. The net share is equivalent to % or 50% of the conjugal property after deducting the obligations chargeable (ordinary deductions only) to such property. The share of the surviving spouse must be removed to ensure that only the decedent's interest in the estate is taxed. Dalen fa te Gass Estee ofc Newsiet Al The value of the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines the following items of deductions (Section 7, RR2-2003): Deductions LITe (proportional deduction**) Pxx** **Total LITe x (GE Phils./GE world) Ordinary = — Vanishing deduction = Transfer for Public Use Special Deduction * — Standard deduction 500,000 Share of the surviving spouse = _ Ifthe decedent is married xx 103ILLUSTRATION 8: leaving the following properties: | Required: Condominium unit in Makati 4,500,000 Family Home in Seoul, Korea 7,000,000 Rest House in Australia 2,750,000 Jewelries received as gift dated August 25, 2017 500,000 Car in Makati 1,000,000 The heirs of Mr. Krung claimed the following deductions: Funeral expenses P300,000 Claims against the estate 500,000 Claim against insolvent person 500,000 Judicial expenses 100,000 Medical expenses 200,000 Family Home 1,500,000 Standard Deductions 1,200,000 Determine the net taxable net estate. Answer: P5,130,769 es Deductions from the Gross Estat, Mr. Krung, a resident of Seoul, South Korea and a Korean citizen died on July 4, 2018 Solution: GROSS ESTATE Condominium unit.in Makati P4,500,000 Jewelries 500,000 Car in Makati 1,000,000 Claims against insolvent person 500,000 Total gross estate - Philippines P6,500,000°* ALLOWABLE DEDUCTIONS: Ordinary Deductions: LiTe = (P6.5M/P16.25M"™ x P1,000,000**) (400,000)""* Vanishing Deductions** (469,231) Special Deductions = Standard Deduction TAXABLE NET ESTATE Funeral and judicial expenses are no longer allowed under TRAIN Law. (_ GE* = include claim against insolvent person £2) LiTe of P1M*** = Claim against the estate and claim against insolvent person. However, the allowable amount shall only be the proportional amount of GE Phils. over GE world. if the decedent is a nonresident alien Standard deduction of P500,000 is already allowed as deduction from the gross estate of nonresident alien decedents under TRAIN Law. 104Deductions from the Gross Estate Computation of Vanishing Deduction Value to take Less: Mortgage paid Initial basis 500.000 Less: Proportional deduction (500/6,500 x 400,000) Final Basis x Vanishing deduction rate (within 1 year) a _|_ Vanishing deduction pee | 500,000