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DEDUCTION FROM
GROSS ESTATE AND
ESTATE TAX
By: Edelwin Fajutagana
 Solution for Assignment

An unmarried decedent died leaving properties he inherited 4 and half years ago which had fair market
value of P800,000 at the time of his death (P650,000 at the time of inheritance, and unpaid mortgage of
P50,000 paid by the present decedent). Other properties in his gross estate had fair market value of
P1,000,000. The total losses, indebtedness, taxes and transfer for public purpose amounted to P300,000.
How much was the vanishing deduction?
Solution: Value to take P 650,000
Less: Mortgage paid P 50,000
Initial basis P 600,000
Inheritance (less) Indebtedness
Less: Proportional deduction
(600K/1.8M x 300K) P 100,000
Included in the GROSS ESTATE
Final basis P 500,000
Proportionate deduction is applied
Rate 20%
Vanishing deduction P 100,000

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

INTENDED LEARNING OUTCOME:

At the end of the topic, you will be able to:

• understand the principles of deduction against
gross estate;
• identify the different deduction to gross estate; and
• compute the net estate of a decedent

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

 Rules on Claimable Deduction per Decedent Classification

*Includes resident citizen, non-resident citizen and resident alien

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

 DEDUCTIONS ALLOWED TO NON-RESIDENT ALIEN
DECEDENTS
It should be emphasized that non-resident aliens cannot claim the
special deductions (except standard deduction). Non-resident aliens
can claim only the following deductions:
1. Prorated Losses, Indebtedness, and Taxes (LIT)
2. Property previously taxed (Vanishing Deductions)
3. Transfer for public purposes
4. Share of the surviving spouse
5. Standard Deduction

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

DEDUCTIONS ALLOWED TO NON-RESIDENT ALIEN
DECEDENTS
Prorated LIT
The claimable deductible amount of LIT of non-resident aliens are
prorated as follows:

The prorated treatment will normally result in items of losses,

indebtedness, and taxes being deducted at an amount different from their
actual costs or value. However, this is the legal treatment specified
under Section (B)(1) of the NIRC.

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

DEDUCTIONS ALLOWED TO NON-RESIDENT ALIEN
DECEDENTS

While relaxing the matching rule with respect to deductions abroad, the total deductible among the LIT items must first be
determined in the usual way similar to residents or citizens:
Claims against the estate (P300L - P150K + 2.1M) P 2,250,000
Losses on properties (P400K + P800K) P 1,200,000
Total World LIT P 3,450,000

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

DEDUCTIONS ALLOWED TO NON-RESIDENT ALIEN
DECEDENTS
The Philippine gross estate ratio shall be computed as follows:

The deductible amount of each LIT to be presented in the estate tax return shall be computed as:
Claims against the estate (P2,250,000 x 40%) P   900,000
Losses on properties (P1,200,000 x 40%) P   480,000
Total Deductible LIT P 1,380,000

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

DEDUCTIONS ALLOWED TO NON-RESIDENT ALIEN
DECEDENTS
Property previously taxed (Vanishing Deductions)
The property subject to vanishing deduction must be within the Philippines at the date of death.
Transfer for public purpose
It is only deductible only if the properties being transferred to the Philippine government is part of
the gross estate and must be situated in the Philippines at the time of transfer
Standard Deductions
In view of the removal of prorated funeral and judicial expenses for non resident alien decedents,
the TRAIN law allows a standard deduction of P500,000 for non resident alien decedents.
Additional Requirements on Deductions of Non-Resident Aliens
No deduction shall be allowed in the case of a non-resident alien decedent, unless the executor,
administration, or anyone of the heirs, as the case may be, includes in the return the value at the
time the decedent's death that part of his gross estate not situated in the Philippines.

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

DEDUCTIONS ALLOWED TO NON-RESIDENT ALIEN
DECEDENTS
SUMMARY OF DEDUCTION RULES

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

Determination of the Net Taxable Estate
Illustration 1: Single resident or citizen decedent
An unmarried Filipino decedent died leaving the following properties and possible deductions:

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

Determination of the Net Taxable Estate
The net taxable estate and tax due shall be computed in the estate tax return as:

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

Determination of the Net Taxable Estate
Illustration 2: Married resident or citizen decedent
Mr. Lapitna, a resident alien, died leaving the following properties and estate deductions:

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

Determination of the Net Taxable Estate
The executor of Mr. Lapitna compiled the following expenses and deductions which are matched to their
respective sources:

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

Determination of the Net Taxable Estate
The net taxable estate and tax due shall be computed as:

Notes:
1. The gross estate of citizens and residents includes both separate property of the decedent and common properties whenever
situated.
2. The deductible family home is the lower of P5.4M (50% x P10.8M) and the P10M limit
DEDUCTION FROM GROSS ESTATE AND ESTATE TAX
Determination of the Net Taxable Estate
DETERMINATION OF FOREIGN TAX CREDIT
The estate tax due of decedents who are taxable on global estate such as resident citizens, resident aliens and non-
resident citizens shall be further reduced by foreign tax credit for estate taxes paid in foreign countries.
The foreign tax credit shall depend on whether the decedent has properties in a single foreign country or multiple
countries.
Single Foreign Country
The foreign tax credit shall be whichever is lower of the actual foreign estate tax paid and the following limit:

Multiple Foreign Country

The lower of actual estate tax and the foregoing limit for each country is determined first. The final foreign
tax credit shall be the lower of the total of the tax credit allowable per country and the world estate tax credit
limit computed as:

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

Determination of the Net Taxable Estate
Illustration 2: Multiple foreign countries
A citizen decedent had the following data:
Net taxable Estate                  Estate tax paid
Hongkong P  1,700,000                                P   200,000
Korea P  2,800,000                                P  150,000
Philippines P  1,500,000
Total P  6,000,000
The estate tax on the P6,000,000 world net taxable estate is P360,000 (6%)

Limit 1: Per country limit

Hongkong                    Korea                    Total
Actual estate tax paid P  200,000                    P 150,000
Limit:
  P1.7M/P6M x P360K P  102,000
  P2.8M/P6M x P360K                                     P 168,000
Lower P  102,000                 P 150,000         P 252,000
 
Limit 2: Total foreign countries
Lower in Limit 1 P   252,000
Limit 2: (P1.7M + P2.8M)/P6M x P360K P   270,000
Final foreign tax credit (LOWER) P   252,000
The estate tax payable shall be computed as:
Estate tax due P  360,000
Less: Foreign tax credit P  252,000
Estate tax still due or payable P  108,000
DEDUCTION FROM GROSS ESTATE AND ESTATE TAX
Estate Tax Requirements

These are the requirements for estate tax:

1. Estate tax return
2. Certified Public Accountant (CPA) Certification

The estate tax return and its contents

The executor, administrator or any of the heirs shall file in duplicate an estate tax return under
oath, setting forth the following:
3. Value of gross estate at the point of death or, in the case of non-resident alien, that part of
his gross estate situated in the Philippines
4. The deductions allowed from gross estate
5. Supplemental data which may be necessary to establish the correct tax

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

Estate Tax Requirements

CPA Certification
Where the value of the gross estate exceeds P 5,000,000, the return shall be accompanied by the
statement certified by a Certified Public Accountant.

Content of the statement:

1. Itemized assets of the decedent with their corresponding gross value at the time of death or, in
the case of a non-resident decedent, that part of his gross estate situated in the Philippines
2. Itemized deductions from gross estate
3. The amount of tax due whether paid or still due and outstanding

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

Estate Tax Requirements

Deadline of filing of estate tax return

The estate tax return shall be filed within one year after the date of death.
Extension of Filing
The Commissioner is authorized to grant , in meritorious cases, a reasonable extension
not exceeding 30 days for filing the return.
Venue of filing
• For resident decedents
• The administrator or executor shall register the estate of the decedent and secure a new TIN therefor
from the RDO where the decedent is domiciled at the date of his death.
• For non-resident decedents
• Whether non-resident citizen or alien with executor or administrator in the Philippines, the
estate tax return shall be filed and a new TIN shall be secured from the RDO where such
executor or administrator is registered. If he is not registered, the return shall be filed and
new TIN shall be secured form  the RDO having jurisdiction of his legal residence.
DEDUCTION FROM GROSS ESTATE AND ESTATE TAX
Estate Tax Requirements

Where to file the estate tax return?

1. Accredited Agent Bank
2. Revenue District Office
3. Collection Agent
4. Duly authorized Treasurer of the City or Municipality in which the decedent or administrator was
domiciled at the time of his death
5. Office of the Commissioner, if the administrator or executor has no legal residence in the
Philippines.
Payment of Estate Tax
The estate tax shall be paid at the time the return is filed following the rule, "pay as you file"
Insufficiency of cash to pay tax
If there is difficulty in paying the tax, the same may be settled by:
• Installment payment
• Partial disposition of estate
DEDUCTION FROM GROSS ESTATE AND ESTATE TAX
Estate Tax Requirements

Installment Payment
The estate tax may be paid in installment within two years without the imposition of interest or civil penalties.
Subject to approval of the CIR, the estate tax may be paid as follows:
• 24 monthly payments
• 8 quarterly payments
• 4 semi-annual payments
• 2 annual payments
In case of lapse of two years without payment the entire tax due, the remaining cash balance thereof shall be
due and demandable subject to the applicable penalties and interest reckoned from the prescribed deadline for
filing the return and payment of tax.
Partial Disposition
Some of the properties of the estate my be conveyed for cash consideration to be used to settle  the estate tax
due. A written request for partial disposition shall be approved by the BIR. The said request shall be filed,
together with a notarized undertaking that the proceeds thereof shall be exclusively used for the payment of the
estate tax due.
DEDUCTION FROM GROSS ESTATE AND ESTATE TAX
Estate Tax Requirements

DEDUCTION FROM GROSS ESTATE AND ESTATE TAX

END
 “Study while others are sleeping,
Work while others are loafing,
Prepare while others are playing and
Dream while others are wishing”
― William Arthur Ward
STUDENTS CONCERNS:

 If you have any concerns about our online class especially if it affects
majority of the class, please do let me know.
CLASS REMINDERS:
Please be reminded of the following activities for our 1st week of
Online Class Discussion.
Our scheduled quiz and Midterm which will be on Friday: 1:30PM-
4:30PM
• Quiz: 1:30-2:30PM
• Prelim: 2:30PM-4:30PM

INTRODUCTION TO TAXATION AND TAX ADMINISTRATION

INTRODUCTION TO TAXATION AND TAX ADMINISTRATION
If the property included in the gross estate is a real property, which shall be the fair market value?
A. Zonal value
B. Assessed value
C. Zonal value or assessed value whichever is higher
D. Zonal value or assessed value whichever is lower

INTRODUCTION TO TAXATION AND TAX ADMINISTRATION

The community properties shall consist of all property owned by the spouses at the time of the
celebration of the marriage or acquired thereafter. One of the following, however, is not a
community property
A. Properties inherited by the spouses before the marriage
B. Properties acquired by the spouses as donation before the marriage
C. Properties acquired using the salary earned by either spouse before the marriage
D. Properties acquired before marriage by either spouse who had legitimate descendants by a
former marriage.

INTRODUCTION TO TAXATION AND TAX ADMINISTRATION

Which of the following are business taxes?
I – Income tax
II – VAT
III – Excise tax on “Sin” products
IV – Documentary stamp tax
A. I, II, III and IV
B. I and II only
C. II and III only
D. II, III and IV only

INTRODUCTION TO TAXATION AND TAX ADMINISTRATION

Thank you
And
keep safe