Chapter 2 : DEDUCTIONS FROM THE GROSS ESTA ESTATE Deductions ro! the "ross estate: #$ Ordi Ordinar nar% % deduct deduction ions s &a' E(penses) *osses) *osses) inde+tedness) inde+tedness) ta(es) etc$ &#' Funera* Funera* e(penses, e(penses, &2' -udicia* e(penses e(penses o testa!entar% or intestate proceedin"s, proceedin"s, &.' C*ai!s a"ainst a"ainst the estate, &/' C*ai!s a"ainst a"ainst inso*0ent persons, persons, &1' Unpaid !ort"a"e or inde+tedness inde+tedness o the propert%, a$ Ta(es +$ osses$ &+' Transer or pu+*ic use, &c' 3anishin" deduction,
2$ Spec Specia ia** deduc deducti tion ons s &a' Fa!i*% ho!e, ho!e, &+' Standard Standard deductions, deductions, &c' Medica* Medica* e(pen e(penses ses &d' A!ount recei0a+*e recei0a+*e +% heirs under RA No$ /4#5 Ite!s 2&a') 2&+') and 2&c' are not a0ai*a+*e to the estate o a non6resident) non6resident) not citi7en o the 8hi*ippines$ 8hi*ippines$
FUNERA E98ENSES Funera* e(penses paid or unpaid ro! the estate) are deducti+*e at the actua* e(penses) or 1 o the "ross estate) or 82;;);;;)
-UDICIA E98ENSES E98ENSES It inc*udes ees on the e(ecutor or ad!inistrator) attorne%>s ees) court ees accountant>s ees) appraiser>s ees) c*er? hire) cost o preser0in" and !aintainin" the propert%) and +ro?era"e ees or se**in" properties in the estate$ Deductions or @udicia* e(penses e(penses in the sett*e!ent o the estate in or out o the court are a**o
O+*i"ations i enorcea+*e a"ainst the decedent
s death) or a**o
3ANISHING DEDUCTION 8ropert% !a% chan"e hands s ta( on the "it !ust ha0e +een na**% deter!ined and paid, 1$ The propert% on
Co!putation or the 0anishin" deduction Step #$ Deter!ine the +asis o the 0anishin" deduction: #$ The initia* 0a*ue to ta?e as the +asis o the 0anishin" deduction is the 0a*ue o the propert% in the prior estate &or 0a*ue used or donor>s ta( purposes') or the 0a*ue o such propert% in the present estate)
% #;; ;
If received by inheritance or gift ithin # %ear prior to the death o the decedent More than # %ear +ut not !ore than 2 %ears prior to the death o the decedent
; /; 2;
More than 2 %ears +ut not !ore than . %ears prior to the death o the decedent More than . %ears +ut not !ore than / %ears prior to the death o the decedent More than / %ears +ut not !ore than 1 %ears prior to the death o the decedent
E(a!p*e: Ms$ -ane inherited a piece o *and and a car ro! her ather on Ma% #) 2;;$ The estate ta(
8#)2;;);;; .;);;; 8#)1;);;; ;);;; 8#)1;;);;; .;;);;; 8#)2;;);;;
8/;);;;
FAMI HOME A a!i*% ho!e is the ds a!i*% ho!e$ The !a(i!u! is one !i**ion pesos &8#);;;);;;'$ The deduction ro! the "ross estate or a!i*% ho!e sha** +e a**o
STANDARD DEDUCTION The "ross estate o e0er% decedent
hiche0er is the *o
hiche0er is *o
AMOUNT RECEI3ABE UNDER RE8UBIC ACT NO /4#5 An% a!ount recei0a+*e +% the heirs ro! the decedent>s e!p*o%er as a conseuence o the death o the decedent6e!p*o%ee in accordance
8#)2;;);;; 2)/;;);;;
or*d Gross Estate
8.);;);;;
Ordinar% deductions
8;;);;; 4;;);;; 8#)1;;);;;
Deduction: 8#)2;;);;;8.);;);;; ( 8#1;;);;;
81;;);;;
Problem 1: Mr. A, a citizen of the Philippines, died with a gross estate of P8,000,000 and the following expenses related to his death. Unpaid as at the time of death: bit!ar" P#$,000 %lothes of the decedent &worn in the coffin' #,000 (ood and be)erages for those who attended the )igil at the f!neral home 10,000 Amo!nt paid to the priest who celebrated a mass for the dead $00 %ontract price for a famil" ma!sole!m $00,000 (ood and be)erages on the ninth da" after death, and after interment #,000 %ard of than*s for those who condoled +00 Paid at the time of death: %ost of b!rial plot &with accommodations for the fi)e members of the (amil" of the decedent
P$00,000
A memorial plan was p!rchased b" the decedent for P#00,000, and the seller f!lfilled its obligations !nder the plan. Act!al f!neral expenses Allowable ded!ction for f!neral expenses
Problem #: Mr. A, a citizen of the Philippines with gross income within and o!tside the Philippines, died on March 1, #010. -he following information were gi)en among others to determine the amo!nt ded!ctible: (or !dicial proceedings in the Philippines: (iling fee of estate proceedings with the co!rts P#0,000 P!blication cost of notice in the newspaper of estate proceedings 1$,000 Acceptance fee of the law"er, Ma" $, #010 $0,000 %o!rt appearance of the law"er. A!g!st #, #010 10,000 %o!rt appearance of the law"er, ct $, #010 10,000 (or !dicial proceedings in the foreign co!ntr" for a l!mp s!m agreed pa"ment of P$00,000 for all expenses in the settlement of the case abroad !ntil terminated. /emitted to the law firm abroad on April $, #010 &date of agreement' 1$0,000
/emitted to the law firm abroad on o)ember $, #010 oss of propert" in the estate, 2!l" #, #010 oss of propert" in the estate, ctober 1, #010
100,000 30,000 40,000
5ed!ction for !dicial expenses 5ed!ction for losses Problem +: -he decedent died in the Philippines with recei)ables as follows: (rom a debtor who has no properties whatsoe)er (rom a debtor whose assets in relation to liabilities is 1:+ (rom a debtor whose assets amo!nted to P1,+00,000 with a tax liabilit" of P100,000 and other indebtedness of P4,000,000
P100,000 +00,000
300,000
6ow m!ch is the ded!ction from the gross estate for claims against insol)ent persons Problem 4: Mr M died single, lea)ing properties, among which was propert" that he inherited three and one half "ears before. At the time he inherited the propert" it had a fair mar*et )al!e of P1,100,000 and mortgage of P100,000. -he fair mar*et )al!e of the propert" in the present estate is P#,000,000 and the mortgage indebtedness was paid in f!ll b" Mr. M. -he gross estate of Mr M is P4,000,000, and allowable ded!ctions not incl!ding )anishing ded!ction and standard ded!ction is P400,000. 6ow m!ch is the )anishing ded!ction Problem $: Mr 7 died lea)ing propert" that he inherited one and onehalf "ears ago, as follows: Propert" in the Philippines Propert" in 9ndonesia Propert" he ac!ired thr! his own efforts
P$,100,000 1,000,000 4,;00,000
-he propert" inherited had fair mar*et )al!e at the time recei)ed as follows: Propert" in the Philippines Properties in 9ndonesia
P+,000,000 1,#00,000
rdinar" ded!ctions from the gross estate not incl!ding the )anishing ded!ction, had a total of P#,000,000. 6ow m!ch is the )anishing ded!ction
Problem 3 Mr. % died lea)ing a gross estate of P$,000,000, in which are incl!ded propert" and cash recei)ed as gift within the "ear of P$$0,000 and P$00,000, respecti)el". At the time the propert" was recei)ed as gift, it
had a fair mar*et )al!e of P4$0,000, with an !npaid p!rchase price of P$0,000. Mr. % paid the !npaid p!rchase price. rdinar" ded!ctions from his gross estate, not incl!ding )anishing ded!ction, had a total of P1,$00,000. 6ow m!ch is the )anishing ded!ction Problem < Mr. 5 died lea)ing the properties, with fair mar*et )al!es, that follow: Propert" inherited two and onehalf "ears ago &fair mar*et )al!e was P1,000,000' P1,#00,000 Propert" recei)ed as a gift # = "ears ago &fair mar*et )al!e when recei)ed was P800,000 $00,000 ther properties in the gross estate +,+00,000 rdinar" ded!ction from the gross estate, not incl!ding )anishing ded!ction, had a total of P1,#00,000. 6ow m!ch is the )anishing ded!ction Problem 8 -he decedent was a citizen of the Philippines who died from an illness on 5ecember #$, #00<. 9tem of expenses in the hospital were: (or the hospital room (or the laborator" examination (or the operating room (or 9%U expenses (or the attending ph"sicians (or medicines (or merienda of )isitors
P +0,000 40,000 10,000 400,000 +00,000 +00,000 $0,000
6ow m!ch is the ded!ction for medical expenses Problem ; -he decedent was a citizen of the Philippines who died on o)ember 1, #010 from a lingering illness. Medical expenses were inc!rred:
Septe!+er 2) 2;;4) sti** unpaid)
8 ;);;; #;;);;; 21;);;; 2;;);;;
Ho< !uch is the deduction or !edica* e(penses 8ro+*e! #; In the properties in the estate o a decedent
-udicia* e(penses C*ai!s a"ainst the estate Medica* e(penses
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There
