---,

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(8) 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.
• r . .. ··-· - -- I
D_~_du~t10.ns __from the '. gross ~5.tat~ -~re classified ·1as 9rdinary and
special cfeductions (RR 12: 2018) as summarized below:
- -- -- ,_
Beginning January 1, 2018 or upon the effectivity of the t _
RAIN Law, the
allowable deductions from th~ gross .estate are summarized as follows:

I. ORDINARY DEDUCTIONS: I. ORDINARY DEDUCTIONS:

, 1. Expenses, Losses, Indebtedness, 1. Proportional Deductions for Losses,
__j Taxes, etc. (Lile) . Indebtedness, Taxes, claims against
a. Losses insolvent persons (Lile):
b. ; Indebtedness/Claims against the
estate '\ Gros~ Estate Phils. x Lile world
c. Taxes Gross Estate world
d. Claims against insolvent person

~ Transfer for-Public Use 2. Transfer for Public Use .

\V Vanlshing Deduction 3. Vanishing Deduction
11. SPECIAL DEDUCTIONS II. SPECIAL DEDUCTIONS
1. Standard Deduction (P5M) ■ Standard Deduction of PS00,000
2. .Family Home (max. P10M)
3. RA 4917
I

111. . SHARE OF THE SURVIVING Ill. SHARE OF THE SURVIVING

SPOUSE for married decedents SPOUSE (for married decedents)

85
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ORDINARY DEDUCTIONS ·
A. LITe (bosses, !ndebtedness, !axe s, !tc.)

1. Losses
taxation , deductible losses ffr
For purposes Of estate ,,
gross estate :shall pertain to "casualty losses ·

Casualty losses include, storms, shipwreck or other cas~altles, r

from robbery, theft or embezzlement. The amount deductible 1. t .~
value of the property lost

Requisites for Deductibility:

a) Arising exclusively from:
■ acts of God such as fire, storm, shipwreck and ot' er
similar casualty
■ acts of man such as robbery, theft, embezzlement
b) Rot compensated by insurance or otherwise
c) Not claimed as a deduction in an income tax return of ' e
estate subject to income tax
d) Incurred {iyring-the settlement of the estate. Settlement period
pertains to foe period prescribed by law to file and pay the
estate tax, which is, under the TRAIN Law, one (1) year fro
date of death or the extension (to file) thereof which is no
more than 30 days after the lapse of the one.-year period.

l ILLUSTRATION 1:
Among the properties included in the gross estate of the decedent at the time of his
0

,death was a newly dfveloped r~so_rt io. Si ~(£lli.Q v_?Jued at P-20,000,000. George is the
sole heir to the property. During the settlement of theestare-and berore the last day of
filing the estate tax return, a super typho9n hit Siargao destroying entirely the newly
developed resort. _It was determined that the fair value of the property after the incident
was reduced t<iES.OQJO_OO
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 rom
the gross estate?
❖ Answer: P19,500,000.
The difference on the fair market value before and after incurring the loss.
" Y; { ' '1 I( 0I 1 <· / I IA L /
____ . _ l)et(Ji,dl/J~mt, tb {jrtJ-ss b&tt~
the
; Que stion 3;. What amount should be included aspart-oT allowab-ie deductions from
: the gross :state assuming the property was insured for P25,000,000
1 ·•· A~swer: PO
I Sm_ ce the loss was fully compensated by insurance, no deduction shall be
: claimed against the gross estate of the decedent.
i ~u~stion 4: What amount should be included as deductible loss assuming that the
i mc1~ent happened beyfnd the settlement period of one (1) year, and the property was
i ,not insured.
❖ Answer: PO.
Only losses Jncurred during·the settlement period (wfthin 1 year after
death) are allowed as deduction from the gross estate.
1

Question 5: What amount should be included in the gross e§tate of the decedent
· assuming the incident happened one (1) day Q§_[p_re 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?
❖ Answer: PO.

2. fndebtedness or Claims against the Estate (including

mortgage payable)

" ~ " is generally construed to mean debts or demands of

a pecuniary nature which could have been enforced against the
deceas_ed 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 -
■ 9peration 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
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' De1lctitHtsf fl (j1c l 1,,~
I

' \

d. The death must rnot have beend conddonte~~~t~o~rehditor or the

action to collect from the ece en ave been
prescribed .

SUBSTANTIATION REQUIREMENTS: .
All unpaid obligations and liabilities_ of the deced~nt at the
time of his death are allowed as deduc~ion from gross estate.
Provided , however, that the following requirements/documents are
complied with/submitted :

In case of simple loan (includin g advances):

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 t.he 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. _

If 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 PresidenWice-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
 ,.., ,""I

Dc/,;,·liN,.,)1Ht1tlu (jrt1-c.u E,t,tfe

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 prej.udice 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 t,he country where the non-resident creditor is a
resident.

d) A statement under oath execl!ted 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.

b) Duly notarized Certification from the creditor as to the unpaid

balance of the debt, including interest as of the time of
death.

89
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. . corporation, the sworn certification
18
If the cred1~or : th President, or Vice President, or
. should be .signed. y e or oration. .
other principal officer of the c p

. . artnership, the sworn certification

:h~~fd ~:~!~~e~\: a~y of the general partners.
·t . bank or other financial institutions, the
If the ere d'or ts 8
b h anger of th
Certification shall be signed by th e. ranc m e
bank/financial institution which monitors and manages the
loan of the decedent-debtor.
I

If the creditor is a sole proprietorship, the sworn

certification should be signed by the o~ner of the
business.

In any of these cases, the one who should certi~. must not
be a relative of the borrower within the fourth c1v1I degree,
either by consanguinity or affinity, except when the
requirement below is complied with:

When the lender, or the PresidenWice-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

creditor wi.th a det~iled schedule of its receivable showing
the unpaid balance of the decedent-debtor. Moreover, a
certified true copy of the up_dated 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.

d) 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.

90
 ILLUSTRATlON 2~ \ t' 1 I! (ii I d /I·:

A resident deced~mt dl?d on Novornbor 1, 2020. Ho availed of a P500,000 'almy loan .!

from A~C M~nufactunng Corporntlon (hlH ornploynr) by I:i ulno a rmm1i1, ory notr: i
during h1s.lifellrne.

Question 1: If all the requisites in ordor to be allowod a a daduc11on a claim · !

against the estate were1present, what amounl rnay be doducted from the grot,E; ~ tate'i .
❖ Answer: P500,0000 ·
'I I i/ 'I
~ ri i
1
)uestion 2: If the obligation hastprescrlbed as at the time of his d€1ath, what amount
11
\ ' l- 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: PO
If the Indebtedness arises from a debt Instrument (I.e. loan document), if must be
notarized to be deductible, except for loans granted by financial institutions where
notarization is not part of the business policy of the financial institution-lender. '

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?
❖ Answer: PO 1

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. ., 1 \.
1
1

. -/ 11''( ' l ,' I ' ' , ' ;

Question 5:
If the loan was contracted three (3) years ago and the executor cannot determine how
the lqan proceeds were disposed of, what amount may be deducted from the gross
estate pertaining to the claim? 1

❖ Answer: PO
1

RR 2-2003/RR 12-2018 provides that if the loan was contracted within three (3~
years before the death of the decedent, a statement under oath (by the
executor/administrator) must be executed and must be attached therewith a
statement showin_g the d~~!j_or:i_oj_th~ _Qroceeds of the loan. __ ______ ___ _
' - - - - - - ----"-'=-'---'-- -

UNPAID MORTGAGEs OR INDEBTEDNESS ON PROPERTY

These are 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 ~ncumbered. The amount allowed as a deduction would be the

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l)l,/✓~·t,:1}11.;,·;rr"
◄
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[ _;_ , _&,(_

ou~standing debt or mortgage.

---
In case unpaid mortgage payable is bein
claim~~ by the estate, verrtication must be made as to who was th~
benef1c1ary 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. If
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 left the following upon his death :
.Cash in banf(from various peso accounts) PB,000,00,0 -
....Gash in bank (from various FCDU accounts) 9,600,000
.-Real properties, Philippines 10,000,000
~al properties abroad 10,000,000
The real propert,les located in the Philippines and other countries were mortgaged for
PB,000,000.
Determine the following:
1. Gross estate of the decedent
2. Deductions for "unpaid mortgages"
Answers:
1. P37,600,000
Cash in bank (peso accounts) PB,000,000
Cash in bank (FCDU accounts) 9,600,000
Real properties Philippines 10,000,000
Real properties abroad 10,000,000
Gross Es(ate P37, 600,000
2. PB,000,000

CASE B:
Pedro died in 2020. The following claims against P.e.dro's estate were claimed by his
heirs as deductions from his gross estate. -- -
Notes payable (notarized) P500,000
)( Notes payable (not notarized) 200,000
Unpaid property taxes before his death 300,000
'I Unpaid property taxes on his estate (after death) 100,00Q
XUnpaid judicial expenses . 80,000
-t-Unpaid funeral expenses 75,000
Unpaid mortgage on his properties before death 50,000
Y. Debts from gambling losses questioned by decedent while still alive 50,000

92
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'----'"

. . . . . Yrt.,fvvt tJ., .(>, f

How much is the correct amount of deduction as "claims against the estate"?
❖ Answer:-PSS0,000 computed as follows: · ·
Notes payable (notarized) P500,000
Unpaid property taxes before death 300,000
Unpaid mortgage before death 50,000
Claim against the estate ' P850,000
• Even. ~rior to TRAIN Law, unpaid funeral and judicial expenses are not
class1f1ed as "claim against the estate". They are deductible separately
as 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
garTJ_blirrg_losse_
s.ar~ not allowed as deductions from the ross estate ..

3. Taxes
These . are _
ur1.gaid taxes · that accrued prior to the death of the
decedent. However, the following are not alloweg·as a deduction:
• Income tax on income receivecfafierdeath
• Property taxes accrued after death
• Estpte tax

ILLUSTRATION 4:
Which among the following should be allowed as deduction from the Gross Estate of a
Filipino decedent who died on March 30, 2020?

ITEM PARTICULARS
1 Unpaid donor's tax on donations made during the previous year -
2 Unpaid donor's tax on donations made during current year .,,
3 Unpaid income tax on decedent's income for 2019 /
4 Unpaid income tax on decedent's income from January to March /
2020

6
7
Unpaid income tax attdbutable 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 /
·
, J
~ Unpaid business tax on the decedent's estate from April to
p~~~mQeJ:}L 2_9_2.Q _______

93
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.. ----- -- ---
9 Unpaid municipal taxes from Janua~ to ·March 2020 ·1

10 Unpaid municipal taxes on the decedent's est ate (business) from \

April to December 31, 2020 . 1 tO . l
11 Unpaid import duties on importations made from January I
March 2020 I

12 Tax assessment/deficiencies prior to dea th ·

❖ Answer: Items 1, 2, 3, 4, 6, 7, !9,~1~1~an~d~1~2- - - - - - - - --

·- ---- --------- ---

4. Other deductions such as Claims against an insolvent person

Claims against the estate are "receivables due or m~ing fro~

persons who are not , financially capable of meeting_ the_1r
obligations". Hence, these are claims by the ~ecedent during his
lifetime that are not collectible. An insolvent 1s a perso~ whos_e
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 Roi-required but

a) .The_iQ~apacity of the debtor to pay his obligation should be

_proven. _
b} The-Tull amount owed by the insolvent must first be included in
the decedent's gross estate and the amount. un__pQl!~ctible shall
be aJJ.o_we.d .as.a-deduction:
c) If the insolv~nt could only pay paf1ial amo~nt, the full amount
owed shat! be included in the . grg_§S _~~tate, and the amount
uncollectible shall be allowed as a deduction.

: ILLUSTRATION 5: ·t
I CaseA: / ·
\ Juan _is indebted to .Pedro for P1 ,000,000.. For the past ten (10) years, the credit
, standing and reputation of Juan is outstanding. How_ever, during 2018, the relationship
I 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
1
i several collection/demand letters from Pedro. In ~01§; 1 Pedro died. ·
Question 1: · ___,,
1 Should the P1 ,000,000 collectible from Juan be included in the gross estate of Pedro?

\ ❖ Yes. The P1 M is a valid and enforceable claim of Pedro as of the date df his death.

94
►
1Jr£,.l irhtaf m, 1£ (jnw /:r{r1,k

r ~[~~::P1 ,O;~:ooo
collectible from Juan be ded:cted in Pedro's gross estate?
❖ No. Only uncollectible ~/aims again.st Insolvent per on are deductible from the grotJs
estate. In the case provided, Juan is obviously not an In olvent per on for e tale tax
purposes.

Case B:
Assume the sa_ me data in Case A, except that during 2019, Juan experienced financial
difficulty and _his assets are no longer sufficient to settle his liabilities. Consequently,
Juan was only able to pay P50_Q,000 .to Pedro in 201 9. · In the same year, Juan asked a :
competent court for a judicial declaration that he is insolvent. The court is yet to decide
on Juan's petition. In 2020, Pedro died. ·

Question 1:
Should the remaining amount of P500,000 collectible from Juan be included in the
gross estate of Pedro?
❖ Yes

Question 2:
Should the unpaid amount of P500,000 collectible from Juan be deducted in Pedro's
gross estate? i
❖ Yes. Judicial declaration of insolvency is not required to consider a person insolvent. 1

It "is sufficient that the person's insolvency is proven.

,. ,1 \ ... ,,, J

Case C: · · --· • 1
·•·

Pedro died' in 2020. At the time of his death, he has a collectible sum of P-1 ,000 ,000
from a debtor who was subsequently declared by a court as insolvent for having total
liabilities of P4,000_Q,OO against his total properties valued at P.800 ,900 only. r;~.
- Question 1: -
How much should be included in the gross estate of Pedro?
❖ Answer:~1,000,000.

Question 2:
How much may be claimed as deduction from the gross estate of Pedro?
❖ Answer: PB00,000 computed as follows

Amount of c~, im P1,000,000

Collectible ,,.~ PB00,000 (200,000)
Unco/lectible portion PB00,000
OR:
Amount of Claim P1,000,000
Collectible: PBOOIP4,000 x P1M (200,000)
Uncollectible portion PB00,000

95
 Du/4~,titHts/= £ {jrt'5.s Est«Le
,____/

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 100.72 (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 2009"),
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.

REQUl$1TES FOR DEDUCTIBILITY:

1. Death - the present decedent died within 5 years from the date-of
death of the prior decedent Of 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 Philippines.

4. 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 to the present
decedent's death.

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5. Previou~ taxation of the property _ the estate tax on the prior·

succes~ion or the ?onor'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 pr~vious vanishing deduction on the property - no such

deduction on the pro~erty, 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%
h'\ \\~l \"..- Beyond one year to 2 years ,,
I
·, 80%
I
Beyond 2 years to 3 years ,; 60%
Beyond 3 years to 4 years 40%
Beyqnd 4 years to 5 years - 20%

PRO-FORMA COMPUTATION OF VANISHING DEDUCTION:

VALUE TO TAKE Pxxx
(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 (1 deduction)
st

(Pa-id by the present decedent from the mortgage

assumed when the property was inherited or received as
donation) (xxx)
INITIAL BASIS Pxxx
Less: Proportional deduction (2 nd deduction) computed as:
Initial basis
Gross estate x **LIT + Transfer for Public Use
(xxx)
FINAL BASIS XXX
\ Vanishing-deduction % %
VANISHING DEDUCTION Pxxx
** Under the Tax Code, as amended under the TRAIN Law, the multiplier to the ratio of Initial Basis over
the Gross E~tate 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 RA 10963 (TRAIN Law). Henc~, these e~penses s~all b_e excl~ded in the
computation in case the decedent died in 2018 onwards. Special deductions shall hkew1se be ignored for
purposes of computing the vanishing deduction.

97
 I

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ILLUSTRATION 6: \l ➔•I. :_. · ,J 1
· --:()1,v,
CASE A ~· b'~.i;:·? 'W I\
Pedro received a car as a gift from vuan/on January 1, 2016. The value of the car at
vt tG""~ the time it was donated to Pedro ~ s P1 ,000,000. However, Pedro assumed a
'"l, \f
·, I
P200,000 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-;--j, 20\8, Pedro died. His gross estate at the time of his death amounted to
p5,00Q,000 including the car received from Pedro valued at P700,000.
1

The-following deductions were also claimed by his beneficiaries

P250,000 X
Funeral expenses 100,000
Losses 200,000
Unpaid mortgage (includ'ing the mortgage on the car)
100,000
Unpaid taxes before death 25,000,;
Unpaid taxes after death
300,000
Unpaid medical expenses 500,000 .
Donation mortis causa to Quezon City for public purpose

Question 1: How much is the allowable vanishing deduction?

❖ Answer: 295,200 computed as:
Value to take (lower amount) · Pl00,000
151Deduction ·(100,000)
Initial basis 600,000
Less: 2nd deduction [600/5,000 x (P900,000***)] (108,000)r
Final Basis ' · P492,000
~ rate (within,3 years)" 60%
Vanishing deduction P295,200

Funeral expenses (no longer allowed)

Losses P100,000
Unpaid mortgage 200,000
Unpaid taxes before death 100,000
Transfer for P11blic Use 500,000
(Donation mortis causa to Quezon City)
TOTAL*** P900,000

Questi~n 2: Assum~ the correspo~ding ·donor's tax was not paid _by Juan upon
perfection of the donation, how much 1s the allowable vanishing deduction? ·
❖ Answer: PO
Vanishing ~e?uction is a mode of "tax relief' from multiple imposition of indirect
taxes. ~his 1s th~ ~eason why payment of donor's"tax or estate tax from the
grantor 1s a requ1s1te before vanishing deduction is allowed Hence if the 1

donor'~ta~ was not paid at the time of the perfection of the do~ation, va ~ishing
deduction is not allowed due to the absence of "indirect d~~ le t~ on".

98
 Question 3:. Assume the cor~esponding donor's tax was paid by Juan upon perfection ;
of the donation. Assume further that the donation was made on January 1, 2010. How I
much is the allowable vanishing deduction?
I
❖ Answer: PO The donation was made more than five (5) years prior to ;
I

Pedro's death.

CASE B:

In 2019, Pedro died, leaving a property worth P-1 ,000,00 which he inherited 4 ½ years
ago_fro~ Juan. Th~ property's fair mark~t value at the time of Juan's death ~as 1
?800,000\ ,An unpaid mortgage of P-100,000 was also assumed by Pedro which , 1

"--refrramed unpaid at l ne,time of his death. ~ her properties in Pedr?'s gross _estate had I
fair market value of P.3,000,000. The losses, taxes and· transfer for public purpose
anioUmea -to --PB00,000
~ , includlng P-100,000 medical expenses and family home of t

P400,ooo. ,..__ ,". '- ,(

~v\.,'v~- \)·t. i 't_~" 'll L,· ~ L' •l\i ~
., , , • , (f
1 \\I: - ·

it ' ( t .
Question 1: What is the correct amount of vanishing deduction?

❖ Answer: P144,000 computed as follows:

Value to take PB00,000

1st Deduction
Initial basis 800,000 I
I
Less: 2nd deduction [800/4,000** x (P400,000 ***)] so,ooo _ I
Final Basis 720,000
x rate 20%
Vanishing deduction P144,000

Correct amount of GE **
FV of the property inherited upon Pedro's death P1 ,000,000
Other properties in Pedro's estate 3,000,000
Total GE P4,000,000**

LITe as provided in the problem*** PS00,000

Less: Medial expenses (should not be part of LITe) (100,000)
Family home (should not be part of LITe) (400,000)
Add: Unpaid mortgage 100,000
(Not yet inc~uded in the PS00,000)
Correct LITe P400,000***

99
SPECIAL DEDUCTIONS
A. Standard deduction

The law allows a standard deduction without qualification , condition

nor requisite whatsoever. This amount shall be allowed as an ad d itional
deduction without need of substantiation . The full amount shall be
allowed as deduction for the benefit of the decedent.

Allowable amount under the TRAIN Law :

/ bl • If the decedent is a citizen or resident - P5 ,000 ,000
( • If the decedent is a nonresident alien - P500 ,000

This is the only special deduction allowed to a nonresident alien

decedent. The other special deductions (fam ily home and RA
4917) can be claimed only by citizen and resident decedents .

B. Family Home
The amount of fam ily ho m e a llow able
as a deduction would be w h ich e ver is
lower of P10 ,000 ,000 or the fair m arke t
value at the time of the decedent's death ,
The dwelling house , including of the family home and the land on w hich it
the land on whic~ it is stands (P1 ,000,000 prior to the effectivi y of
situated, where the husband RA10963, otherwise known as TRAIN Law).
and wife, or a head of the The family home is deemed constituted
family, and members of their on the house and lot from the time it is
family reside, as certified to
actually occupied as a family res idence
by the Barangay Captain of
and is considered as such for as long as
the locality.
any of its beneficiaries act ually resides
therein . (Arts . 152 and 153, Family Code )

Actual occupancy of the house or house and lot as the fa mily

residence shall not be considered interrupted or abandoned in such
cases a_s the temporary absence from the constituted fa m ily 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 fam Uy 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 clijssification of the property (family· home) and
the property relations prevailing on the properties of the husband a nd

100
 De£di;11u f tl. (jms.s bbde
nt

wife. It may also be constituted by an ~nmarried head of a family on

his or her own property .

Unmarried Head of a Family

An unmarried or legally man or woman with one ot both parents,
or with one or more brothers or sisters or with one or more
legitimate, recognized natural or legally ad~pted children living with
and dependent upon him or her for their chief support, where such
brothers or sisters or children are not more than twenty one 21 )
ye~rs of age , 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 upon the head of the family
for legal support.

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 th~
relationship be legitimate or illegitimate , who are living in the
family home and who depend upon the head of the family for
legal support.

Umitation .·
For purposes of availing of a family home deduction to the extent
allowable, a person may constitute only one (t) family home.

REQUISITES FOR DEDUCTIBILITY:

1. The decedent was ma_rr[~d or if single, was a head of the family
2. Along with the decedent, any of t he 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
situated.
5 . The total value 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
 veL:cto/= tk (jross Es&de,

included in the gross estate, or th~ extent of t~e decedent's

interest (whether conjugal/community or exclusive property),
whichever is lower, but not exceeding P10,000,000, as amended.

ILLUSTRATION 7 -

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 PS,000,000. Decedent was head of the family.

❖ Answer: PS,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: P?,500,000. 1

For married decedents, the FMV of the family home should be divided by two (2) if the /
same is conjugal or community property.

Case F: FH varued at P15,000,.000 of which, P10,000,000 is allocated to the land

(exclusive), PS,000,000 to the house(conjugal). Decedent is married
❖ Answer: P10,000,000
Land (exclusive) P.10,000,000
House (conjugal) PS,000,000/2 2,500,000
Total . , P.12,500,000
W Maximum deductible amount is P10,000,000.

Case G: The fair market value of the family home which is partly exclusive and partly
common follows:
Family lot (exclusive) P.5,000,000
Family house (common) 9,000,000
❖ Answer: P9,500,000
Land (exclusive) P.S,000,000
House (common) P9,000,000/2
To~a~
4- 500,000
t I _ _ _ _ _ _ _ ___J~g~~~- - - -
I
j
.___ __ _ __ ~ ,500,000

102
 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 ~f Private Firms shall oO be subject to Attachme~t,
Levy, Execution or Any Tax Whatsoever), provided such amount 15
included as part of the gross estate of the decedent.

NET SHARE OF THE SURVIVING SPOUSE

The amount deductible under this category i's 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.

The value of the net estate of a decedent who is a non-resident alien

in the Philippines shall be de\ermined l;)y deducting .from the value of that
part of his gross estate which at the time of his death is situated In the
Philippine~ th~ following items of deductions (Section 7, RR2-2003):

Ordinary Deductions
■ LITe:{proportional deduct~on**) Pxx**
**Total LITe x(GE Phils./GE world)

■ Vanishing deduction
• Transfer for Public UseI

Special Deduction
• Standard deduction
Share of the surviving spouse
■ If the decedent is married xx

· 103
ILLUSTRATION 8:
C
itizen died on July 4, 2018
·K a and a Korean
Mr. Krung, a resident of Seoul, South ore
·1eaving the following properties: . -P4,500,000
,/Gondominium unit in Makat1 7,000,000
Family Home in Seoul, Korea 2,750,000
Rest House in Australia ...,.,500,000
25 2017
_.-Jewelries received as gift dated AuguSt ·
•
. ------1-;000,000 ' ('' • '.' I

,Gar in Makat1 . 1 , J -'

The heirs of Mr. Krung claimed the fol/owing deductions: P300,000

Funeral expenses 500,000
Claims against the estate 500,000 ,· -
Claim against insolv~nt person '----o
10 ,ooo
Judicial expenses 200,000
Medical expenses 1,500,000
Family Home 1,200,000
Standard Deductions

Required: ·
Determine the net taxable net estate.

❖ Answer: .P5, 130,769

Solution: ·
GROSS ESTATE P4,500,000
condominium unit in Makati 500,000
Jewelries 1,000,000
Car in Makati . 500,000
Claims against insolvent person
P6,500,000**
Total gross estate - Philippines
ALLOWABLE DEE>UCTIONS
Ordinary Deductions:
,. Lile= (P6.5M/P16.25M** x P1,000,000*") (400,000)***
Vanishing Deductions** (469,231)
. Special Deductions = Standard Deduction (500,000)
TAXABLE NET ESTATE . PS,130,769

m *Funeral andjudicial expenses are no longer allowed under TRAIN Law.

m GE** =incl~de claim ag13inst ins()lvent person
m Lile of P1M*** =Cla.im against-the estate and claim against insolvent person-
Ho:,vever, the allowab!e amount shall only be the proportional amount of GE
Phlls. over G~ world. 1f the decedent is a nonresident alien
m Standard dedu~iOn of P500,000 is alr~ady allowed as deduction from the gross
estate.of nonresident alien decedents under TRAIN Law.

104
 --·- - - ------·
Computation of Vanishing Deduction
Value to take P500,000
Less: Mortgage paid -
Initial basis 500,000
Less: Proportional deduction
(500/6,500 x P400,000) (30,769)
Final Basis P469,231
x Vanishing deduction rate (within 1 year) 100%
Vanishing deduction P469,231

ESTATE TAX RETURN PREPARATION

Mr. Bu Ang, single .and a non-resident alien, died of a heart attack in 2020, leaving
the following properties in favor of his heirs:

Gross estate within the Philippines P30,000 ,000

Gross estate outside the Philippines 20,000,000
Funeral Expense 500,000
Judicial and administrative expenses 2,000,000
Claims against the estate 5,000,000

His gross estate includes family home valued at PB,000.000.

Required:
1. Compute the correct estate tax due
2. Fill-up the Estate Tax Return

Solution:
Gross estate, Philippines P30, 000, 000
Ordinary deduction (3,000,000)
Standard deduction (500,000)
Taxable net estate P26,500,000
x Estate tax rate 6%
Estate Tax Due P1,590,000

NOTE:
Additional exercises on Estate Tax Return preparations are shown in the
Chapter 4.

105
 ~/
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106
- SIR Form No

1801 Estate Tax Return

J,as;t'f ZJ18 f-NCS'

~M
PI0'2
IT~--~
IIII E~1~~1111 1 l &l 1 01'16EOCS P2

I I I I I I I I I I I I I

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khed~ 1 fletairs of Pl ru»mJ EAL PRO?ERTESl i COlltmu.;atinn /
• e! V' {f\tV . :>5 1·
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TOTALrraPll'f l'/ ftm .-..:1

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------t!ie- .

107
 PROBLEMS

P3.1. (LOSSES) _ st8 ta as follow : .

Various types of losses incurred by a decedent~e dent's death, P1 ,000,000
8 8
• Loss due to typhoon, a day before th e fter the decedent's d · th
• Loss due to shipwreck, two (2) months a · ,
PS00,000. _ th 8 d cedont' ~ d ath
• Robbery loss, eight (8) months after ,
P2,000,000. _ h 800 000
• Swindling loss incurred 2 months before deat , ·
• Gambling losses before death, P2,250,000

J\J i~~:'I
REQUIRED: 11 ,, f tt
Question #1 : How much is the deductible losses rom 18 gross
-~ ' 0 ' ~ \'i
estate of the decedent?
11
Question #2: How much is the deductible losses". fr~m the gross
estate of the decedent assuming the robbery loss was incurred 1 ½
years after the decedent's death?

P3.2. (CLAIMS AGAINST THE ESTATE/ INDEBTEDNESS, CAIP,etc.)

The heirs of a resident citizen decedent with a total gross estate of
P15,000,000 provided the following data:·
..... ~ Receivable from Juan, a debtor P500,000
·- • Amountcollectible from Juan 400,000
1 ,,,✓ Unpaid taxes on the estate bE1fore death 150,000
• • Unpaid taxes on the estate after death 50,000
-4, ~ Unpaid mortgage on the estate 200,000
• Funeral expenses (paid) 182,000
• Unpaid funeral expenses 37,500
• Medical expenses 82,000
• Judicial expenses 100,000
.1. ..r' Unpaid loans arising from debt instruments (notarized) 125,000
-- ,. Unpaid loans arising . from debt instruments (not 75,000
notarized} . . The debt instrument was issued by a
financial institution not requiring notarizations for debt
instruments issued
• Unpaid loa~s arising from debt instruments (not 100,000
notarized). The debt instrument was issued by a non-
financial institution not requiring · notarizations for debt
instruments issued
,.,,,--- Casualty loss 65,000

~1 i: 1
QvO ,,
l
.

JI lj IO\J \)
108
~ I r
►

REQUIRED: Determine the total amount of allowable deduction

from g~oss estate of the decedent including applicable special
deduction.

1 P3 .3. (CLAIMS AGAINST INSOLVENT PERSONS - CAIP)

Case A Case B Case C Case D

Receivable from a PS00,000 PS00,000 PS00,000 PS00,000
debtor \/ ~ ~ I ',( · 1"\) '( l t ' l "'; __
"

Amount collectible 400,000

Debtor's total assets
400,000 1,200,000 1,200,000 ~
Debtor's total liabilities 1,200,000 ~800,0Q_Q 800,000 ;
excl. tax ·;,
Unpaid taxes f vW 1 ~u~t } j 1 f,, • 800,000 -----
K )
It
Allowable deductions-
CAIP

P3.4. (CLAIMS AGAINST INSOLVENT PERSONS)

f ~01 ?;)
• • : " .I r'
The following data were taken from the estate of Pedro:
.o~tl • Claims against Juan (insolvent), P100,000, fully uncollectible. \\· ~i }
1; '--- • Claims against Manuel (insolvent), P200,000, 50% collectible. )~\/. '-- v • !r' "L

• c•aims against a person who absconded, P300,000. ,. 1

1
-;.-
,, - REQUIRED: Bas!)d on the da~~;~r6vd;~,: d~t~;~;r,~' ;~ ;~rtowa~le • ' '"
deduction from Pedro's gross estate.

P3.5. (CLAIMS AGAINST INSOLVENT PERSONS)

The gross estate of Juan includes P200,000 receivables which is duly
notarized from debtor (PedrO') whose records show: ·
Assets P400,000
Liabilities 800,000
Pedro's liabilities composed of the following: ·
■ Due to the BIR for unpaid taxe,s, P200,000 :
• Due to Juan, P200,000 -!
,-)Ul l,1·.t,
■ Due to other creditors, P400,000 ., ·

REQUIRED:· Determine the amount of allowable_deduction from

Juan's gross estate in relation to its receivable from Pedro.

109
I I.

7Je,(;:,.,it't11t1/;," 1£' (jn, ,, I ,1,1 1,.

,_,,.

, r;•:·I~
',,~
~}v
.
1

~,\ ~('y- PJ.6. {VA_~f_\S H/NG_DEDUCT/ON)

J , r , •

, \ '-
Juan , a F11tp,no residing in Davao died on December 10 , 2020, lea vtr ~J "l
\ l!:
' H ll gross estate of 1?4,500 ,000 including a parce l o_f land val_uc:}(j ;1
/,+ P td _(, d , ~i:, \ P1 , 125,000, which he inherited from his fath er w~o died on r U~~'-:r c, _
11,.~: ii , 1 "/ ! , 0: \., 2017; that the land was previously taxed with a fair valu e ot
estate tax purposes in the estate of his father; that the land w a
3,7 , ,):' ~ fr;r
JJbJ,,<,l<-:<1
p,;
to a mortgage of P468, 750 at the time it was inherited by th<-,, pr6: '= ti
~r)i •· l . f (11r;,, I decedent, which amount was deducted tram the net state of th f: f, t ,,,,
- - . that the present decedent \paid _p 187,500J of the mortgage ind .,? l<;d nc,:;·,
, r ,f:J \[ 11~ &~-(, <T1 and that _the total deduction s claimed for expense , losses, et . inclur1, n~J
- :, r x yD\ th e unpaid mortgage of P281 ,250 wa s. P562,50_Q). . . ._
. . v_. - . --\__REQUIRED: Determine the corre ct amo unl of va rn shrng deduct1cm , i · an ;
,1 \ , ~ \ 11 '(' ✓'J, ' I
, . , " ,·n i) l ' ' ll '
;._l !• )f I . J....) .. I '-; 'J \_ - .

_, 1 1:.: ;;, P3.t. (STANDARD DEDUCTION)

Determine th e allowable standard deduction fro m the follow1rir
independent cases :
~J~ ,\ cJ . ,·, \, •
( f• •"', \ ' ' ,. , · c' CASE PAR 'I,/CULARS

·., p A Decedent is single and a resident citizen of th e Philippine ~

·~: .i ·~ · ~~ ·· *-8- Decedent is a head of the family an d a re sident citizen of trH=

t~
~- "
cf1 ,1 ~ C
i:-) 1
~\l D
Philippines : 1.
Decedent is a resident alien
Decedent is a non-resident alien , reciprocity cl au e und er th(;:
I
'1 ·1r. 1
17µ i. tax code is applicable
,.,..o 1,, ··
10
' ~ -~E Decedent is a non-resident alien, reci proci ty clau se und A rH::
!____!_0 , ~ ;'',r;~ :. q,:,,150 tax c9de is not applicable
UJ1~1 9'i10 di.iv Oh
.:::=:= 211
{ vi I . id P3.8. (FAMILY HOME)
~f Determine the deductible family home in 2018 from th e foll owin
independent cases :
CASE Particulars Famil - Home
- ~ ...
0 A Decedent is ~ JJ_gle · P 10,0000,000
B Decedent i~ a head of a family 5 ,000 , 00
() C Decedent is married. The family home
is the exclusive property of the surviving 8,000 ,000
spouse
D Decedent ;s married. The family home 10,000,000
is the exclusive property of the decedent
Decedent is married. The family home 12,000,000
is classified as conjugal property
Decedent· is married. Fifty percent
10,000,000
(50%) of the family home is classified as

110
/
 conjugal property, the remainder is the
exclusive property of the decedent

COMPREHENSIVE PROBLEM

P3.9.
The administrator of a decedenfs estate (head of the family) provided the
following data :

Property:
Domestic shares of 2,000 shares inherited 6 years ago P8,000,000
House and lot, family home, located in Davao, inherited 2,000 ,000
2 years ago at a value of P1 ,500,000
Jewelry items, in the Philippines at the time of death 400,000
Jewelry items kept in a vault abroad 200,000
Bank deposit in a Philippine branch of a U.S. bank 5,000,000
Interest from bank deposit after decedent's death 25 ,000

Expenses and other charges:

Funeral expenses, abroad 80,000
Funeral expenses, Philippines 200,000
Judicial expenses, abroad 100,000
Judicial expenses, Philippines 50,000
Claims against the estate with the notarized debt 120,000
instrument issued in the Philippines,
Donation to the Philippine government as provided in his 250,000
will

REQUIRED: Determine the net taxable estate assuming:

1. The decedent was a Filipino citizen but a resident of Australia
2. The decedent was not a Filipino citizen but a resident of
Davao City

P3.10.
A resident decedent, head of family, died leaving the following properties
and obligations:
Cash in bank, 50%, donated mortis causa to Nat'I
Govt;50-% to Q.C. gov't P 300,0000
House and lot in Makati, Family Home 1,500,0000
Other real properties 15,000,000
Farm lot 825,000
Claim against an insolvent debtor 225,000
Transfer in contemplation of death (gratuitous) 1,250,000
Transfer passing under special power of 75,000

111
 appointment
Deductions claimed:
Funeral expenses
575,ooo
67,soo
Judicial expenses c·t overnment 1so,000
Donation mortis causa to Quezon I Y g
Unpaid mortgage on the farm lot
7s,o00
Medical expenses (included in th0 ~uneral. expense
incurred within the 1 year period w1th receipts) 22s,000

The farm lot was inherited 5 ½ years ago by th e dec~dent before his
death with a value then of P575 ,000 and a mortgage indebtedness of
P150 ,000 .

REQUIRED: Determine the following :

1. The taxable net estate
2. The taxable net estate assuming the farm lot was inherited five
(5) years ago.

P3.11 .
Juan died leaving a gross estate of P12,800,000 including a land inherited
from his uncle 3 ½ years before his death and a car donated to him seven
(7) years before his death. The following data pertain to the two
properties:

Unpaid Mortgage FMV upon receipt FMV upon death

Land P100,000 P1 ,800,000 P1 ,250 ,000
Car 50,000 300 ,000 400 ,000

The decedent was able to pay ½ of the unpaid mortgage on the land
before his death. .

Other deductions claimed are as follows:

Expenses, losses, indebtedness, taxes P 1,200,000
(excluding the unpaid mortgages above but
including actual funeral expenses of P300,000
and medical expenses of P600,000)
Standard Deductions 1,500,000
Transfer to the Govt, included above . 300,000
Death Benefits from Employer under RA 4917 200,000
Family home (included above) 2,000,000

REQUIRED: Determine the net fotlowing :

1. Vanishing deductions
2 . The net taxable estate
 TRUE OR FALSE
1. Deductions from gross estate are highly disfavored in law; he who claims
deductions must be able to justify his claim or right.
2. As a rule, a deduction is allowed from the gross estate if it is proven that
the estate of the decedent is entitled to such deduction as provided by
law.
3. As a rule, deductions from the gross estate are presumed to be conjugal
deductions, unless specifically identified as exclusive.
4. No deduction is allowed on the property which is not included in the
decedent's gross estate.
5. Obligations contracted by a person during his lifetime are terminated
upon his death.
6. All claims against the insolvent person are deductible from the decedent's
gross estate.
7. In a claim against insolvent person, the insolvency of the debtor must be
proven and not merely alleged.
8. It could be that the amount to be included as part of the gross estate in a
claim against insolvent person is less than the full amount owed.
9. So that unpaid mortgage may be deducted from the gross estate, the fair
market value of the mortgage property must form part of the gross estate
in full.
10. For unpaid taxes to be deductible from gross estate, such must have
accrued at the time or before the decedent's death.
11. Unpaid income taxes incurred before the decedent's death is deductible
from the gross estate.
12. Brokerage fees for ·selling property of the estate are part of the deductible
expen_ ses.
13. Casualty loss is deducti ble from gross estate if such loss was incurred
1

during the settlement of the estate.

14. Casualty losses could be claimed as deduction from the gross income and
_from the gross estate.
15. Vanishing deduction is allowed for property received from donation if part
of the gross estate.
16. In computing for vanishing deduction, the value to be taken is the lesser
amount of the value of the property at the date of the previous transfer
or the value of the property at the date of death of the decedent.
17. Vanishing deduction is being allowed to lessen the impact of successive
taxation of the same property within a very short period due to the death
of the decedent-transferor.
18. The benefit of vanishing deduction may only be applied once. ,
19. The maximum amount of deductible family home from the gross estate
after the effectivity of TRAIN Law is Pl0,000,000.

113
 , ,:1,1,£
, / -. U ',J//,1·
l "/t.'l(I/U
.1 • 9r0as E,&,✓
(. 1.11·r l tti ,·,.,1.
""'
,./I{ It. l
.. , .
1
-
,_.,..
.
.
"l.,{,c_

. • · of the deCedent' the maximum

ft
amount of
di s of the class1f1cat1on the gross estate .a er e e,"'ect,vity
th ·
20. Regar es d d deduction from
deductible stan ar
of TRAIN Law is PS,000,000

MULTIPLE CHOICE.
· · t tements is true? d · I · h
I 1. Which of the following 5 a highly disfavore in aw, e Who
a. Deductions from gross estate are·ustify his claim or right. ·
claims de.d,uctions must be able ~o J ce to show that the expense was
b. Receipts or invoi_ces or _o th er evide; duly support deductions against
really incurred, 1f apphcabl.e,) mus •
the gross estate.
c. Both "a" and "b"
d. Neither 'a" nor "b"

.., 2. Which is false? . t bl t t

. t d based on the net estate or axa e es a e.
a. The estate tax ,s compu e h tate th
.b. The net estate· is determined by subtracting from t e gross es e
deductions authorized by law. ·
c. Both "a" and "b"
d. Neither "a" nor "b"

ORDINARY DEDUCTIONS

LITe - Indebtedness/Claims against the Est11Je

J, 3. Which among the following statements is \COJI~t1?
I. · An obligation that had prescribed already during the lifetime of
the decedent, or that was unento·rceable -against him when still
alive, will not be claim against his estate when he shall be dead.
II. If a monetary claim against the decedent did not arise out of a
debt instrument, the requirement on a notarized debt instrument
does not apply. ·
a. I only c. .Both I and II
b. II only @
Neither I nor II

~ 4. The followiAg statements pertain to indebtedness for estate tax purposes.

Which is false? · ··
I. When a person . leaves property· en~umbered by a mortgage or
indebtedness, his gross estate must include the fair market value
of the property, undiminished by the mortgage or indebtedness;
11. Include ·in the computation for the gross estat~ on'fpthe equity of
the decedent on the property.

114
 cfy-to· Eemise_, - DeL:dl~rJ-ht, £ {jnJ55 b td&
III. If the loan is merely an accommodation loan, where the proceeds
of the loan went to another person, the value of the unpaid loan
must not be included in the receivable of the estate. ·
a. I only c. I and II qnly
@> II only d. II and III only

5. Which among the following is ~Qlse,?

I. If a claim against the estate arose out of a debt instrument, the
debt instrument must be notarized regardless·~~f its source.
II. If a monetary claim against the decedent did not arise ot1t of a
debt instrument, the requirement on a notarized debt instrument
does not apply.
III. If the loan was contracted within three years before the death of
the decedent, the administrator or executor must submit a
statement showing the disposition of the proceeds of the loan.
a. I only c. III only
b. II only @. II and III only
Awa Nhen _died on January 1, 2018 leaving among others the following
charges and obligations:
Real property tax for the year 2017 Pl00,000#
Notarized interest bearing promissory note 100,000~
Accrued •interest on the promissory note at the time of
death 20,000
Interest to accrue on the promissory note from the date of 10,000
death to the date of maturity
Income tax due for 2017 _ 200,000
How much were the allowable qrdina'ry deduction~ rom the gross estate?
~ .....__~-- · - - ---= ·- -
a. P420,000 c. PSl0,000
. P430,000 d. P520,000

Claims against the estate of the decedent who died on February 2018:
Notes payable for money borrowed, not notarized PS00,000 ; -,
AccountsJ)ayable for supplies used in business 200,000 '
Debts from,gambling losses '-12blo_oo
''---·
How much is the deductibl~ claims against the estate?
~ P200,000 c. P470,000
6( P320,000 d. P850,000

115
 ,,
f. .

( ;lt11rr / {ntw.,
• • • • I • - veict,
· ·
iH~U lim tl {jmss lrt1./.fe
'J'"
/vent persor/s
. Ule· Cli/ms 1g1ln1t Inso di "claims against insolvent persons''
, 8. -h. following statements regar ng are
c rre t, xc pt . . If the debtor had some properties
q. It Is a deduction even _ if secured by a mortgage
b. It an be a deductlo~ eve~d in the gross estate
. It should always be. includ putation for the net taxable estate .f
1
d. Should be omitted in the com
entirely uncollectlble
. t t -ments is correct?
Which of the fallowing s a e . perties are not sufficient to p
a. A person is Insolvent when his pro ay
· his obligation. · • d t f th ·
b. The claims of the creditors will be sat1sfie ou o e available
properties of the Insolvent debtor·
c. For estate tax purposes, there are two kinds of creditors,
preferred and ordinary creditors.
d. All of the above

Lile-Taxes
,.
t 10. Which of the following is .,1...~_.,..,,,t deductible from the gross estate of a
decedent?
I. Income taxes on income received after q~a.th
IL Property taxes not ~ccrued before death
III; Estate Tax
0:
I and II only c. All of the above
b. II and III only d. None of-the above

11. Which of the following taxes is deductible from the gross estate?
@. Income tax paid on income received after death .
b. Property tax,~) accrued prior-to death
c. Estate tax paid on a foreign country
· d. Donor's tax accrued prior or before death

1) 12. On JuQe 3_0, 20J.8 ~ua_n _QeJa Cruz passed away. The following .uppaid
1

taxes relate to his property, income on his property, and estate. Estate
tax was filed and paid early on December 31, 2018. ·
20171ncome tax from practice of profession ,1>300,000
Income tax-practice of profession for Jan. to June 2018 / 100,000
Income tax of the estate, July to December 2018 200,000
Real property taxes for 2016 and 2017 ,.150,000
Business taxes for 2017 , · ..11)0,000
The total taxes that may be deducted from the gross estate is
a. PSS0,000 ½• P850,000
b. P750,000 Id. P650,000

116
 LITe-Losses
13. Which of the following is wrong? Losses deductible from the gross estate
.,,a. Should only be of property included in the Philippine gross estate.
,,b. ~hould be incurred during ·settleme.nt of the estate .
..c. May be arising froni storm.
d. Should not) be compensated by insurance or other form of
indemnity.

\ 14. Which is deductible from the gross estate of resident decedent?

a. Loss of portion of the estate incurred during settlement period
such as those arising from theft.
b. Loss of portion of the estate incurred 200 days before the death
of the decedent. -
c. Loss of portion of the estate incurred a month before the death
of the decedent.
d. Losses on the portion of exclusive capital of surviving spouse
incurred during settlement of the estate.

Use the following information for the next four questions:

Among the properties included in the gross estate of the decedent at the time
of ge.ath is _~ three-story commercial building with a fair market value of
fp ·, P12,000,000.1 During the settlement of the estate and before the last day of
paying the estate tax, the said property is _de_~troyed by fire. The fair market
value at the time of the incident was 13 000,QOQ.. no,, .
..
__,·
15. The amount that should be fncluded as part of th~ gross estate is
f~ PO . . c. P12,500,000
~ P12,000,000 d. P13,000,000

16. The Q10unt of deductible loss will be

. a.1 PO c. P12,500,000
b. P12,000,000 d. P13,000,000

.~ 17. Assume that the property was insured for e{Q,_000,000°' and the amount
recovered from the insurance company wa~ J>9~o;Ooo. The amount of
deductible loss will be
~
( a Pl,000,000 c. P9,000,000
ti. P3,000,000 d. P12,000,000
;.
;· 18. Assume that 70% of the property is destroyed by fire and the property is
not insured. The deductible loss will be
(a~:
PO . c. PS,400,.000
'Ii. P3,600,000 d. P12,000,000

117
 .I - f J. fr(}ht,
Dd_,flv(,t{}tU £ {jrrhs lsttit e,
CAf CJ. qerci,eJ ____,
bfc use be uests, legacies, devises or
Transfer fo~ Put 'the amount of all the ~ent of the Republic of the
~ 19. It pe:am~o ~r for the use of th~ -~over;ereof, for exclusively public
trans ers llcal subd1v1s1on
Philippines, or any po I ' •

purposeS. . c. Prop erty previously taxed

a. Transfer for publl~ use d. Inheritance
~ . vanishing deduction .
cf from the gross estate 1s meant
. 20. By "transfer for public use" as dedu ,on
dispositions in: . favor of the Government of the
..,-I . A last will and testa~~nt in bd'vision thereof, for exclusively
Philippines or any political su I
public purposes. th in favor of the Government of
)1. Transf~~ t~ take effect aftl~t~ dle:ubdivision thereof, for exclusively
the Ph11tppmes, or any po I ica ·
· public purposes. r: \ h and II
a. I only ~ Bot I .
b. II only d. Neither I nor II

C/ 21. Which of the following is no,t a remedy against double taxation

a. Estate tax credit ·
b. Vanishing deduction . . .
(c.'. Delivery of property from fiduciary heir to fede1comm1ssary in a
\....,,' fideicommissary substitution
._d; , . .Transfer for public use

22. Which i~~§:? Deduction for transfer for public use:

. a. ~ legacy in a last will and testament to the government
b. Means device in a last will and testament to the government
c. Includes ·any kind of transfer to the government for public
purpose
d · Will not include legacies to charitable institutions

0 23. Yumao Na Rhin transferred a 3,000 square meter lot purposely to be

converted as a zoo to be administered by the city government of Tawi-
tawi. The lot was acquired by the decedent 10 years ago_for PSO,OOO.
Its fair market value at the time of Yumao Na Rhin's death was
PS,OOO,OOO. The deduction from the gross estate relative to this transf~r
is
a. PSO,OOO
b. P2,50O,OOO

118
 cf 1-c,- 4_:erc,:,es - Dc£,ruHUrrt-£
,___,,
9rtf.Ss bf:afe,
vanishing Deductions
b 24. Pedro died leaving a car he acquired by purchase from Juan 4 year~ ago.
The car was correctly included in his gross estate. The applicable
vanishing rate is I C'!,
a. 0% C. 60% f'. 'i'
\\ b) 40% d. 80%
I

O 2s. Vanishing deduction is availed by taxpayer to

J. Reduce his output vat -- lid ~JI [1 ft
II. Reduce his gross income J
-HI. Reduce his gross estate
a. I only c. III only
b. II ony (d~~II and III only
b 26. Which of the following statements regarding gross e~t~te is r;co~cec.t?)
. a. Vanishing ded~ction is being allowed to - lessen the impact of
successive taxation of the same property within a very short
period due to the death of the decedent-transferor.
· At Even property previously taxed situated outside the Philippines of
a non-resident alien decedent, for estate tax purposes, can be
allowed vanishing deduction
c. So that ·unpaid mortgage may be deducted from the gross estate,
the fair market value of the mortgaged property must form part
of the gross estate in full :
d. For unpaid taxes to be deductible from the gross estate, such
must have accrued at the time or before the decedent's death.

(/ 27. Whidl_ of the following properties of Namayapa Nha who died December
. 1,(201EJ.)is subject to vanishing deduction? ,
woperty 1: Rest House in Tagaytay purchased in 2016 .,-/ ·
Property 2: Commercial lot and building inherited from her mother in
2015 where the estate tax thereon had not been paid'.
Property 3: Donation from a friend ih 2017.
Property 4: Property won in a lottery six (6) months before death /

Pro12.ertv 1 Pro12.ertv 2 Pro12.ertv 3 Pro12.ertv 4

a. Nb No Yes Yes
b No No Yes No

~ Yes Yes No Yes

Yes Yes No No

119
~----elf« te,ciJea - veict~{Hd, £ (jrl'SS E.strue
, 28. Ded Nha, a citizen of the Philippines and a resident of Bacolod City, dierj
testate on May 10, 2018. Amon~ his gross estate are properties inheriteq
0
from his deceased father who died on April 4, 2015. W_ha_t percentage
. I• \'I I·1 in·171i deduction will be used in computing the amount of vanishing deduction? f
'-- h; 10, '·" \." a. 80% of the value taken as basis for vanishing deduction; ·
,· ":,,, '"' t ',.' ;,b. 100% of the value taken as basis for vanishing deduction;
.,I·\~ ,c.. GO% of the value taken as the basis for vanishing deduction
,,, , . d. 40% of the value taken as the basis for vanishing deduction
i..r ,. t
2').r~on.September 4, 2018, Yumao N. Rin died leaving an apartment build
~\

\, ~ .. ,i,
•,: :, I which has a fair value of P1,ooo,ooo which he inherited from his mo~ng
The property was valued at P!!Q.0,000 at the time of inheritance dat' 01
. ,,., "'1.,o July 28, 2015 .. The bu_ildmg has a previous mortgage of f!.50,00 ed
: ir "·M" •~
1 which £50,000 was paid by Yumao N. Rin prior to his death. O
. , ;, 7\\ 11' computing f~r the vanishing deduction, what percentage will be In
., ' o'\. ., , how !)'l~ch will be the vanishing deduction? used and
't , -~ \, ab.. 40%; P306,000 c. 40%,· P323,000
"
-=-
~ \J \, ii",,,,,
1
1 _, · , it,·P300-! 000
• 60%; \V\ ,
11
d. 20% P305,000
11
SPECIAL oEoticnONs . · ·' " 1
:o
Standard Deduction "' n (".'• ·· 'i'f ·i ·, ·: · i.
deduction?
~) 30. Upon ~ffectivity of the TRAIN Law ' wh.ICh is ,,not true about standard

. ~ It need ~9t be substantiated ·

lV It does
c. It must'@apply to no
be reflected ·
. ~~es1dent alien decedent
d. None of the above in e estate tax return

D Statement
31. is 1: The
a short-cut le PS
al ,000,000 standard deduction f
. estate and hei~ fr~m ::c:anbism to further exem~~ ~~tf
ax urden. tax privileged
e ess purposes

Statement 2: The BIR -

the purpose of de . .~ay examine the ban .
Secrecy Law·. te~m1nmg his gross estate ~~=sit ?f a decedent for
t', Statements 1 & 2 , ut violating the Bank
Statement 1 .
1...b.1 are false
c. St ,s true but stat
d.. st!~:;entts1 is false but sta:emment 2 is false
en 1 and 2 a ent 2 is true
re true

120
 /"'I

C'fter G!';erc.:,u - De£«~= £ (jr= E rbd&

._.,,
Family Home
32.,,,Sfatement 1: The maximum amount of deductible 'family home from th·e
gross estate is Pl0,000,000
Statement 2: If the family home is exclusive property of the surviving
s~ use and has a current market value of Pl0,000,000, such amount is
\ riot subject to estate tax. ·
- a. Statements 1 and 2 are correct
b. Only statement 2 is correct
5,.t Only statement 2 is correct
(E~· Statements 1 and 2 are incorrect
A 33. Only one statement is correct? A deduction for fqmily home
,,a. Shall be allowed if the family home is in the Philippjnes.
b. Shall be at a maximum of Pl0 I 000 I 000 I basecron
__ cost. )(
c. May be allowed for two family homes (one in the city and another
in the province), both in the Philippines and with certifications of
the barangay captains. ·✓
p( Shall be deducted at lesser than Pl0,000,000 if, with vanishing
deduction and unpaid mortgage or indebtedness, the value of the
family home,is already reduced to .zero.

p 34. A resident citizen had family home in the Philippines. He worked a~road
and w~s temporarily absent from ,his fqmily home when he died . .Which
of the following statements i . correct?: . . ,
a. The decedent · would not -be allowed family home deduction
' because he was abroad when he died.
b. The decedent would not be allowed family home deduction
because he w~s-a nonresident citizen when he died.
c. The decedent would be allowed family home deduction because
actual occupancy ·o f th~ family home was not interrupted or
abandoned because of his temporary absence.
(~) The decedent would be allowed family home because all
decedents were allowed family home deduction.

Amount received under RA 4917

\.., 35. Which of the following stat~ments regarding amount(s) received or

receivable under RA4917 isfnoptcorrect?
a. Any amount receiveaby the heirs from the decedent's employer
as a consequence · of the death . of the decedent-emp,loyee in .
accordance with R~public Act 4917 shall be included in the gross
estate of the decedent. ;

121
 ( 1/ttf/ I('/' ; ·('('/(. '/.''I { ', \'
l - I )1',/t1 ;l /rl!/.f/ i/fl"l { rt' 9rr!.H Estrl{c
I ( .
· . d b the hei; from the decedent's employer
b. Any amount receive Y d - th of the decedent-employee ·
. sequ nee of the ea . 1n
ac a con , bli Act 4917 shall be deductible from the
a cordance with Repu c
gros _estate of the decedent.
Both "a" and "b"
\d·. · Neither "a" nor "b"
_ _ ft to complete 30 years of continuous service
1
36. A dec~dent hlas one,yearhee d1'ed His only heir received P1,500,000 as
with his emp oyer w 1en · · I d·
. d RA 4917 What should be the amount to be inc ude rn the
benefit un er .
gross estate?
c. P1,000,000
la. P1,500,000 d. PO
b. PS00,000

n 37. Based on the preceding problem, what amount should be included as part
l
of deductions from gross estate?
a. P1,500,000 c. P1,000,000
b. PS00,000 PO c~·.
Deductions for Nonresident Alien Decedents
1
} 38. One of the following is allowed as a deduction from the gross estate of a
non-resident alien under the Tax Code as amended by RA 10963 (TRAIN
Law), but is prorated between Philippine gross estate and the total or
world gross estate
a. Losses, indebtedness, claims against the estate and taxes
b. Share of the surviving spouse
~- Vanishing deduction
~- Standard deduction

D 39. A_n~~resigen~,alien decedent left the following assets:

Dom_est1c shares Pl,OOO,OOO
Fore,~n shares 3,000,000
Tangible personal property, Philippines 6 000 000
Losses, unpaid indebtedness and taxes \ ~:2oo)JOO . -
-.
The country where the deced t . ..
impose transfer tax on t e~ !s a c,t!zen a~d resident does not
residing therein. The taxa~~~smts,on
a. P3,800,000 ne eState m the Ph1llppmes is
°~
mtang,~l_es .of Filipinos not
,
b. P4,280 000
'
P4,780,000
d. PS,280,000
f·
1
,'e
='~ 1 f'~P ff j I I, Ou, DVv
~, . , (1, "' r
l . 1.';J~J•JIJ
I ,
f~ DU 1 ~:
"QI\) {
,
' ''ti ,~0 1,)
lt,H· \) . . ... ~
i-n,o, · av ,,-
- 'O 4: fj
122

------
40. A nonresident alien died on . March 10, 2018 leaving the following
properties and deductions
Shares, domestic corporation ,-fiS00,000
Shares, foreign corporation 500,000
Tangible personal property ,-1,500,QQ~
Deductible losses, indebtedness and taxes ,. soo,ooo·
, '

·------
As,~uming there is no, reciprocity, the estate tax due is
( ~ ~1 P96,000 j c. Pl,500,000
1>. P66,000 · d. Pl,600,000

•"' I,. I f
)\i [\ I{ ft lll I V "'

l O,\;.' . ·, l' ·. ,\J

1, , . .....
V- .

l
'.

r ,.
y
' C
I
I,

. J

'I " i
V,

, ..
I
,,. (,,

.,., (:

123