ALLOWABLE DEDUCTIONS FROM THE GROSS Receivable which can no longer be collected

ESTATE because the debtor is financially insolvent.

RESIDENT CITIZEN, NON-RESIDENT CITIZEN A form of a loss but is shown separately in the
AND RESIDENT ALIEN DECEDENT computation of the gross estate.
ORDINARY DEDUCTIONS Requisite:
1. LOSSES, INDEBTEDNESS AND TAXES (LIT) 1. The receivable is forming part of the inventory
A. Losses - casualty loss such as fires, of the assets in the gross estate
storms, shipwreck, robbery, theft and
embezzlement Ex. Mr. A died on Jan. 26, 2020. At the date of
Requisites: death, he has a receivable of P500,000
1. Not compensated by insurance or otherwise from Mr. B.
2. Must occur during the settlement of the estate
up to the deadline of the filing of the Determine the following:
estate tax return (1 year from the date of death) 1. How much is the amount to be included in the
3. Not claimed for income tax purposes gross estate? P500,000
4. Property is included in the gross estate. 2. If the gross estate does not include the
receivable of P500,000 from Mr. B and the latter is
Ex. Mr. A died on Jan. 15, 2020 leaving a car with declared as fully insolvent, how much is the
a fair market value at the date of death of allowable deduction? ZERO – receivable is not
P1,000,000. included in the gross estate
It was acquired for P1,800,000. On Nov. 30, 2020,
the car was totally destroyed by fire.
3. If Mr. B can pay 40% of his debt, how much is
Determine the following: the allowable deduction? (60% x 500,000) –
300,000
A. What is the value of the the car in the gross
estate? P1,000,000 4. If Mr. B is 60% insolvent, how much is the
allowable deduction? 300,000
B. Assuming that the car was insured for
P800,000, how much is the allowable deduction 5. If the debt to asset ratio is 5:2, how much is the
from allowable deduction? 300,000
the gross estate? (1,000,000-800,0000) =
P200,000 C. Claims against the estate - indebtedness of
C. Assuming that the car was not insured, how the decedent which remained unpaid at the
much is the deduction from the gross estate? date of death.
P1,000,000
D. Assuming that the car was not insured but the Requisites:
date of the settlement of the estate is Oct. 25, 1. The liability represents a personal obligations of
2020, how much is the allowable deduction from the deceased existing at the time of death
the gross estate? ZERO – loss occurred after the
settlement of the estate. except unpaid medical expenses.
2. The liability was contracted in good faith and for
adequate and full consideration in money
E. Assuming that the loss was claimed for income or money's worth
tax purposes, how much is the allowable 3. The claim must be a debt or claim which is valid
deduction from the gross estate? ZERO - claimed in law and enforceable in court
for income tax purposes 4. The indebtedness must not have been
F. Assuming that the loss occurred on Jan. 25, condoned by the creditor or the action to collect
2021 and the car was not insured, how much is from
allowable deduction from the gross estate? ZERO the decedent must not have prescribed.
- after 1 year from the date of death 5. The debt instrument must be notarized
6. If the loan is contracted within three years prior
B. Claims against insolvent persons - to the date of death of the decedent, the
decedent is creditor executor or administrator of the estate must be
 able to determine how the proceeds of the either spouse.
loan were disposed. 3. Obligations constituted for the support
expenses of any family member shall be
considered
deductions against common properties.
Classification Rules for Claims against the Estate
Ex. Mr. A, single and a resident citizen of the
1. Family Benefit Rule Philippines died on Jan. 20, 2020. He has a
If the obligation was contracted or incurred for the gross estate valued at P10,000,000 at the date of
benefit of the family, the claim shall be his death. He owed Mr. B P2,000,000.
classified as deduction against common property. Determine the following:
Otherwise, the property classification rule
1. If the debt instrument is not notarized, how
shall apply. much is the allowable deduction? ZERO
Ex. 2. If the debt instrument is notarized, how much is
1. A mortgage which was contracted for the the allowable deduction? P2,000,000
education of the children of the spouses shall be 3. If the loan was contracted 2 years before the
deducted against common properties even if the date of death of the decedent and the
same is constituted against a separate property administrator of the estate cannot determine how
of either spouse. the proceeds of the loan were disposed,
2. An unpaid real property tax on the family home how much is the allowable deduction? ZERO
shall be deducted against common property
even if the family home is a separate property of

D. Unpaid Mortgage - DECEDENT IS THE DEBTOR

(COLLATERALIZED)
Requisite:
1. The property mortgaged must be included in the
gross estate
 Ex. Mr. A, single and a resident citizen of the
Philippines died on Jan. 20, 2020 leaving a gross
estate
of P15,000,000 which includes a land with a a zonal
value of P5,000,000 and a market value per
assessor's roll of P4,950,000 and appraised value of
P5,100,000. This piece of land was mortgaged
for P3,000,000 which remained unpaid at the date of
death.
Determine the following:
1. How much the is the fair market value of land?
P5,000,000
2. What is the allowable deduction for unpaid
mortgage? P3,000,000
3. What is the the allowable deduction if the land is
not included in the gross estate? ZERO

Note: if accomodation loan, unpaid mortgage can be

deducted from the gross estate if the
accomodation loan is presented as receivables.

E. Unpaid Taxes
Includes taxes such as income tax, business tax, and
property tax which have accrued as of the
date of death of the decedent and which were unpaid
as of the time of death.

2. TRANSFER FOR PUBLIC PURPOSE/USE

Includes the amount of all bequests, legacies, devises
or transfer to or for the use of the
government of the Republic of the Philippines, or any
political subdivision thereof, for the
exclusive public purposes. These must be indicated
in the will.
Requisite:
1. the property being transferred is included in the
gross estate.
Ex. Mr. A devised in his will the following properties:
Commercial land, to a public school, P2,000,000
Land and building, to a government-owned and
controlled corporation, P3,000,000
Determine the following:
A. How much is the amount to be included in the
gross estate? P5,000,000
B. How much is the deduction from the gross estate
as transfer for public use? P2,000,000
C. If the commercial land devised to the public school
is not included in the gross estate,
how much is the allowable deduction? ZERO
 PROPERTY PREVIOUSLY TAXED (VANISHING
3. DEDUCTION)
allowed to lessen the impact of successive taxation on
the same property
Requisites:
A. The present decedent must have died within five
(5) years from the date of death of the
prior decedent or date of gift
B. The property with respect to which the deduction is
claimed must have been part of the
gross estate situated in the Philippines of the prior
decedent or taxable gift of the donor
C. The property must be identified as the same
property received from the prior decedent
or donor or the one received in exchange thereof
D. The estate taxes on the transmission of the prior
estate or the donor's tax on the gift must
have been finally determined and paid.
E. No vanishing deduction on the property or the
property given in exchange thereof was
allowed to the prior estate.
Formula:
Vanishing
Percenta
If the decedent died ge Value to be taken
Not more than 1 year 100% Less: Mortgage paid by the decedent
More than 1 year to 2 years 80% Initial basis
Less: 2nd deduction
More than 2 years to 3 years 60% (initial basis/gross estate)x(LIT+TFPP
More than 3 years to 4 years 40%
More than 4 years to 5 years 20% Final Basis
Multiply: Percentage of deductibiity
SPECIAL DEDUCTIONS Vanishing deduction
4. FAMILY HOME
Includes the dwelling house, and the land on which it
is situated, where the decedent and/or
members of his family reside as certified by the
Barangay Captain of the locality.
Requisites:
A. 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.
B. The value of the family home must be included as
part of the gross estate of the decedent
C. The allowable deduction must not exceed
P10,000,000

5. STANDARD DEDUCTION - P5,000,000

BENEFITS UNDER RA 4917 - retirement benefit or

6. termination benefit received by employees
of private firms is not subject to attachment, levy,
execution, or any tax whatsoever.
Requisite:
A. The amount of benefit received or receivable
under RA 4917 shall be included in the gross
estate.