Deductions from

1 Gross Estate
Prepared By: Jebeth V. Rivera
 Deductions from gross estate are items which the law on estate tax allows
2to be subtracted from the value of the gross estate in order to arrive at the
net taxable estate.

The primary reason why the law allows deductions from gross estate is to
protect the interest of innocent 3rd persons who have claims over the
properties of the decedent.

Like tax exemptions, deductions are highly disfavored in law; he who

claims deductions must be able to justify his claim or right.

Hence, before a deduction can be subtracted from the gross estate, there
must be a specific provision of the statute authorizing such deduction.
Furthermore, it must be proven that the decedent is entitled to the
deduction which the law allows.
 Rules of Deductions from Gross Estate
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1.Deductions from gross estate are presumed to be conjugal

deductions, unless specifically identified by its nature or by law as
an exclusive deduction.
2.Deductions and losses that have been deducted from gross income
are no longer allowed to be deducted from the gross estate (vise
versa). To be deductible, the amount of loss is not compensated for
the insurance or extra-judicial settlement.
3.Generally, the deductions allowed from the gross estate are the
decedents unpaid obligations before death, or expenses incurred
on or before the burial, or expenses or losses sustained on or
before the settlement date of the estate tax.
 CATEGORY OF DEDUCTIONS from GROSS ESTATE
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ORDINARY DEDUCTIONS – comprised of ELIT & EXEMPTIONS
1. ELIT are those items which will actually reduce the taxable estate as well as the
amount of distributable estate to the heirs. They consist of expenses, losses,
indebtedness and taxes (ELIT) such as:
a. funeral expenses – (actual expenses incurred or 5% of the gross estate,
whichever is lower, but in no case to exceed 200,000)
b. judicial expenses
- fees of executor/administrator, attorneys fee, court fees, accountants
fees, appraisers fees, clerk hire, costs of preserving & distributing the estate, costs of
storing or maintaining property of the estate, brokerage fees for selling property of the
estate.
c. claims against the estate – “claims” generally construed to mean debts or
demands of a pecuniary nature w/c could have been enforced against the deceased in his
lifetime.
d. claims against the insolvent persons
e. unpaid mortgage, taxes and casualty losses
2. EXEMPTIONS – these refer to specific items that are required to be included as part
of the gross estate but are exempted from estate tax.
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The burden of proof that these items are exempted from estate tax relies on the
administrator or executor. They are either deductible from exclusive or
conjugal/communal estate.
Examples of these deductions are:
a. transfer for public use – the amount of all bequests, legacies, devises or transfers to or
for the use of the Government, or any political subdivision thereof, shall be deductible
from gross estate as long as the said amount for is used exclusively for public purposes.
b. amount received by heir under RA4917 – retirement benefits received by
officials and employees of private firms, whether individual or corporate. Benefits
granted in case of separation of official or employee from the service of the employer
due to death, sickness or other physical disablility.
c. vanishing deductions – is an amount allowed as deduction for property which
was previously taxed with transfer tax (estate tax or donors tax) prior to the decedents
death.
d. share of surviving spouse – net share of the surviving spouse in the conjugal or
communal property, net of the obligations properly chargeable therein, shall be deducted
from such amount to arriv.e at the net estate
SPECIAL DEDUCTIONS – are deductions that are categorically permitted
by law as allowance to reduce the taxable estate.
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Examples of these deductions are the following:
a. standard deduction – 1,000,000 is allowed in addition to other allowable
deductions mentioned. This deduction is allowed from the estate of a citizen or
resident without need of substantiation. It is to be noted that this deduction is
standard and not optional. Every decedent (citizen/resident) is allowed by the
law to deduct a full amount of 1,000,000 as a standard deduction from his or
her gross estate.
Illustration:
Mr. Juan Tamad, a Filipino citizen, single, died with the following data for
estate tax purposes:
Total gross estate 5,000,000
Funeral expenses 230,000
Judicial expenses 300,000
Claims against the estate 500,000
The standard deduction shall be deducted as follows:
7Gross estate 5,000,000
Less: Deductions allowed
Funeral expenses (limit) 200,000
Judicial expenses 300,000
Claims against the estate 500,000
Standard deduction 1,000,000 2,000,000
Net Estate 3,000,000

Note: If decedent is married w/ surviving spouse, the standard deduction

of 1,000,000 is to be deducted from the net estate after share of the
surviving spouse (exclusive portion of the estate) unlike where the
decedent is unmarried, there is no computational problem that may be
encountered because all properties are considered exclusive.
 b. medical expense (paid or unpaid) cost of medicines, hospital bills, doctors fees, etc.
actually incurred with a maximum amount of 500,000 is allowed as deduction from the
8gross estate. To be deductible, medical expenses should be incurred by the decedent
within one year prior to his death which shall be duly substantiated with receipts.

c. family home – refers to an amount equivalent to the current fair market or zonal
value of the decedents family home, which shall not exceed 1,000,000 allowed by the
law to be deducted from the gross estate. The family home comprises the house and the
land on w/c is situated.
Assume the following to illustrate the deductible value of family home:
The properties of Mr. Pah Thay, a Filipino resident decedent, are as follows:
residential lot 500,000
residential house 800,000
personal properties 600,000

The residential house and lot is used as an official residence of the decedent.
91. Incase where the decedent is single/head of the family. The allowable
deduction for family home would be 1,000,000

2. In case where the decedent was married and the family home is a conjugal
property, the allowable deduction for family home is 650,000. (500,000 +
800,000)/2

3. In cases where the decedent was married, assuming that the residential lot is
his exclusively property and the house is conjugal property, the allowable
deduction for family home is 900,000 (residential lot 500,000 + residential
house 400,000 (800,000/2)

4. In case where the decedent was married, and the residential house and lot is
the exclusively property of the decedent, the allowable deduction for family
home is 1,000,000
 Review Questions
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1. What are the three categories of deductions from the gross estate?
2. ELIT is the acronym for what items of deductions?
3. What is the deductible limit for the actual funeral expense?
4. What are the judicial expenses that are deductible from the gross estate?
5. What is the maximum limit for deductible medical expenses?
6. What is the maximum limit for deductible medical family home?
7. What is the reason why the law allows deductions from gross estate.
(Note: essay type answer)
 Exercises
111. The total gross estate of the decedent is 4,500,000. The funeral expenses
claim as deduction are as follows:
Mourning apparel 20,000
Burial plot 200,000
Interment & rites expenses 25,000
Obituary notice 5,000
How much funeral expense is allowed as deductions from the gross
estate?

2. At what amount is allowed as ordinary deduction from 5M gross estate as

funeral expense for 220,000 actual payment out of the estate for internment,
burial lot and mourning apparels?

3. The estate is 3,150,000 after payment of funeral expenses amounting to

175,000. How much funeral expense is allowed as deductions from the gross
estate?
 Exercises
124. To pay the obligation of the deceased, the administrator sold a portion of the
estate through a broker and in the process paid 5,000 as commission. The
salary of the administrator is billed at 20,000 for the whole proceedings.
Lawyers fee of 10,000 and accountants fee of 5,000 were also paid out of the
gross estate. How much judicial expense is allowed as deductions from the
gross estate?

5. To defray of expense incurred in connection of the death of the owner, the

real property, which is the only item of the estate, was sold. The proceeds od
sale are 1,900,000, net of 5% brokers fee. How much judicial expense is
allowed as deductions from the gross estate?

6. Mr. Lomboy died leaving a parcel of land as his only property. The land
was mortgaged to secure a 500,000 loan. At date of death, the mortgage has
still unpaid balance of 50,000 and the land has a fair market value of
1,200,000. How much of the land is included in the gross estate and how much
could be deducted from the gross estate as unpaid mortgage?
 Exercises
137. Prior to his death, the decedent was hospitalized intermittently for the
period, June 2004 until his death in October 2005. His hospital bills are
summarized as:
June, 2002 – July, 2002 50,000
October, 2004 – November, 2004 100,000
January, 2005 – October, 2005 450,000
How much of the above amounts could be deducted from the gross estate?

8. Prior to date of death, a total of 300,000 medical expenses was incurred. At

date of death, 100,000 of medical expenses are still unpaid. How much of the
above amounts could be deducted from the gross estate?

9. Prior to date of death, a total of 600,000 medical expenses was incurred. At

date of death, 100,000 of medical expenses are still unpaid. How much of the
above amounts could be deducted from the gross estate?
 Exercises
1410. Val Luctot died leaving real properties with a cost of 500,000. The
total land area is 1,000 square meters with a fair market value of
2,000,000. A portion of the real estate equivalent to 200 square meters is
assigned in the will to be transferred to the City of Baguio which has a
jurisdiction over the property. The deductible transfer for public use
amounts to:

11. The gross estate consists of 2,000,000 conjugal and 1,000,000

exclusive to the decedent. Part of the last will and testament is the transfer
of 500,000 of the gross estate to the government. If there were no other
actual deductions, how much would be the deductible share of surviving
spouse?

12. What is the allowable deduction for family home with 1,200,000 fair
market value at the date of death of decedent survived by spouse if such
family home was inherited by the decedent during marriage at 800,000?
 Exercises
1513. The decedent 3,000,000 gross estate is comprised of 1,600,000
personal properties and 1,400,000 family home, (1,000,000 building
which is conjugal, and 400,000 land, which is exclusive to the decedent).
How much could be deducted from the gross estate as family home?

14. A nonresident alien died leaving a net estate of 2,000,000 in the

Philippines, after deducting proportionate deductions amounting to
500,000. How much is the standard deductions allowed?

15. The gross estate of the nonresident alien is 3,000,000 located in the
Philippines, and 2,000,000 located outside the Philippines. The entire
amount of ELIT deductions is 500,000. How much is the allowable
deduction against the gross estate that is located in the Philippines.
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