ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE

RESIDENT CITIZENS, NON-RESIDENT CITIZENS AND NON-RESIDENT ALIENS

ORDINARY DEDUCTIONS
1. LOSSES, INDEBTEDNESS AND TAXES (LIT)
A. Losses - casualty loss such as fires, storms, shipwreck, robbery, theft and embezzlement
Requisites:
1. Not compensated by insurance or otherwise
2. Must occur during the settlement of the estate up estate tax return (1 year from the date of
death)
3. Not claimed for income tax purposes
4. Property is included in the gross estate.

Ex. Mr. A died on Jan. 15, 2020 leaving a car with a fair ma It was acquired for P1,800,000. On
Nov. 30, 2020, th
Determine the following:
1. What is the value of the the car in the gross estate?
2. Assuming that the car was insured for P800,000, h the gross estate?
3. Assuming that the car was not insured, how much D. Assuming that the car was not insured
but the date of settlement is Oct. 25, 2020, how much is the allowable deduction?
4. Assuming that the loss was claimed for income ta deduction from the gross estate?
5. Assuming that the loss occurred on Jan. 25, 2021, and the car was not insured, how much is
the allowable deduction from the gross estate?

B. Claims against insolvent persons - decedent is the creditor

- Receivable which can no longer be collected because the debtor is financially insolvent
- A form of loss but is shown separately in the computation of the gross estate
Requisite:
1. The receivable is forming part of the inventory of the estate
Ex. Mr. A died on Jan. 26, 2020. At the date of deat from Mr. B.
Determine the following:
1. How much is the amount to be included in the gross estate?
2. If the gross estate does not include the receivable of P5,000,000 FROM Mr. B and the latter
is declared as fully insolvent, how much is the allowable deduction?
3. If Mr. B can pay 40% of his debt, how much is the allowable deduction?
4. If Mr. B is 60% insolvent, how much is the allowable deduction?
5. If the debt to asset ratio is 5:2, how much is the allowable deduction?

C. Claims against the estate - indebtedness of the decedent which remained unpaid at the date
of death
- decedent is the debtor
- Uncollaterized indebtedness
Requisites:
1. The liability represents a personal obligations of the deceased existing at the time of death
except unpaid medical expenses.
2. The liability was contracted in good faith and for adequate and full consideration in money or
money's worth
3. The claim must be a debt or claim which is valid in law and enforeceable in court
4. The indebtedness must not have been condoned by the creditor or the action to collect from
the decedent must not have prescribed.
5. The debt instrument must be notarized
6. If the loan is contracted within three years prior to the date of death of the decedend, the
executor or administrator of the estate must be able loan were disposed.

Classification Rules for Claims against the Estate

1. Family Benefit Rule
If the obligation was contracted or incurred for the benefit of the family, the claim shall be
classified as a deduction against common property (conjugal or communal). Otherwise, the
property classification rule shall apply.
1. A mortgage which was contracted for the education of the children of the spouses shall be
deducted against common properties even if the same is constituted against a separate
property of either spouse.
2. An unpaid real property tax on the family home shall be deducted against common property
even if the family home is a separate property of either spouse.
3. Obligations constituted for the support expenses of any family member shall be considered
deductions against common properties.

Ex. Mr. A, single and a resident citizen of the Philipp gross estate valued at P10,000,000 at the
date of his Determine the following:
1. If the debt instrument is not notarized, how much is the allowable deduction?
2. If the debt instrument is notarized, how much is the allowable deduction?
3. If the loan was contracted 2 years before the date of the decedent and the administrator of
the estate cannot determine how the proceeds of the loan were disposed of, how much is the
allowable deduction?

D. Unpaid Mortgage - decedent is the debtor

Requisites:
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 zonal value of P5,000,000 and 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.
Determine the following:
1. How much is the fair market value of land?
2. What is the allowable deduction for unpaid mortgage?
3. What is the the allowable deduction if the land is not included in the gross estate?

Note: if accommodation loan, unpaid mortgage can be deducted from the gross estate if the
accomodation 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 at time of death.
2. TRANSFER FOR PUBLIC PURPOSE/USE – transfer upon death to government for public
purpose
- 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 to be transferred to the government for public purpose shall be included in the
gross estate and valued at its FMV at the date of death.

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?
B. How much is the deduction from the gross estate as transfer for public use?
C. If the commercial land devised to the public school is not included in the gross estate, how
much is the allowable deduction?

3. PROPERTY PREVIOUSLY TAXED / VANISHING 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 (period of time: 5 years and mode of acquisition: Donation
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.
If the decedent died
Not more than 1 year
More than 1 year to 2 years
More than 2 years to 3 years
More than 3 years to 4 years
More than 4 years to 5 years

SPECIAL DEDUCTIONS
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 the lowest of fair market value of the family home
as declared or included in gross estate, the extent of the decedent's interest therein, or
P10,000,000.
5. STANDARD DEDUCTION - P5,000,000

6. BENEFITS UNDER RA 4917 - retirement benefit or 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.
ILLUSTRATION
1. TRANSFER FOR PUBLIC PURPOSE
Mr. AA died on Jan. 15, 2020 leaving properties with fair market value at the date of his death
amounting to P30,000,000 which includes land with a zonal value of P4,000,000 and a market
value per assessor's roll of P3,900,000. He executed a will which will transfer the said land to
the city of Bacolod upon his death.
Questions:
1. What is the value of the land in the gross estate?
2. What is the allowable deduction for transfer for public purpose?
3. Assuming that the land is not included in the inventory of assets in the gross estate, how
much is the allowable deduction for transfer for public purpose?

2. VANISHING DEDUCTION
Mr. AA died on Jan. 15, 2020 leaving properties with fair market value at the date of his death
amounting to P30,000,000 which includes land with a zonal value of P4,000,000 and a market
value per assessor's roll of P3,900,000. It was mortgaged for P2,500,000 and Mr. AA was able
to pay P500,000 before he died. Lossess, indebtedness and taxes as well as transfer for public
purpose is P6,000,000 (unpaid mortgage included).
Question:
1. Assuming that the said land was inherited by Mr. AA from his father and Mr. AA's father died
on June 20, 2018 when the land has a zonal value (BIR) of P3,400,000 and market value of the
assessor of P3,500,000. Mr. AA assumed the above stated mortgage of P2,500,000.
Compute for the vanishing deduction.

2. Assuming that the land was purchased by Mr. AA from his father on June 20, 2018, how
much is the vanishing deduction?
3. FAMILY HOME
Mr. AA died on June 30, 2020 leaving a family home with zonal value (BIR) at the date of death
of P12,000,000 and assessor's market value of P12,500,000.
Questions:
1. What is the value of family home to included in the gross estate?
2. What is the allowable deduction for family home?
3. If the family home was not included in the gross estate, how much is the allowable deduction
for family home?

Mr. AA died on June 30, 2020 leaving a family home with zonal value (BIR) at the date of death
of P8,000,000 and assessor's market value of P7,500,000.
Questions:
1. What is the value of family home to included in the gross estate?
2. What is the allowable deduction for family home?
3. If the family home was not included in the gross estate, how much is the allowable deduction
for family home?