Chapter 7 Deduction For Gross Estates

CHAPTER 7
Deductions for Gross Estate
PREPARED BY:
GECYL F. CALAYO
RAISA CEBUJANO
BSAIS 2A
Deductions are the amounts or items that the law allows to be
deducted from gross
Deductions estate
are the to arrive
amounts at net
or items estate.
that
the law allows to be deducted from gross
The deductionestate
from to
gross estate
arrive should
at net be grouped into:
estate.
1.Those allowed if the decedent

The deduction wasestate
from gross a resident or be
should citizen; and
2.Those allowed if thegrouped
decedent was a non resident alien.
into:
1.Those allowed if the decedent was a

resident or citizen; and
2.Those allowed if the decedent was a non
resident alien.
A. Deductions of residents or citizens
Deductions allowed from the estate of a citizen or a resident In the

case of a citizen or resident of the Philippines, the value of the net
estate shall be determined by deducting from the value of the gross
estate the following:
I. ORDINARY DEDUCTION
A. CUCUL
1.Claims against the estate

2.Unpaid mortgages
3.Claims of the decedent against in solvent person
4.Unpaid taxes
5. Losses
B. Transfers for public use
C. Vanishing deductions (property previously Taxed)
ll. SPECIAL DEDUCTIONS
A. Family home
B. Standard deduction of P5,000,000
C. Amount received by heirs under RA4917
lll. SHARE OF SURVIVING SPOUSE IN THE

CONJUGAL/COMMUNITY PROPERTIES
Claims against the estate
The word "claims“ is generally construed to mean debts or demands

of a pecuniary nature which could have been enforced against the
decedent during his lifetime and could have been reduced to simple
money judgments.
The debts which are properly chargeable and enforceable against
the estate.
(1) Contract
(2) tort, or
(3) operation of law
To be deductible the following requisites must be complied, viz:
A. The liability represents a personal obligation of the deceased

existing at the time of his date
B. That the liability was contracted in good faith and for an
adequate and full consideration on Money or money's worth.
C. The claim must be a debtor claim which is valid in law and
enforceable in court;
D. The indebtedness must not have been condoned by the
creditor, or the action to collect from the decedent must not
have prescribed.
Substantiation requirements
A. In case of simple loans
1. Debt instrument must be duly notarized at the time the

indebtedness was incurred. Except for loans granted by
financial institutions where notarization is not part.
2. Duly notarized certification from 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.
Partnership- the sworn certification should be signed by any of

the General partners.
Bank of other financial institutions - the certification shall be
executed by the branch manager of the bank/financial institution
which monitors and manage the loan of the decedent deptor.
Individual - the sworn certification should be signed by him.
The one who should certify must not be a relative of the borrower
within the 4th civil degree, either by consanguinity or affinity.
3. Proof of financial capacity of the creditor to lend the amount at

the time the loan was granted.
Creditor is an individual who is no longer required to file an income

tax return:
Adulynotarizeddeclarationbythecreditorofhiscapacitytolendattheti
mewhentheloanwasgranted.
Creditor is a non- resident:
The executor/administrator or any of the legal heir must

submit a duly notarized declaration of his capacity to lend at
the time when the loan was granted authenticated or
certified by the tax authority.
4. Statement under oath executed by the

administrator/executor of the estate reflecting the
disposition of the proceeds of the loan if said loan was
contracted within 3years prior to death of the decedent.
B. If the unpaid obligation arose from purchase of goods or
services
• Pertinent documents evidencing the purchase of goods or services,

as duly acknowledge, executed and signed by decedent-deptor and
credit or and statement of account given by the credit or as duly
received by the decedent-deptor.
• Duly notarized certification from the creditor as to unpaid

balance of the debt including interest as of the Time of death.
• Certified true copy of the latest audited balance sheet of the

creditor with a detailed schedule bof it's receivable showing the
unpaid balance of the decedent-debtor.
• Where the settlement is made through the court in a testate or in

testate proceeding, pertinent documents filed with the court
evidencing the claim against the estate, and the Court order
approving the said claims.
The following are considered as charge against the conjugal
partnership or the community property of the spouse, and
therefore they are either conjugal or community property
deductions:
• All debts and obligation contracted during the marriage by the

designated administrator- spouse for the benefit of the
community, or by both spouses, or by one spouse with the
consent of the other;
• Debts and obligation contracted by either spouse without the

consent of the other to the extent that the family may have
been benefited;
• Ante-numptial debts of either spouse in so far as they have

resounded to the benefit of the family.
Claims against in solvent person In solvency is the state of not being
able to pay the money owed because of insufficient asset to pay all
debts.
Declaration of insolvency may be either by:
1.Voluntaryinsolvency- an insolvent debt or may apply to be

discharged from his debts and liabilities by filing a petition with
court of competent jurisdiction.
2.Involuntaryinsolvency- a court petition filed by three or more

creditors, against a debtor, whose credit accrued in the Philippines.
• Claims against the estate are distinguished from claims against in

solvent person.
• Claims against insolvent person are otherwise known as "bad

debts“
Unpaid mortgages
• A mortgage is an accessory contract where by one party called
the mortgage or constitutes his property as security for the
fulfillment of a principal obligation.
• Unpaid mortgage which are deductible from gross estate refer

to obligation secured by mortgage which remained unpaid until
the debt of the debtor.
• An unpaid mortgage attached to the inherited property and in

which the depth of prior decedent took place while the present
decedent was still unmarried is undoubtedly a deduction from
exclusive properties if said mortgage still exist at the time of
death of present decedent.
• If the decedent was anon- resident alien, Indebtedness secured

by mortgage of real property situated outside the Philippines
may not be deducted where such property is not includible in the
gross estate.
CASUALTY LOSSES
Losses are deductible if the following requisite are compiled.
a. The value of the property lost must have been included in the
gross estate.
b. The loss must arise from fire, storms, shipwreck or other
casualties, or from robbery, thief for embezzlement;
c. Such losses were incurred after the death but not later than the
last day for the payment of the estate tax;
d. It must not have been compensated by insurance or otherwise;
and
e. At the time of filing the return such losses have not been claimed
as a deduction in an income tax return.
If the loss occurred be fore the decedent's death, or after the

last day for payment of estate tax, the same is not deductible, even
if the tax was paid beyond the prescribed period for payment.
UNPAID TAXES
To be deductible, the tax must have accrued and unpaid as of the

death of the decedent.
The following are the taxes which are not deductible from the gross
estate;
a) Income taxes on income receive after the death;

b) Property taxes which have not accrued prior to the death of the
decedent;
c) Estate tax due from the transmission of his estate
Taxes which have accrued after death are not deductible because
they are properly chargeable against the income of the estate.
RELATION TO INCOME TAX
• A casualty lost to estate property during the period of

administration gives rise not only to a deduction from the
gross estate for estate tax purposes but also a deduction
from gross income in determining the tax able income of
the estate which is under judicial settlement.
• The estate cannot claim the deduction for both purposes.
TRANSFER FOR PUBLIC PURPOSE

• The amount deductible by the entire amount of fall
bequests, legacies, devices or transfes to or for the use of
the government of the republic of the Philippines, or any
political subdivision thereof, for exclusive public purposes.
Mortis causa donations of properties situated a broad are
deductible if the donee is the Philippine government or any
of it's political subdivision.
Bequest or legacy is the act of giving personal property by will.
Devise is the transmission of real property by virtue of a will.
Devisee is a person to whom gift of a particular real property are

given by virtue of a will.
VANISHING DEDUCTION
The vanishing deduction which is otherwise known as "property
previously Taxed“ is an allowed deduction from the gross estate
situated in the Philippines of a person who died within five (5) years
from the acquisition of the property by gift or inheritance.
The purpose of vanishing deduction is to ease the harshness of

successive taxation on the same property within are latively short
period of time.
Vanishing deduction is allowed on these on the second transmission
of property. To be allowed as deduction, the following conditions
must be satisfied:
a) The property must be situated in the Philippines
b) That the donor's tax or estate tax imposed on the first transfer
was finally determined and paid;
c) The property can be identified as the one received from such

prior decedent by gift,
Devise or inheritance, or from the donor by gift, or which can be

identified as having been acquired in exchange for property do
received; and
d) The property must have formed part of the gross estate 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 death of
the present decedent.
CLASSIFICATION OF VANISHING
DEDUCTION
The vanishing deduction is always chargeable against the exclusive
(separate) property of the decedent if the spouse were under the
conjugal partnership of property of gains.
FAMILY HOME
• The family home pertains to the dwelling house where the spouse
and their family reside, and the Land on which it is situated.
• The family home may also be constituted by an unmarried head of a

family on his or her own property.
The conditions for allowance of family home as deduction:
1. The total value of the family home must be included as part

of the gross estate.
2. It must be the actual residential home of the decedent and

his family at the time of death, as certified by the barangay
captain of the locality where the family home is situated;
3. The amount deductible is the actual value as declared or

included in the gross estate, but not exceeding P10,000,000.

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CHAPTER 7

Deductions for Gross Estate

1.Those allowed if the decedent

1.Those allowed if the decedent was a

Deductions allowed from the estate of a citizen or a resident In the

1.Claims against the estate

ll. SPECIAL DEDUCTIONS

lll. SHARE OF SURVIVING SPOUSE IN THE

Claims against the estate

The word "claims“ is generally construed to mean debts or demands

To be deductible the following requisites must be complied, viz:

A. The liability represents a personal obligation of the deceased

1. Debt instrument must be duly notarized at the time the

2. Duly notarized certification from creditor as to the unpaid

Corporation- ;the sworn certification should be signed by the

Partnership- the sworn certification should be signed by any of

Individual - the sworn certification should be signed by him.

3. Proof of financial capacity of the creditor to lend the amount at

Creditor is an individual who is no longer required to file an income

The executor/administrator or any of the legal heir must

4. Statement under oath executed by the

• Pertinent documents evidencing the purchase of goods or services,

• Duly notarized certification from the creditor as to unpaid

• Certified true copy of the latest audited balance sheet of the

• Where the settlement is made through the court in a testate or in

• All debts and obligation contracted during the marriage by the

• Debts and obligation contracted by either spouse without the

• Ante-numptial debts of either spouse in so far as they have

Declaration of insolvency may be either by:

1.Voluntaryinsolvency- an insolvent debt or may apply to be

2.Involuntaryinsolvency- a court petition filed by three or more

• Claims against the estate are distinguished from claims against in

• Claims against insolvent person are otherwise known as "bad

• Unpaid mortgage which are deductible from gross estate refer

• An unpaid mortgage attached to the inherited property and in

• If the decedent was anon- resident alien, Indebtedness secured

Losses are deductible if the following requisite are compiled.

If the loss occurred be fore the decedent's death, or after the

To be deductible, the tax must have accrued and unpaid as of the

a) Income taxes on income receive after the death;

• A casualty lost to estate property during the period of

• The estate cannot claim the deduction for both purposes.

TRANSFER FOR PUBLIC PURPOSE

Devise is the transmission of real property by virtue of a will.

Devisee is a person to whom gift of a particular real property are

The purpose of vanishing deduction is to ease the harshness of

a) The property must be situated in the Philippines

c) The property can be identified as the one received from such

Devise or inheritance, or from the donor by gift, or which can be

• The family home may also be constituted by an unmarried head of a

1. The total value of the family home must be included as part

2. It must be the actual residential home of the decedent and

3. The amount deductible is the actual value as declared or

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