Lesson 3

Lesson 3
Deductions from the Gross Estate

Citizens and Resident Decedents Non-Resident Alien Decedent
Ordinary Deductions: Ordinary Deductions:
1. Expenses, Losses, Indebtedness, 1. Proportionate Deductions for
Taxes, etc. (LIT)Losses Losses, Indebtedness, Taxes,
a. Indebtedness / Claims against claims against insolvent persons
the estate (LIT):
b. Taxes (Gross Estate / Gross Estate World)
c. Claims against insolvent person x LIT World
2. Transfer for Public Use 2. Transfer for Public Use
3. Vanishing Deductions 3. Vanishing Deductions
Special Deductions Special Deductions
1. Standard Deduction 1. Standard deduction of P500,000
2. Family Home
3. RA 4917
Share of the Surviving Spouse Share of the Surviving Spouse
ORDINARY DEDUCTIONS
1. Losses - pertaining to casualty losses
 storms, shipwreck or other casualties, or from robbery theft or
embezzlement
 amount deductible is the value of the property lost
2. Indebtedness or Claims against the Estate (including mortgage payable)

Claims against the Estate
o generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased in his
lifetime and could have been reduced to simple money judgment
o arises from contracts, tort and operation of law
Requisites For Deductibility (RR 12-2018)
a. represents personal obligation
b. contracted in good faith
c. must be a debt or claim
d. must not have been condoned
Substantial Requirements
a. Simple Loan
i. debt instrument must be duly notarized at the time the
indebtedness was incurred
ii. duly notarized certification from the creditor
1. Corporation (sworn certificate signed by president or
vice president or another principal officer)
2. Partnership (sworn certificate signed by any general
partners)
3. Bank / Financial Institutions (certificate signed by
branch manager)
4. Individual (sworn certificate should be signed by him)
b. Unpaid obligation due to purchase of goods / services
i. pertinent documents evidencing the purchase of goods /
services
ii. duly notarized certification from creditors
1. Corporation (sworn certificate signed by president or
vice president or another principal officer)
2. Partnership (sworn certificate signed by any general
partners)
3. Bank / Financial Institutions (certificate signed by
branch manager)
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Lesson 3
4. Sole Proprietorship (sworn certificate signed by the
owner of the business)
General Rule: One who should certify must not be a relative of the borrower
within the fourth civil degree
Exception: If the creditor is related to the debtor, a copy of the
promissory note or other evidence of the indebtedness must be filed with
RDO having jurisdiction over the borrower within 15 days from execution.
Unpaid Mortgage or Indebtedness on Property
o Deductions allowed when a decedent leaves property encumbered by
a mortgage or indebtedness contracted in good faith and for
adequate and full consideration
o Gross Estate must include the fair market value of the property
encumbered
o Amount allowed as a deduction would be the outstanding debt or
mortgage
3. Taxes - unpaid taxes that accrued prior to the death of the decedent
 The following are not allowed as a deduction:
o income tax on income received after death
o property taxes accrued after death
o estate tax
4. Other deductions such as claims against an insolvent person - claims by

the decedent during his lifetime that are not collectible
Requisite for Deductibility
a. Incapacity of the debtor to pay should be proven
b. Full amount of the insolvent must first be included in decedent's
gross estate
c. If the insolvent could only pay partial amount:
i. Full amount - gross estate
ii. Amount uncollectible - allowed as a deduction
TRANSFER FOR PUBLIC USE

 disposition in last will and testament take effect after the death in
favor of the government of the Philippines
 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
VANISHING DEDUCTION (Property Previously Taxed)

 allowed as a deduction from the gross estate to minimize the effect of
or as a remedy against double taxation
Requisites for Deductibility
1. Death
 present decedent died within 5 years from the date of death of the
prior decedent or 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
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
5. Previous Taxation of the Property
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Lesson 3
 the estate tax or donor's tax from the prior succession must have
been finally determined and paid by prior decedents
6. No Previous Vanishing Deduction from the Property
 there is no double vanishing deduction
Vanishing Deduction Rates:

Within one year 100%
Beyond one year to 2 years 80%
Beyond 2 years to 3 years 60%
Beyond 5 years None
Pro Forma Computation of Vanishing Deduction:

Value to Take Pxx
(Lower between value of the property in the gross estate of the
prior decedent or the value of the gift and value of the same
property in the gross estate of the present decedent)
Less: Mortgage Paid (1st Deduction) (xx)
(Paid by the present decedent from the mortgage assumed when the
property was inherited or received as donation)
Initial Basis Pxx
Less: Proportional Deduction (2nd Deduction) (xx)
(Initial Basis / Gross Estate x LIT + Transfer for Public Use)
Final Basis xx
x Vanishing Deduction % %
VANISHING DEDUCTION Pxx
SPECIAL DEDUCTIONS
1. Standard Deduction (Allowable amount under the TRAIN LAW)
 Citizen or Resident - P5,000,000
 Non-Resident Alien - P500,000
2. Family Home
 the amount of family home allowable as a deduction would be whichever
is lower of P10,000,000 or the FMV of the Family Home at the time of
the decedent's death
 Family home must be part of the properties of absolute community or of
the conjugal partnership. May also be constituted by an unmarried head
of a family on his or her own family
Unmarried Head of a Family
 unmarried daughter or son which recognized natural or legally adopted
children living dependent upon him / her for chief support for
brothers / sisters that are below 21 years old, unmarried not gainfully
employed, regardless of age is incapable of self-support because of
mental or physical defect
Beneficiaries
 husband, and wife or head of family
 Parents, ascendants, descendants including legally adopted children,
brothers and sisters whether the relationship be legitimate or
illegitimate
3. Amounts Received by Heirs under RA 4917
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Lesson 3
 any amount received by heirs from the decedent's employer as a
consequence of the death of the decedent-employee in accordance with
RA No. 4917
NET SHARE OF THE SURVIVING SPOUSE

 the net share is equivalent to ½ or 50% of the conjugal property after
deducting the obligations chargeable (ordinary deductions only) to
such property
Deductions from the Gross Estate of a Non-Resident Alien

ORDINARY DEDUCTIONS
LITe (proportional deduction) Pxx
 Total LITe x (Gross Estate PH/Gross Estate World)
Vanishing Deduction xx
Transfer for Public Use xx
SPECIAL DEDUCTION
Standard Deduction 500,000
SHARE OF THE SURVIVING SPOUSE
If the decedent is married xx

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Lesson 3

Deductions from the Gross Estate

2. Indebtedness or Claims against the Estate (including mortgage payable)

4. Other deductions such as claims against an insolvent person - claims by

TRANSFER FOR PUBLIC USE

VANISHING DEDUCTION (Property Previously Taxed)

Vanishing Deduction Rates:

Pro Forma Computation of Vanishing Deduction:

3. Amounts Received by Heirs under RA 4917

NET SHARE OF THE SURVIVING SPOUSE

Deductions from the Gross Estate of a Non-Resident Alien

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