DEDUCTIONS

FROM THE GROSS ESTATE

Arlan, Joyline Bebs T.

Jariol, Angel Clarisse C.
Keefe, Shaine D.
ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE
UPON EFFECTIVITY OF RA 10963 (TRAIN LAW)

ORDINARY SPECIAL SHARE

1. LITe 1. Standard Deduction OF THE
a.Losses 2. Family Home SURVIVING
b.Indebtedness
3. RA 4917 SPOUSE
c.Taxes
d.etc.
2. Transfer for Public Use
3. Vanishing Deductions
 ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE
UPON EFFECTIVITY OF RA 10963 (TRAIN LAW)

Losses Standard
LITe Deduction

Indebted SHARE
Transfer for -ness Family
ORDINARY Public Use OF THE
SPECIAL Home SURVIVING
Taxes SPOUSE

Vanishing
Deductions RA 4917
etc.
 LOSSES

pertain to "casualty
losses”
Requisites for Deductibility:
a. Arising exclusively from: (fortuitous events)
• acts of God such as fire, storm, shipwreck and other similar
casualty
• acts of man such as robbery; theft, embezzlement
b. Not compensated by insurance or otherwise
c. Not claimed as a deduction in an income tax return of the estate
subject to income tax
d. Incurred during the settlement of the estate

one (1) year from 30 days after the

date of death or lapse of the one-
the year period
 LOSSES
Example
Among the properties included in the gross estate of
the decedent at the time of his death was a newly developed
resort in Siargao valued at P20,000,000. George is the sole heir
to the property. During the settlement of the estate and
before the last day of filing the estate tax return, a super
typhoon hit Siargao destroying entirely the newly developed
resort. It was determined that the fair value of the property
after the incident was reduced to P500,000.

Question 1:
What amount should be included as part of the decedent's gross estate?
P20,000,000 (FMV at the time of death)

Question 2:
What amount should be included as part of the allowable deductions
from the gross estate?
• Subtract the FMV before and after incurring the loss
=P20,000,000 ‒ P500,000
=P19,500,000
 LOSSES
EXAMPLE

Among the properties included in the gross estate of the decedent at the time of his death
was a newly developed resort in Siargao valued at P20,000,000. George is the sole heir to the
property. During the settlement of the estate and before the last day of filing the estate tax
return, a super typhoon hit Siargao destroying entirely the newly developed resort. It was
determined that the fair value of the property after the incident was reduced to P500,000.

Question 5:
What amount should be included in the gross estate of the decedent assuming the incident
happened one (1) day before the death of the decedent?
P0

Question 6:
In relation to question # 5, what amount should be included as deduction from the gross
estate of the decedent?
P0
 LOSSES
EXAMPLE

Among the properties included in the gross estate of the decedent at the time of his death
was a newly developed resort in Siargao valued at P20,000,000. George is the sole heir to the
property. During the settlement of the estate and before the last day of filing the estate tax
return, a super typhoon hit Siargao destroying entirely the newly developed resort. It was
determined that the fair value of the property after the incident was reduced to P500,000.

Question 3:
What amount should be included as part of the allowable deductions from the gross estate
assuming the property was insured for P25,000,000?
P0

Question 4:
What amount should be included as deductible loss assuming that the incident happened
beyond the settlement period of one (1) year, and the property was not insured?
P0
 INDEBTEDNESS OR CLAIMS AGAINST THE ESTATES
"Claims" is generally construed to mean debts or demands of a
pecuniary nature.
May arise out of:
• Contract
• Tort
• Operation of Law
Requisites for Deductibility (RR 12-2018):
a. The liability represents personal obligation of the deceased existing at
the time of his death;
b. The liability was contracted in good faith and for adequate and, full
consideration in money or money's worth;
c. The liability must be a debt or claim which is valid in law and enforceable
in court;
d. The debt must not have been condoned by the creditor or the action to
collect from the decedent must not have been prescribed.
SUBTANTIATION
REQUIREMENTS
SUBTANTIATION REQUIREMENTS
IN CASE OF SIMPLE LOAN (INCLUDING ADVANCES)

a. The debt instrument must be duly notarized at the time the indebtedness was
incurred, such as promissory note or contract of loan, except for loans granted by
financial institutions where notarization is not part of the business practice/policy
of the financial institution-lender.

b. Duly notarized Certification from the creditor as to the unpaid balance of the
debt, including interest as of the time of death.
President, or Vice President, or other
principal officer
Creditor is a corporation
Creditor is a any of the general partners
partnership
Creditor is a bank or other branch manager of the bank or
financial institutions financial institution

Creditor is an himself
individual
SUBTANTIATION REQUIREMENTS
IN CASE OF SIMPLE LOAN (INCLUDING ADVANCES)

c. In accordance with the requirements as prescribed in existing or

prevailing internal revenue issuances, proof of financial capacity of the
creditor to lend the amount at the time the loan was granted, as well as
its latest audited balance sheet with a detailed schedule of its receivable
showing the unpaid balance of the decedent-debtor.

d. A statement under oath executed by the administrator or executor of

the estate reflecting the disposition of the proceeds of the loan if said
loan was contracted within three (3) years prior to the death of the
decedent.
SUBTANTIATION REQUIREMENTS
IF THE UNPAID OBLIGATION AR0SE FROM PURCHASE OF GOODS OR SERVICES

a. Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery
receipt (for sale of goods), or contract for the services agreed to be rendered (for sale of
service), as duly acknowledged, executed and signed by decedent-debtor and creditor, and
statement of account given by the creditor as duly received by the decedent-debtor.

b. Duly notarized Certification from the creditor as to the unpaid balance of the debt, including
interest as of the time of death.

c. Certified true copy of the latest audited balance sheet of the creditor with a detailed
schedule of its receivable showing the unpaid balance of the decedent-debtor. Moreover, a
certified true copy of the updated latest subsidiary ledgers/records of the debt of the debtor-
decedent (certified by the creditor, i.e. certified by the officers in the preceding paragraphs)
should likewise be submitted.
d. Where the settlement is made through the Court in a testate or intestate
proceeding, pertinent documents filed with the Court evidencing the claims
against the estate, and the Court Order approving the said claims, if already
issued, in addition to the documents mentioned in the preceding paragraphs.
 SUBTANTIATION REQUIREMENTS
EXAMPLE

A resident decedent died on November 1, 2020. He availed of a P500,000 salary loan from ABC
Manufacturing Corporation (his employer) by issuing a promissory note during his lifetime.

Question 1 Question 2
If all the requisites in order to be If the obligation has prescribed as at
allowed as a deduction as claims the time of his death what amount
against the estate were present, what may be deducted from the gross
amount may be deducted from the estate?
gross estate? P0
Question 3: P500,000
If the loan document (promissory note) was not duly notarized, what amount may be deducted from the gross
estate pertaining to the claim?
P0
Question 4:
If the loan was contracted three (3) years ago and the executor cannot determine how the loan
proceeds were disposed of, what amount may be deducted from the gross estate pertaining to the
claim?
P0
UNPAID MORTGAGES OR INDEBTEDNESS ON PROPERTY

• Gross estate must include the fair market value of the property
encumbered.
• The amount allowed as a deduction would be the outstanding debt or
mortgage.
• Verification must be made in case unpaid mortgage payable is being claimed by
the estate.
UNPAID MORTGAGES OR INDEBTEDNESS ON PROPERTY
EXAMPLE

Case A
A resident decedent left the following upon his death:
Cash in bank (from various peso accounts) P8,000,000

Cash in bank (from various FCDU accounts) 9,600,000

P37,600,000
Real properties, Philippines 10,000,000

Real properties abroad 10,000,000

The real properties located in the Philippines and other

countries were mortgaged for P8,000,000
UNPAID MORTGAGES OR INDEBTEDNESS ON PROPERTY
EXAMPLE

Case B:
Pedro died in 2020. The following claims against Pedro's estate were claimed
by his heirs as deductions from his gross estate.
Notes payable (notarized) P500,000

Notes payable (not notarized) 200,000

Unpaid property taxes before his death 300,000

Unpaid property taxes on his estate (after death) 100,000

Unpaid judicial expenses 80,000
Unpaid
Unpaid judicial
mortgage expenses
on his properties before death 75,000
50,000

Debts from gambling losses questioned by decedent while still alive 50,000
CLAIM AGAINST THE ESTATE = P850,000
TAXES

These are unpaid taxes that accrued prior to the death of the decedent.
Not allowed as a deduction:
• Income tax on income received after death
• Property taxes accrued after death
• Estate tax
TAXES
EXAMPLE

Which among the following should be allowed as deduction from the Gross Estate of a
Filipino decedent who died on March 30, 2020?
Not allowed as
ITEM PARTICULARS a deduction:
1 Unpaid donor’s tax on donations made during the previous year • Income tax
on income
2 Unpaid donor’s tax on donations made during current year
received
3 Unpaid income tax on decedent’s income for 2019 after death
4 Unpaid income tax on decedent’s income from January to March 2020 • Property
5 Unpaid income tax attributable to the estate’s income from April to December 31, 2020
taxes
accrued
6 Unpaid business tax business tax for 2019 taxable year after death
7 Unpaid business tax from January to March 2020 • Estate tax
8 Unpaid business tax on the decedent’s estate from April to December 31, 2020

9 Unpaid municipal taxes from January to March 2020

10 Unpaid municipal taxes on the decedent’s estate (business) from April to December 31, 2020

11 Unpaid import duties on importations made from January 1 to March 2020

12
Tax assessment/deficiencies