BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 19

SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

CHAPTER 4
DEDUCTIONS FROM GROSS ESTATE
Problem 4–1
1. False – could not be claimed as claim against the estate.
2. True
3. False – indebtedness is not transferrable to the heirs.
4. True
5. False – bank loan is the exception for notarization requirement.
6. True
7. True
8. False – unpaid taxes accrued before death only.
9. False – not deductible because the loss has been claimed by gross income. No double
deduction is allowed.
10. False – not deductible. Donation is deductible if given for Philippine Government and
exclusively for public purposes.
11. True
12. False – special deductions are not allowed to nonresident alien decedent.
13. True

Problem 4–2
1. False – value of deduction at the time of death.
2. False – not terminated upon the decedent’s death but shall be paid by the remaining estate.
3. True
4. False – judicial expense incurred after death but before the estate tax settlement date is still
deductible from gross estate.
5. False – losses that are deductible must have been sustained after death but before the
settlement date of estate tax.
6. True
7. True
8. False – not deductible. Only those expenses actually taken from the gross estate are
deductible.
9. False – actual or 5% of the gross not exceeding P200,000
10. False – this threshold is applicable to funeral expense.
11. False – Only those expenses actually taken from the gross estate.
12. True
13. True

Problem 4–3
1. False – special deduction.
2. False – neither special nor ordinary deduction.
3. True
4. True
5. True
6. False – deductible only if included in the gross estate. The amount deductible from the gross
estate is limited to the amount that cannot be recovered.
7. False – either against the gross estate or against gross income. There is no double deduction.
8. False – Estate tax is not deductible from gross estate. (Sec. 86, NIRC)
9. True
10. False – not deductible because not yet accrued expense.
11. True
12. False – Nondeductible because only those related to gathering, preservation and settlement of
the estate is allowed as deductible judicial expense from the gross estate.
13. True
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 20
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–4
1. False – ordinary deduction.
2. True
3. False – ½ of net conjugal estate, after ordinary deductions
4. False – no funeral deduction expense is allowed.
5. False – funeral expense is deducted first from common property
6. True
7. True
8. True
9. False – deductible whether paid or unpaid, the maximum deductible medical expense is
P500,000.
10. False – not allowed as deduction is in excess of P500,000
11. False – this is in addition to other allowable deductions. Standard deduction is not in lieu of
ordinary deduction.
12. False – no receipt is necessary for standard deduction.
13. True

Problem 4–5 Problem 4–6 Problem 4–7 Problem 4–8

1. C 1. D 1. C 1. D
2. B 2. C 2. A 2. B
3. C 3. D 3. B 3. C
4. D 4. A 4. D 4. A
5. A 5. B 5. D 5. A
6. D 6. A 6. C 6. B
7. C 7. C 7. A 7. A
8. A 8. B 8. B 8. D
9. B 9. A 9. D 9. D
10. A 10. D 10. C 10. C

Problem 4–9
1. P – 0 -. The funeral expenses should first be substantiated with documentary evidences that
they actually incurred before the 5% of the gross estate or the P200,000 whichever is the
lowest of the three is made. If the funeral expenses are not substantiated, such become the
lowest among the three choices.

2. P375,000. D’s administrator could still collect 25% or (P600,000/P2,400,000) of B’s asset.
The remaining uncollectible would be 75% of P500,000 = P375,000.

3. P - 0 -. No vanishing deduction is allowed when the property subjected to previous transfer

taxes is located outside the Philippines.

4. P - 0 -. No deduction is allowed if the estate tax return of a nonresident alien does not contain
properties located outside the Philippines.

5. P - 0 -. Special deductions are not allowed to nonresident alien.

6. P100,000. The excess of unpaid funeral expense shall not be deducted as claimed against the
estate.

7. P1,840,000. The special deduction within is computed as follows:

Family home P1,000,000
Standard deduction (P1,000,000 x 3/5) 600,000
Medical expense (P400,000 x 3/5) 240,000
Total special deduction within P1,840,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 21
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

8. P1,000,000. Only donation to the Philippine Government and nay of its political subdivisions
are allowed to be deducted from the decedent’s gross estate for Philippine estate tax
purposes.

9. P - 0 -. Losses could only be claimed within 6 months from the date of death.

Problem 4–10 C
Proportionate ELIT (P500,000 x 3/5) P 300,000
Add: Donation to Philippine government 100,000
Allowable deduction within P400,000

Problem 4–11 C
Funeral expense (P3,500,000 x 5%) P175,000
Whether paid or unpaid, actual funeral expense is deductible subject to limit.

Problem 4–12 B
Gross estate (P3,150,000 + P175,000) P3,325,000
Multiplied by funeral rate 5%
Deductible funeral expense P 166,250

Problem 4–13 A
Gross estate (P2,000,000 + P1,000,000) P3,000,000
Multiplied by funeral rate 5%
Deductible funeral expense P 150,000

Problem 4–14 NOT IN THE CHOICES

Real property P1,560,000
Cash paid for medical expense from decedent’s estate 45,000
Cash used for wake expenses from decedent’s estate 85,000
Memorial plan already paid 40,000
Claims against insolvent person 100,000
Total gross estate P1,830,000
Multiplied by percent of funeral expense 5%
Funeral expense allowed P 91,500

The actual funeral expense is P125,000; the total of P85,000 wake expenses, and
P40,000 memorial plan already paid.

Problem 4–15 D
Funeral expense, lowest amount P130,000

Claims against the estate P - 0 -

The entire amount of P90,000 in excess of P130,000 limit can no longer be deducted as
funeral expense not it can be deducted as judicial expense.

Problem 4–16 D
Capital gains tax (P1,780,000/89%) x 6% P120,000
Judicial expense (P1,900,000/95%) – P1,900,000 100,000
Total judicial expense P220,000

The capital gains tax is considered judicial expense because it is a legitimate and necessary
charge in disposing the property for the settlement of estate.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 22
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–17 C
Agreed contract price (P10M x 10%) P1,000,000
Extra-judicial settlement of the estate 500,000
Total deductible judicial expenses P1,500,000

Problem 4–18 C
Deductible loss (P48,000/40%) P120,000

Problem 4–19 A
There is no deductible loss from the gross estate because the car is not anymore available at the
time of death. To be deductible, the loss must be sustained after death but before the filing and
payment of the estate tax.

Problem 4–20 D
Value of apartment raged by fire P3,000,000
Less: Insurance recovery (P3,000,000 x 60%) P1,800,000
Scrap value 100,000 1,900,000
Deductible loss P1,100,000

Problem 4–21 A
Unpaid mortgage on the real property included in the gross estate P500,000

Problem 4–22 D
Loans from Metro Bank (not notarized per bank’s policy) P500,000
Interest on loans payable in the bank 30,000
Loans from Metro Bank (not notarized per bank’s policy) P530,000

Problem 4–23 D
Accounts receivable P500,000
Multiplied by percent of uncollectible (100% - 66.67%) 33.33%
Bad debts deductible P166,667

Percent of collectible is computed as follows:

Assets, net of unpaid taxes (P1,500,000 – P500,000) P1,000,000
Divided by liabilities, net of taxes payable (P2,000,000 – P500,000) P1,500,000 66.67%

Problem 4–24 B
Uncollectible amount (P160,000 x 87.50%) P140,000
Percent of the entire amount 100.00%
Less: percent of collectible amount (P50,000/P400,000) 12.50%
Percent of uncollectible 87.50%

Problem 4–25 B
Exclusive Conjugal
Properties P2,800,000 P3,500,000
Ordinary deductions:
Transfer for public use (400,000)
Unpaid mortgage loan used to finance family business ( 800,000)
Funeral expense . ( 180,000)
Properties after ordinary deductions P2,400,000 P2,520,000

Problem 4–26 D
Unpaid real property tax incurred prior to date of death P100,000
Donor’s tax prior to date of death 80,000
Deductible unpaid taxes from gross estate P180,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 23
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–27 A
Zero. No vanishing deduction is allowed for properties located outside the Philippines.

Problem 4–28 A
Value taken (lower) P1,000,000
Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000
Final basis P 950,000
Multiplied by percent of vanishing deduction 60%
Amount of vanishing deduction P 570,000

Problem 4–29 D
Value taken (lower) P2,100,000
Less: Mortgage paid 400,000
Initial basis P1,700,000
Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000
Final basis P1,564,000
Multiplied by percent of vanishing deduction 40%
Amount of vanishing deduction P 625,600

Computation of ELIT:
Funeral expense, limit P200,000
Judicial expense 100,000
Unpaid mortgage 100,000
Total ELIT P400,000

Problem 4–30 B
Unpaid mortgage (P300,000 – P200,000) P100,000
Funeral expense (P3,000,000 x 5%) 150,000
Ordinary deduction subject to proportionate computation P250,000

Problem 4–31 D
Deductible transfer for public use (P2,000,000/1,000) x 200 P400,000

Problem 4–32 C
Donation to the City of Manila P200,000

Transfer for public use (Philippine Government) is the only donation allowed deductible
from gross estate.

Problem 4–33 C
Funeral expense (P3,000,000 x 5%) P150,000
Judicial expense (P250,000 x 60%) 150,000
Bad debts (P150,000/3) 50,000
Ordinary deductions P350,000

Problem 4–34 B
Funeral expenses P200,000
Add: Medical expenses 650,000
Total P850,000
Less: Limit amounts:
Funeral (P3,000,000 x 5%) P150,000
Medical expenses 500,000 650,000
Nondeductible amount of expenses P200,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 24
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–35 C
Standard deduction to Filipino and resident alien P1,000,000

Problem 4–36 D
Nonresident alien does not have standard deduction

Problem 4–37 D
Maximum amount of family home deductible P1,000,000
The family home is an exclusive property of the decedent.

Problem 4–38 C
Building – conjugal (P1,000,000/2) P500,000
Land – exclusive 400,000
Family home - deductible P900,000

Problem 4–39 D
Exclusive portion of family home P 800,000
Add: Share in the conjugal home
(P2,000,000-P800,000)/2 600,000
Total P1,400,000
Less: Maximum family home 1,000,000
Family home subject to tax P 400,000

Problem 4–40 C
Deductible medical expense (paid or unpaid) within one year prior to death P300,000

Problem 4–41 A
The unpaid medical expense in excess of the maximum P500,000 is nondeductible as
claims against the estate.

Problem 4–42 D
Medical expenses incurred from October 2013 to December 2013 P100,000

Problem 4–43 A
Exclusive Conjugal
Properties P1,000,000 P2,000,000
Transfer for public use ( 500,000)
Share of surviving spouse (P2,000,000 x 50%) . (1,000,000)
Net estate P 500,000 P1,000,000

Problem 4–44 B
Conjugal estate P5,000,000
Deductible funeral expense ( 200,000)
Net estate before share of surviving spouse P4,800,000
Multiplied by share of surviving spouse 50%
Share of surviving spouse P2,400,000

Problem 4–45 D
Standard deduction P1,000,000
Family home (P1,000,000/2) 500,000
Amount received under R.A. 4917 500,000
Special deductions P2,000,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 25
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–46
1. Letter C
Donation to the government P1,000,000
Funeral expense 100,000
Total ordinary deductions P1,100,000
2. Letter D
Standard deduction P1,000,000
Family home 1,000,000
Amount receivable R.A. 4917 500,000
Medical expense 400,000
Total special deductions P2,900,000

Problem 4–47
1. Letter D
Claims against the estate (P3M + P1M) P4,000,000
Transfer for public use (P500k + P200k) 700,000
Medical expenses 500,000
Family home 1,000,000
Standard deduction 1,000,000
Total deductions from gross estate P7,200,000

2. Letter C
Claims against the estate (P4,000,000 x 5/8) P2,500,000
Transfer for public use (P500k + P200k) 700,000
Total deductions allowed from gross estate P3,200,000

Problem 4–48 B
Japan Philippines
Ordinary deductions:
Funeral: (P200,000 x 2/5) & (3/5) P 80,000 P 120,000
Unpaid loans 300,000 700,000
Donations to government – Philippines 400,000
Judicial expenses (P600,000 x 2/10) & (8/10) 120,000 480,000
Total ordinary deductions P500,000 P1,700,000

Special deductions:
Standard (P1,000,000 x 2/10) & (8/10) P 200,000 P 800,000
Family home 1,000,000
Medical (P500,000 x 5/8) & (3/8) 312,500 187,500
Total special deduction P 512,500 P1,987,500

Total deductions P1,012,500 P3,687,500

Problem 4–49 A
P5,000,000. No deduction shall be allowed in the case of a nonresident decedent alien if his
properties outside the Philippines are not reported in the Philippine estate tax return. [Sec. 86
(D), NIRC]

Problem 4–50 NOT IN THE CHOICES

Net taxable estate P3,000,000
Add: Standard deduction P1,000,000
Family home 1,000,000
Medical expenses 500,000
Ordinary deductions 1,500,000 4,000,000
Gross estate P7,000,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 26
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–51 C
Net taxable estate P4,000,000
Add: Share of surviving spouse 2,000,000
Net estate after special deductions P6,000,000
Add: Special deductions
Standard deduction P1,000,000
Family home 1,000,000
Medical expenses 500,000
Amount received under R.A. 4917 250,000 2,750,000
Total net estate before ordinary deductions P8,750,000
Less: Net exclusive estate
Family home P1,500,000
Amount received under R.A. 4917 250,000
Gross exclusive estate P1,750,000
Less: Exclusive ordinary deduction 750,000 1,000,000
Net conjugal estate P7,750,000

Problem 4–52
Burial lot (P50,000 x 80%) P40,000
Expenses for wake before burial 20,000
Telegrams and cable to relatives 1,000
Mourning apparel of the surviving spouse and children 3,000
Entertainment expenses during the rites and burial ceremonies 2,500
Allowable funeral expenses P66,500

Problem 4–53
January until November until
1. Ordinary deductions: October 200A December 200A Total
Unpaid taxes:
Income tax P200,000 P200,000
Donor’s tax 100,000 100,000
Funeral expenses:
Memorial plan 50,000 50,000
Wake expenses 100,000 100,000
Accrued expenses 80,000 80,000
Total ordinary deductions allowed P530,000

2. Special deductions:
Standard deduction P1,000,000
Family home 1,000,000
Medical expenses:
Hospital bills 400,000 400,000
Total special deduction P2,400,000

Problem 4–54
Exclusive Conjugal
Real estate property P700,000 P2,200,000
Personal property . 400,000
Total P700,000 P2,600,000
Funeral expense (P700,000 + P2,600,000) x 5% ( 165,000)
Judicial expenses ( 50,000)
Mortgage payable to the bank ( 400,000)
Net estate before share of surviving spouse P1,985,000
Multiplied by percent share of surviving spouse 50%
Share of surviving spouse P 992,500
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 27
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–55
October 1 to 20, 2014 from Saint Luke’s Hospital:
Diagnostic fee P 60,000
Doctors’ fee 120,000
Hospital rooms 80,000
Operating costs 50,000
Medicines 90,000
Total medical expense deductible P400,000

Problem 4–56
Funeral expense, actual P 150,000
Judicial expense 50,000
Medical expense, maximum allowed 500,000
Standard deductions 1,000,000
Total deductions P1,700,000

Problem 4–57
1. Gross estate P3,000,000

2. Actual deductions (P200,000 + 500,000) P700,000

3. Deductible allowance – standard deduction P1,000,000

4. Net taxable estate (P3,000,000 – P700,000 – P1,000,000) P1,300,000

Note: Since the funeral and judicial expense are combined, it is assumed that the limit for
funeral expense amounting to P150,000 or 5% of gross estate is complied and the remaining
balance of P50,000 is for the judicial expense.