ALLOWABLE DEDUCTIONS

Ordinary Deductions

LIT(Losses, Indebtedness and Taxes)

Transfer for Public Use

Vanishing Deductions

Special Deductions

Standard Deduction

Family Home

RA 4917 – retirement benefits of employees of private firms

LOSSES, INDEBTEDNESS & TAXES

Casualty Losses

Requisites:

Arising from fortuitous events, ill intent of man and accidents due to negligence.

Not claimed as deduction in income tax of the estate’s income

Net of compensation from insurance

Incurred between the date of death of decedent and settlement of the estate

Claims against insolvent person

Requisites:

Incapacity of the debtor should be proven.

Net of collectible portion

Claims against the estate

Requisites:

Liability must be valid and understanding

Must not be condoned by the creditor

Unpaid Taxes

Except:

Estate Tax

Property taxes accrued AFTER death

 Income tax on income earned AFTER death

VANISHING DEDUCTIONS (PROPERTY PREVIOUSLY TAXED)

A deduction provided to minimize the effects of double taxation in a short period of time

Requisites:

The property was acquired by the decedent via gift/bequest or inheritance withim 5
years before the decedent’s death.

The property should form part of the Gross Estate and situated in the Philippines.

The property can be identified as the one received from prior decedent or a donor or
can be identified as the one exchanged from the original property received.

Previous transfer tax was already been paid.

The estate of the prior decedent did not claimed for vanishing deduction for the same
property.

DEDUCTION RATES

Period from receipt to death of decedent Rate

Within one year 100%

More than 1 years to 2 years 80%

More than 2 years to 3 years 60%

More than 3 years to 4 years 40%

More than 4 years to 5 years 20%

FORMULA TO COMPUTE VANISHING DEDUCTIONS

Value to take Pxx

Less: 1st deduction (Mortgage paid) (xx)

Initial basis xx

Less: 2nd deduction (Proportionate basis) (xx)

Final basis xx

X Deduction rates x%

Vanishing Deduction xx
NOTES

Value to take = whichever is lower between the FMV used to compute the prior transfer tax (estate tax
of prior decedent or donor’s tax) and FMV included in the gross estate of the present decedent.

Mortgage paid = if the property received has mortgage and the present decedent assume such liability,
any amount paid by the present decedent will be the 1 st deduction.

Proportionate basis = (Initial basis / Gross Estate) x (LIT + Transfer for public use)