BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 14

SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

CHAPTER 4
DEDUCTION FROM GROSS ESTATE
Problem 4–1
1. True
2. True
3. True
4. False – not deductible. Only those expenses actually taken from the gross estate.
5. False – actual or 5% of the gross not exceeding P200,000
6. False – funeral expense
7. False – Only those expenses actually taken from the gross estate.
8. True – brokerage fee is part of judicial expense if necessary for the administration of the
estate.
9. True
10. False – not terminated upon death but shall be paid by the remaining estate.

Problem 4–2
1. True
2. True
3. False – deductible only if included in the gross estate.
4. False – either against the gross estate or against income
5. False – included after death
6. True
7. False – not deductible because not yet accrued expense.
8. True
9. False – only those related to gathering, preservation and settlement of the estate.
10. True

Problem 4–3
1. True
2. False – ½ of net, after ordinary deductions and exemptions
3. True
4. True
5. True
6. False – whether paid or unpaid, the maximum deductible medical expense is P500,000.
7. False – not allowed as deduction is in excess of P500,000
8. False – this is in addition to other allowable deductions.
9. False – no receipt is necessary for standard deduction.
10. True

Problem 4–4 Problem 4–5 Problem 4–6

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

Problem 4–7 A
Allowable deductions against Philippine gross estate (P500,000 x 3/5) P 300,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 15
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–8 D
None, because the decedent is a nonresident alien and the amount of gross estate located in the
Philippines is not defined.

Problem 4–9 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 4–10 D
Standard deduction P1,000,000
Family home 1,000,000
Special deductions P2,000,000

Problem 4–11 B
Gross estate (P3,150,000 + P175,000) P3,325,000
Multiplied by funeral rate 5%
Deductible funeral expense P 166,250

Problem 4–12 B
Gross estate P3,500,000
Multiplied by funeral rate 5%
Deductible funeral expense P 175,000

Problem 4–13 C
Real properties P1,560,000
Claims against insolvent persons 100,000
Gross estate P1,660,000
Multiplied by funeral expense rate 5%
Funeral expense P 83,000

Problem 4–14 C
Judicial expense (P1,900,000/95%) – P1,900,000 P100,000

Problem 4–15 C
Deductible loss (P48,000/40%) P120,000

Problem 4–16 A
Unpaid mortgage on the real property included in the gross estate P500,000

Problem 4–17 C
Loans from Metro Bank (not notarized per bank’s policy) P500,000

Problem 4–18 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%
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 16
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE
Problem 4–19 C
Collectible from a debtor P160,000

Problem 4–20 B
Exclusive Conjugal
Properties P2,800,000 P3,500,000
Ordinary deductions:
Unpaid mortgage loan used to finance family business ( 800,000)
Funeral expense . ( 180,000)
Properties after ordinary deductions P2,800,000 P2,520,000

Problem 4–21 B
Unpaid real property tax incurred prior to date of death P100,000

Problem 4–22 D
Deductible transfer for public use (P2,000,000/1,000) x 200 P400,000

Problem 4–23 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 4–24 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 4–25 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 4–26 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 4–27 C
Standard deduction to Filipino and resident alien P1,000,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 17
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–28 D
Nonresident alien does not have standard deduction

Problem 4–29 C
Deductible medical expense (paid or unpaid) within one year prior to death P300,000

Problem 4–30 A
The unpaid medical expense in excess of the maximum P500,000 is nondeductible as
claims against the estate.

Problem 4–31 D
Medical expenses incurred from October 2004 to December 2004 P100,000

Problem 4–32 D
Maximum amount of family home deductible P1,000,000
The family home is an exclusive property of the decedent.

Problem 4–33 C
Building – conjugal (P1,000,000/2) P500,000
Land – exclusive 400,000
Family home - deductible P900,000

Problem 4–34
1. D
Donation to the government P1,000,000
Benefits received under RA 4917 500,000
Funeral expense 100,000
Total ordinary deductions P1,600,000
2. C
Standard deduction P1,000,000
Family home 1,000,000
Medical expense 400,000
Total special deductions P2,400,000

Problem 4–35
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 4–36
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 5th Edition (BY: VALENCIA & ROXAS) 18
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE
Problem 4–37
October 1 to 20, 2005 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 4–38
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 4–39
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.