TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY
MID-YEAR 2021
TAX 2 – BUSINESS AND TRANSFER TAXATION
DEDUCTIONS FROM THE GROSS ESTATE
ALLOWABLE DEDUCTIONS FOR RESIDENT OR CITIZEN
DECEDENT
I. EXPENSES, LOSSES, INDEBTEDNESS AND
TAXES
A. FUNERAL EXPENSES (removed in TRAIN Law)
The amount allowable as deduction shall be the lower
amount between:
a. The actual funeral expenses (whether paid or
unpaid) incurred in connection with the
interment or burial of the deceased; and
b. 5% of the gross estate;
c. But in no case to exceed two hundred
thousand pesos (P200, 000). Any unpaid
portion in excess of P200, 000 threshold
cannot be claimed as deduction under “claims
against the estate”.
Expenses to be deductible must be evidenced by
supporting documents. Expenses incurred after the
interment such as prayers, entertainment, or the like
are not deductible. Any portion of the funeral and
burial expenses borne or defrayed by relatives and
friends of the deceased are not deductible.
B. JUDICIAL EXPENSES (removed in TRAIN Law)
Expenses incurred during the settlement of the estate
but not beyond the last day prescribed by law, or the
extension thereof, for the filing of estate tax return in
the testamentary or intestate proceedings include:
a. Inventory taking of assets comprising the gross
estate
b. Their administration
c. The payment of debts of the estate
d. Distribution of the estate among the heirs
Expenses should be supported by a sworn statement of
account issued and signed by the creditor.
C. CLAIMS AGAINST THE ESTATE
Obligations not terminated by the death of the
decedent are deductions from the gross estate
provided:
a. The liability represents a personal obligation of
the deceased existing at the time of his death,
except unpaid funeral and unpaid medical
expenses.
b. The liability was contracted in good faith and
for adequate and full consideration in money
or money’s worth.
c. The claim must be a debt or claim which is valid
in law and enforceable in court.
d. The indebtedness must not have been
condoned by the creditor or action to collect
from the decedent must not have been
prescribed.
e. It must be duly substantiated by documents. (If
a loan was obtain within a three-year period
before death of the debtor, the administrator
or executor of the estate must submit a
statement of disposition of the loan proceeds)
D. CLAIMS AGAINST INSOLVENT PERSON
These are claims of the decedent against a person
declared as insolvent under the Financial Rehabilitation
and Insolvency Act (FRIA Law). The full amount must be
included in the gross estate and only the uncollectible
portion is allowed to be deducted.
E. UNPAID MORTGAGE
For unpaid mortgage to be deductible, the fair market
value of the property mortgaged must be included in
the gross estate in full. The unpaid mortgage
deductible shall be to the extent that it was contracted
bona fide and for an adequate and full consideration in
money or money’s worth.
F. UNPAID TAXES
These are taxes which have accrued as of the death of
the decedent but which were unpaid as of the time of
death. This deduction will not include:
a. Income tax upon income received after death;
b. Property taxes not accrued before his death; or
c. Estate tax due from the transmission of his
estate.
G. CASUALTY LOSSES
Losses arising from fire, shipwreck or other casualties
including robbery, theft and embezzlement are
deductible losses provided these losses are:
a. Not compensated by insurance
b. Not been claimed as a deduction for income
tax purposes in an income tax return
 TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY
MID-YEAR 2021
TAX 2 – BUSINESS AND TRANSFER TAXATION

c. Incurred not later than the last day for

payment of the estate tax.

II. PROPERTY PREVIOUSLY TAXED OR

VANISHING DEDUCTIONS III. TRANSFER FOR PUBLIC PURPOSE
Deduction being allowed to lessen the impact There shall be allowed as deduction from gross estate
of successive taxation of the same property the amount of all bequest, legacies, devises or transfers
within a very short period due to the death of to or for the use of the Government of the Republic of
the decedent-transferee. the Philippines, or any political subdivision thereof, for
exclusive public purposes.
Requisites for Deductibility:
1. Present decedent must have died within five IV. FAMILY HOME
(5) years from date of death of prior decedent
The dwelling house, including the land on which it is
or date of gift.
situated, where the husband and wife, or a head of the
2. The property with respect to which the
family and members of their family resides. This must
deduction is claimed must have formed part of
be included in the gross estate.
the gross estate situated in the Philippines of
the prior decedent or taxable gift of the donor. The amount deductible from the gross estate as family
3. The property must be identified as the home shall be:
property received from prior decedent or a. The current fair market value of the decedent’s
donor or the one received in exchange thereof. family home at the time of death;
4. The estate taxes on the transmission of the b. But not to exceed one million pesos.
prior estate or the donor’s tax on the gift must (raised to ten million pesos under TRAIN)
have been finally determined and paid.
5. No vanishing deduction on the property or the
property given in exchange thereof was V. STANDARD DEDUCTION
allowed to the prior estate.
A deduction in the amount of one million pesos (raised
FORMULA: VANISHING DEDUCTION to five million pesos under TRAIN Law) shall be
allowed as an additional deduction without need of
Value taken of Property Previously Taxed xx substantiation.
Less: Mortgage debt or other liens paid xx
Initial Basis xx
Less: VI. MEDICAL EXPENSES (removed under TRAIN
Initial Basis x E.L.I.T. and Law)
Gross Estate Transfer for public use xx Medical expenses incurred by the decedent, whether
paid or unpaid, within one year prior to his death and
Final Basis xx duly substantiated with receipts shall be allowed as
Multiply by: Percentage of deduction* x% deduction from gross estate. However, in no case shall
Vanishing deduction xx the deductible medical expenses exceed five hundred
thousand pesos (P500, 000)
*Percentage Deduction
Percentage Transfer more than But nor more than
100% one year VII. AMOUNT RECEIVED BY HEIRS UNDER R.A.
80% one year two years 4917
60% two years three years
40% three years four years Any amount received by the heirs from the decedent’s
20% four years five years employer as a consequence of the death of the
decedent- employee in accordance with R.A. 4917 shall
 TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY
MID-YEAR 2021
TAX 2 – BUSINESS AND TRANSFER TAXATION

be deductible. Such amount must be included in the

gross estate of the decedent.

VIII. NET SHARE OF THE SURVIVING SPOUSE

After deducting the allowable deductions pertaining to
the conjugal or community properties included in the
gross estate, the one-half (1/2) share of the surviving
spouse must be removed to ensure that only the
decedent’s interest in the estate is taxed.

ALLOWABLE DEDUCTIONS FOR NONRESIDENT ALIEN

DECEDENT
1. Standard Deduction equal to P500, 000 only
(introduced in TRAIN Law).
2. Expenses*, Losses, Indebtedness and Taxes are
further limited as follows:

Gross Estate, Philippines x World ELIT = Deductions

Gross Estate, World

* Under TRAIN Law, Funeral and Judicial are

no longer deductible.

3. Property previously taxed on property situated

in the Philippines.
4. Transfer for public use of property situated in
the Philippines.
5. Net Share of the surviving spouse.