c. How about if the loss occurred before he died, but discovered after Carpenter's death?

d. How about if the entire amount indemnified by insurance?

11. Casualty Loss? Carlos accidentally slammed the car door on a spouse's hand after helping
the spouse alight from the car door and the diamond fell out of the spouse's ring. While looking
for the diamond, Carlos' spouse was bumped by a fast coming vehicle. The jewel was never
found. Is the accidental and irrevocable loss of the property a valid basis of a casualty joss
deduction?
12. Transfer for public use. Alfonso, married to Alberta, died testate. His will indicates that he
is donating by way of devise a 200 square meter land owned by the conjugal partnership in the
poblacion of Infanta, Quezon to said municipality. Is the value of such land deductible for estate
tax purposes? If so, does it fall under conjugal deduction or under Separate deduction?
13. Vanishing Deduction. Classify whether the vanishing deduction below is a deduction from
exclusive, conjugal, or community property If the property was acquired mortis causa by the
decedent:

Date of Property Date of Date of Classification

Property
Acquisition Regime Marriage Death of deduction
A 12/10/14 Conjugal 2/14/16 6/12/19
B 12/12/14 Community 3/15/15 7/06/19
C 8/05/15 Conjugal 3/20/15 4/10/19
D 8/10/16 Conjugal 9/25/15* 2/14/19
E 5/05/16 Community 9/09/16* 9/16/19
F 4/25/18 Community 6/12/17 11/10/19
*marriage has been annulled on April 14, 2018

14. Vanishing deduction and family home. E. Bigay inherited a family home from his father in
2015. In 2018, he died leaving the family home as device to his Only child. Can the estate claim
vanishing deduction on the donation?
15. Vanishing deduction. Amata died in 2018 leaving one hectare of land worth P250,000 to
his son, Anacleto. After one-and-a-half years, Anacleto died. The value Of the property at the
time of his death has appreciated to P300,000. At the time Of Amata's death, the property was
mortgaged for P60,000 of which Anacleto paid P50,000 prior to his death. The gross estate of
Anacleto was P2,000,000, while the total deduction was P575,000 which includes medical
expenses of P75,000. Compute the vanishing deduction on the estate of Anacleto.
16. Family home. If the decedent died in 2019, how much is the deductible amount of family
home in each of the following separate situations:
Case Value of FH
1 P24,000,000
2 8,200,000
Assumptions:
a. Decedent was unmarried head of a family.
b. Decedent was married. The family home is an exclusive property.
c. Decedent was married. The family home is a conjugal property.
d. Decedent was married. The family home is composed of the house and the lot. Thirty-
five percent (35%) of its value is a community property.
e. Decedent was married. The family home is composed of the house (community
property) and the lot (exclusive property). Seventy (70%) of the value of the family home
pertains to the house, while the balance pertains to the lot.

17. Family Home. Indicate the amount of gross estate and the deductible family home in
each of the following independent situations:
Exclusive Property Community Property
Decedent House Land House Land
Resident citizen 3,000,000 1,000,000
Resident alien 2,000,000 500,000
Nonresident alien 3,500,000 1,250,000
Nonresident alien 3,000,000 1,000,000

18. Nonresident Alien Decedent. From the following data, compute the net taxable estate
of Kimura, single, a Japanese residing in Sapporo, Japan if he died in 2019:
Properties:
House in Sapporo, Japan 2,500,000
Personal properties in Japan 1,500,000
Real Properties in the Philippines 3,000,000
Tangible personal properties, 700,000
Philippines
Deductions:
Funeral expenses incurred abroad 230,000
Judicial expenses in the Philippines 90,000
Unpaid mortgage on the house in Japan 300,000
Claims against insolvent persons in Japan 45,000
 One month prior to his death, he was confined at Chinese General Hospital for (5) days. He
spent P23,00, And then, he was transferred to a hospital in Sapporo where he was confined
for (2) weeks. The hospital bills in Sapporo amounted to P145,000.
19. Deductibility of share of surviving spouse. What is the main reason in allowing the
net share of surviving spouse in the conjugal or community property as a deduction from
gross estate?
20. share of surviving spouse. Jose, married to Nympha, died leaving the following
properties:
Community property P2,500,000
Exclusive property 725,000
Property excluded from gross estate 75,000
Charges against community properties 635,000
Charges against exclusive properties 80,000
Standard deduction 1,000,000

How much is the deductible "share of surviving spouse"?

21. Property regime of spouses who are incapacitated to marry each other. Antonio,
homosexual, married to Clemenza in 2000 but legally separated effective March 5, 2008.
He had lived with an 18-year old student, Vittorio, as his common law husband from
October 15, 2018. Antonio died intestate on November 10, 2018 of a car accident. The
following data relates to his estate at the time of death:
Properties:
Cash in bank (ATM deposit) P 126,540
One-year time deposit with Banco de Oro (maturity, March 31, 200,000
2019)
Interest on the time deposit, gross of tax 22,000
Car, Kia Picanto 441,236
Unclaimed 13th month pay 45,000
Parcel of land donated inter vivos to the government (tax exempt) 200,000
Cellular phone 25,000
Condominium unit in Binondo, Manila (studio type) 1,542,895
Post-dated check drawn for Clemenza (dated December 25,000 15,000
2018)
 Laptop computer 40,000
Obligations:
Unpaid bill on credit card (visa card)(not notarized) 15,273
Loan balance with Pag-ibig (updated payment) 230,600
Loan balance, car loan 237,181
Donor’s tax on the donated lot as computed by Antonio 2,000
Unpaid electric, water bill and monthly dues on the condominium unit 7,654
Bill for services of Tumbado funeral homes 145,000
Unpaid hospital expenses 28,000

The following were jointly earned by Antonio and Vittorio:

Accrued wages of Antonio (November 1-10, 2018), P 15,000.
Appliances and home decors, P50,000.
Other personal properties, P80,000.

On October 25, 2018 Antonio gave Vittorio an engagement ring worth P15,000 which
was pledged by Vittorio with Tambunting Pawnshop for 3,000.
The laptop computer was stolen by Vittorio and sold to Luca Brasi for P25,000. It was
identified and recovered by Antonio last November 8, 2018 from Luca who was claiming refund
of the P25,000. Antonio has not yet paid Luca.
Tattaglia, cousin of Antonio in the province, sold five cows to the latter on Nov.1, 2018 at
a price of P15,000 per head to be delivered to Antonio's brother on November 15. On
November 6 one of the cows gave birth to a calf worth P5,000.
REQUIRED:
Assuming that the bank deposits were not withdrawn prior to the filing of tax return? compute
the following
a. Exclusive property
b. Share Of Antonio in the co-ownership
c. Ordinary deductions
d. Special deductions
e. Net taxable estate
EXERCISE 7-9. CASE STUDY
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second
World War, was a part of the infamous Death March by reason of which he suffered shock and
became insane, His sister Josefina Pajonar (Josefina) became the guardian over his person,
while his property was placed under the guardianship of the Philippine National Bank (PNB). He
died on January 10,1988 He was survived by his brothers, his sister Josefina, nephews and
niece.
Thereafter, the PNB filed an accounting of the decedent's property under guardianship.
However, the PNB did not file an estate tax return, instead it advise Pajona’s heirs to execute an
extrajuditial settlement and to pay the taxes on his estate.
The estate of Pajonar paid estate tax in the amount of P 1,527,790.98. Josefina, in her
capacity as administrative and heir of Pajonar's estate, filed a protest with the BIR praying that
the estate tax payment in the amount of 252,585.59, representing erroneously paid estate tax
be returned to the heirs. Among the deductions from the gross estate were the amounts of
60,753 representing the notarial fee for the Extrajudicial Settlement and the amount of 50,000
as the attorney's fees in the petition for guardianship. CIR maintains that only judicial expenses
of the testamentary or intestate proceedings are allowed as a deduction to the gross estate. The
amount of 60,753 is quite extraordinary for a mere notarial fee.
ISSUE: May the notarial fee paid for the extrajudicial settlement and the attorney's fees in the
guardianship proceedings be allowed as deductions from the gross estate of decedent in order
to arrive at the value of the net estate?
SOURCE: CIR vs. PAJONAR GR No. 123206, March 22, 2000
(www.lawphil.net)
The Lawphil project of Arellano Law Foundation
Chapter 8

Net estate, estate tax

& tax credit

TABLE OF CONTENTS

Tax base and tax rates 157

Illustration 8-L The decedent died single 157
Illustration 8-2. The decedent was under conjugal partnership 158
Illustration 8-3. The decedent was governed by the regime of absolute community of 160
property
Illustration 8-4. The spouses were under complete separation of property 161
Illustration 8-5. The spouses were under conjugal partnership of gains; vanishing 162
deduction
Illustration 8-6. The decedent was a nonresident alien 165
The net distributable estate 167
Concept of tax credit 169
Tax credit for estate taxes paid to a foreign country 169
Exercise 8-1. True or False Question 172
Exercise 8-2. Multiple choice Problems 174
Exercise 8-3. Problems 177
Exercise 8-4. Problems 180
Tax base and tax rate

There shall be levied, assessed, collected and paid upon the transfer of the net estate of
every decedent, whether resident or nonresident of the Philippines, a tax of six percent (6%)
based on the net taxable estate.

Illustration 8-1. The decedent died single.

Manuel, a resident and citizen of Nabua, Camarines Sur, died testate on October 21,
2019. In the computation of his estate, the following data were given:

Riceland in Sitio Masoso, San Isidro, Iriga P2,850,000

City
Residential house and lot in Nabua, 3,500,0000
Camarines Sur
Car 400,000
Furniture and appliances 550,000
Shares of stock in San Miguel Corporation 75,00
Jewelry 30,000

The following deduction were claimed:

Loan from Baao Credit Cooperative 95,000
Unpaid mortgage on house and lot 150,000
Hospital expenses five days before death 35,000

The car was stolen during the interment.

REQUIRED: Compute the net estate and estate tax due.

Riceland, Iriga City P2,850,000

House and tot 3,500,000
Car 400,000
Furniture and appliances 550,000
Shares of stock, San Miguel Corporation 75,000
Jewelry 30,000
Gross estate 7,405,000
Less: Deductions
Ordinary -
Claim against the estate P 95,000
Unpaid mortgage 150,000
Car loss 400 000 ( 645,000)
Special -
Standard deduction (5 000 000)
Taxable net estate 1760,000
Rate of tax 6%
Estate tax due 105,600
 a. The value of the car is deductible because the loss took place after the death of the
decedent, and within the period for filing the estate tax return.
b. The value of the house and lot is not deductible because it is not a family home.

Illustration 8-2. The decedent was governed by conjugal partnership of gains

Rosel, married, died of a heart attack on December 1, 2018, leaving the following
properties and obligations:

Properties:
Apartment house inherited during the marriage 2,500,000
Family home, acquired during marriage 1,750,000
Time deposit with Bank of the Philippine Islands 250,000
Jewelry acquired before marriage 60,000
Winnings in lotto during the year 6 500,000
Receivable from insurance company, her husband is the revocable 250,000
beneficiary
Personal properties purchased in 2012 out of cash inherited from father 80,000

Obligations/Deductions:
Expenses of wake before burial 210,000
Expenses for perpetual care of cemetery lot 10,000
Judicial expenses 65,000
Claims against the estate, notarized 25,000
Claims against insolvent person 60,000
Devise to Barangay Marilag for public purpose 60,000
Accrued income taxes 24,500
Unpaid real property taxes in 2017 2,700
Unpaid real property taxes in 20178 2,700
Real property taxes in 2019 2,700
Medical expenses 5,250
Benefits received from employer as consequence of death 75,000

REQUIRED: Compute the net estate and estate tax if the decedent was under the conjugal
partnership of gains.

Exclusive Conjugal Total

Apartment house P2,500,000
Family home P1,750,000
 Time deposit, BPI 250,000
Jewelry 60,000
Lotto Winnings 6,500,000
Life insurance proceeds 250,000
Personal properties 80,000
Claims against insolvent person 60,000
Benefits received from employer 75,000
Gross estate 2,640,000 8,885,000 11,525,000
Less: Deductions
Ordinary-
Claims against the estate 25,000
Bad debt 60,000
Donation to Marilag 60,000
Accrued income taxes 24,500
Accrued property taxes, 2017 2,700
Accrued property taxes, 2018 2,700
Totals 60,000 114,900 (174,900)
Special-
RA 4917 ( 75000)
Family home (1,750,000 x ½ ) ( 875,000)
Standard deduction (5,000,000)
Net estate 5,400,100
Less: Share of surviving spouses
Gross conjugal 8,885,000
Less: conjugal deduction 114,900
Net conjugal property 8,770,100
Share(8,770,000 x ½ ) (4,385,050)
Net taxable estate 1,015,050
Rate of tax 6%
Estate tax due 60,903

1. To be deductible, the amount of claims against insolvent person must be included in the
gross estate.

2. Donations to the national government or political subdivisions are deductible if they are for
public purpose. Moreover, they are classified as exclusive property deductions.

3. The real property tax in 2019 is not deductible because it will only accrue on January 1,
2019.

4. The deductible amount of family home is one-half only of its value if the property is conjugal
Illustration 8-3. The decedent was governed by the regime of absolute community of
property.

Simbulan, married to Babes on December 30, 2005, died on May 20, 2019 The
properties, rights and claims at the time of his death are as follows:

Car purchased In 2012 P500, 000

Jewelry 120,000
Family home inherited from his father in 2003
Land and building inherited from his mother in 2008
Painting inherited from his father in 2003 150,000
Subdivision lot inherited by Babes from her father in 2007 600,000
Personal properties for exclusive use of Simbulan 75,000
Shares of stock brought into the marriage by Babes 200,000
Benefits received from the Social Security System 60,000
Funeral expenses 115,600
Judicial expenses 47,800
Notes payable, not notarized 25,000
Mortgage payable on land and building (money was used for the 50,000
renovation of the building), contracted by the mother
Unpaid mortgage on subdivision lot, contracted jn 2005 30,000
Income tax on income of the decedent up to May 19 24,700

The painting is a subject of fideicommissary substitution. The property shaft be transferred by

Simbulan, the fiduciary heir, to his son, Bobbit the fideicommissary.

REQUIRED: Assuming that there was no ante-nuptial agreement on the property relations of
the spouses, how much is the estate tax due on the estate of Simbulan?

Exclusive Community Total

Car 500,000
Jewelry 120,000
Family home 2,850,000
Land and building 3,000,000
Personal properties for exclusive use 75,000
Shares of stocks 200,000
Gross estate 3,075,000 3,670,000 6,745,000
Less: Deductions
Ordinary-
Unpaid mortgages 50,000
Income tax payable 24,700
Total 50,000 24,700 (74,700)
 Special -
Family home (2,850,000 x ½ ) (1,425,000)
Standard deduction (5,000,000)
Net estate 245,300
Less: Share of surviving spouse
Gross community property 3,670,000
Less: Community property deductions 24,700
Net Community property 3,645,300
Share(3,645,000 x ½ ) (1,822,650)
Net estate subject to tax -

1. The family home is a community property because it was acquired before the marriage by
gratuitous title which forms part of the properties brought into the marriage by Simbulan.

2. The land and the building are exclusive properties because they were inherited by
Simbulan during the marriage.

3. The subdivision lot is not included in the gross estate because it is an exclusive property of
the surviving spouse.

4. The benefit received from Social Security System is exempt from estate tax Hence, not
included in the gross estate.

5. The unpaid mortgage on lend and building is chargeable against exclusive property
because it was contracted by prior decedent.

6. The painting is not taxable. A fideicommissary substitution from the fiduciary heir to the
fideicommissary is exempt from estate tax.

7. The note payable is not deductible because it is not notarized.

Illustration 8-4. The spouses were governed by complete separation of property.

Ta Lim, married to Dee Lim, died intestate in 2018 leaving the following:

Cash in bank P1,500,000

Accounts receivable 1250,000
Land in J. Abad Santos, Manila 2,000,000
Properties inherited from his mother during marriage 5,000,000
Properties acquired thru the industry of his wife 3,000,000
Properties brought into marriage 1,750,000
Notes receivable, acquired during marriage 590,000
 Notes payable, not notarized 800,000
Funeral expenses 550,000
Judicial expenses 80,000
Unpaid mortgage on the land in J. Abad Santos 400,000
Claims against Sui Tek, insolvent 250,000

The cash in bank was withdrawn by the heirs to defray the expenses for the wake and
other expenses related to the death of the decedent.

REQUIRED: Compute net estate and the taxes due assuming Ta Lim was under the regime of
complete separation of ail properties.

Accounts receivable P 1250,000

Land in Manila 2,000,000
Properties inherited during marriage 5,000,000
Properties brought into marriage 1,750,000
Notes receivable 590,000
Claims against insolvent person 250,000
Gross estate 10,840,000
Less: Deduction
Unpaid Mortgages P400,000
Bad debts 250,000
Standard deduction 5,000,000
Net estate subject to tax 5,650,000
Rate of tax 6%
Estate tax due 311,400

Cash withdrawn from the bank 1,500,000

Rate of tax 6%
Final withholding tax 90,000

Illustration 8-5. The spouses were under the conjugal partnership of gains; vanishing
deduction.

Jose, a citizen and resident of Davao City, married to Sarah in 1985, died testate on July
31 , 2018 leaving properties which consist of the following:

Family home:
House — conjugal P4,500,000
Lot- exclusive of Jose 4,000,000
Household furniture and appliances 320,000
Death benefits received from GSIS 80,000