ST.

ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

DEDUCTIONS FROM THE GROSS ESTATE

Deductions from the gross estate are classified as ordinary and special deductions as summarized
below:

I. Ordinary Deductions

A. LITe (Losses, Indebtedness, Taxes, etc.)

1. Losses

Casualty Losses — on account of mishaps, accidents, casualties, acts of God, robbery, theft,
embezzlement can be deducted provided:
a. The loss is not compensated for by insurance or otherwise.
b. The loss is not claimed as a deduction in an income tax return.
c. The loss must occur not later than the last day for payment of the estate tax (generally,
within 1 year after death).

2. Indebtedness or Claims against the Estate (including unpaid mortgages)

Claims against the estate — consist of the bona fide unpaid personal obligations of the
decedent of a pecuniary nature. These can arise from contract, tort, or by operation of law.
These must be incurred in good faith by the decedent during his lifetime and can be enforced
against the estate by his creditor.

These include personal obligations of the decedent at the time of his death except unpaid
obligations incurred incidental to his death such as funeral or medical expenses.

i. If the claim arises from the purchase of goods or services by the decedent, the following
must be submitted:
- Documents evidencing the purchase (invoices, receipts, statements of accounts).
- Creditor’s certification as to the unpaid balance of the debt, including interest; and
- Certified true copy of the latest audited balance sheet of the creditor showing the unpaid
balance of the decedent.

ii. If the claim is in the form of loan, the following requirements must be complied with:
- The instrument must be notarized except if it is not the business practice of the financial
institution-lender to notarize such instruments.
- Notarized certification from the creditor as to the unpaid balance of the debt, inclusive of
interest.
- Proof of financial capacity of the creditor to lend the amount at the time the loan was
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San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

granted:
- If the loan was contacted within 3 years prior to the death of the decedent, a statement
under oath executed by the administrator/executor of the estate stating the disposition of
the proceeds of the loan.

iii. Where settlement of the estate is made through the courts:

- Documents filed with the court evidencing the claims.
- The court order approving the claims.
- The documents in (A) or (B) above.

Unpaid mortgages/Indebtedness on property — the unpaid mortgage or indebtedness is

deductible from the gross estate provided that the decedent’s interest in the property, gross of
the mortgage, is included in the gross estate.
- If the loan is an accommodation loan where the loan proceeds went to another person, the
value of the unpaid loan must be included in the gross estate as a receivable.

3. Taxes

Income taxes and property taxes

- The following taxes can be deducted from the gross estate:
a. Unpaid income taxes on income due or received before the death of the decedent.
b. Real property taxes which have accrued prior to the death of the decedent.
Note: Real property taxes accrue at the beginning of the year.

4. Other Deductions

Claims against insolvent persons

- Must first be included in the gross estate.
- Portion or amount that cannot be collected from the decedent’s debtor is deductible from the
gross estate.

B. TRANSFERS for PUBLIC USE

- Transfers made to the government or any political subdivision for public purposes; or
- Transfers to social welfare, cultural, and charitable institutions, provided:
i. No part of its net income inures to the benefit of any individual; and
ii. ≤ 30% of the bequest, devise, or legacy is used for administrative purposes.

Note: No purely religious organization

C. VANISHING DEDUCTION (Property Previously Taxed/PPT)

- To minimize double taxation on same property (located in the Philippines) which was
previously received by the decedent as a donation or inheritance.

a. Conditions for Allowance of the Vanishing Deduction

i. The present decedent must have acquired the property by inheritance or donation within five
(5) years prior to his death.
ii. The property acquired formed a part of the gross estate of the prior decedent, or of the
taxable gift of the donor.
iii. The estate tax on the prior estate, or the gift tax on the gift must have been paid; and
iv. The estate of the prior decedent has not previously availed of the vanishing deduction.

b. Percentage of Vanishing Deduction

The rates depend on the interval between:
i. The death of the present decedent, and the death of the prior decedent if the property
previously taxed (PPT) was acquired by inheritance, or
ii. The death of the present decedent, and the date of the gift, if the PTT was acquired by
donation.

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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

IF the interval is:
More Than Not More Than Percentage
xxx 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years xxx xxx

II. Special Deductions

- Deducted only after the ordinary deductions have been deducted from the gross estate.

1. FAMILY HOME
- Must be included in the gross estate.
- The deduction is only for one family home which must be the actual residential home of the
decedent as certified to by the barangay captain.
- Lower of:
a. FMV of the family home:
i. If family home is exclusive property of the decedent: FMV.
ii. If family home is conjugal property: FMV/2.
iii. If family land is exclusive while the family house is conjugal: FMV of land + FMV of
house/2.
iv. If family land is conjugal while family house is exclusive: FMV of land/2 + FMV of
house.
OR
b. P10,000,000.

2. STANDARD DEDUCTION
- P5,000,000 for estates of citizens and resident aliens; P500,000 for estates of non-resident
aliens.
- Substantiation not required.

3. AMOUNTS RECEIVED BY HEIRS UNDER R.A, NO. 4917

- Amounts/benefits received by the heirs from the decedent's employer as a consequence of his
death.
- Such benefits must first be included in the gross estate before the same can be deducted.

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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

III. Net Share of Surviving Spouse
- Share of the surviving spouse is not subject to estate tax and must therefore be deducted from the
gross estate of the decedent.

Amount of deduction = [Conjugal properties less obligations chargeable to such properties

(Conjugal deductions)] divided by 2

IV. Allowable Deductions for Nonresident Alien

- The value of the net estate of a decedent who is a non-resident alien in the Philippines shall be
determined by deducting from the value of that - part of his gross estate which at the time of his
death is situated in the Philippines the following items of deductions (Section 7, RR2-2003):

V. Summary of Deductions

1. What deductions are available against the estates of citizens, residents, or non-resident aliens?

Citizens/Resident Non-Resident
Deductions
Aliens Alien
1. CLUT
1.1. Claims against the estate / /
1.2. Claims against insolvent persons / /
1.3. Unpaid mortgages / /
1.4. Taxes / /
1.5. Losses / /
2. Transfer for public use / /
3. Vanishing Deduction / /
4. Family Home / X
5. Standard Deduction / (P5M) / (P0.5M)
6. Amounts received by heirs under RA 4917 / X
7. Share of surviving spouse in conjugal net assets / /

*For the estate of a non-resident alien, the allowable CLUT deduction shall be prorated based on the
size of the gross estate in the Philippines relative to his entire worldwide gross estate, as follows:

Philippine Gross Estate

𝑥 𝐶𝐿𝑈𝑇
Worldwide Gross Estate

2. If the decedent was married, how do we allocate the deductions between the exclusive and
conjugal properties?

Conjugal/
Exclusive Total Gross
Community
Properties Estate
Properties
1. CLUT
1.1. Claims against the estate / /
1.2. Claims against insolvent persons / /
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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

Conjugal/
Exclusive Total Gross
Community
Properties Estate
Properties
1.3. Unpaid mortgages / /
1.4. Taxes / /
1.5. Losses / /
2. Transfer for public use / /
3. Vanishing Deduction / /
Net Estate before Special Deductions Pxxx Pxxx Pxxx
4. Family Home /
5. Standard Deduction /
6. Amounts received by heirs under RA 4917 /
7. Share of surviving spouse in conjugal net
/
assets
NET ESTATE Pxxx

VI. Estate Tax Return Preparation

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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

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