SEC. 86. Computation of Net Estate.

[70] - For the purpose of the tax imposed in this Chapter, the
value of the net estate shall be determined:
• List of Allowable deductions
o Standard deduction – P 5M
o Claims against the estate
o Claims against insolvent persons
o Unpaid mortgages or indebtedness on property
o Accrued taxes and losses
o Vanishing deductiojs
o Transfers for public use
o Amounts received by heirs under R.A 4917
o Net share of the SS in the conjugal partnership, if any
• Not included: funeral, medical and judicial expenses, train law removed.
(A) Deductions Allowed to the Estate of Citizen or a Resident. [71]- In the case of a citizen or resident
of the Philippines, by deducting from the value of the gross estate -
(1) Standard Deduction. – An amount equivalent to Five million pesos (P5,000,000.00). [72]
(2) For claims against the estate: Provided, That at the time of indebtedness was incurred that
debt instrument was duly notarized and, if the loan was contracted within three (3) years before
the death of the decedent, the administrator or executor shall submit a statement showing the
disposition of the proceeds of the loan.
• Claims – debts or demands of a pecuniary nature which could have been enforced against
the deceased in his lifetime and could have been reduced to simple money judgment
• Rule
o If enforceable while the decedent was alove, the obligations will be claims against his
estate when he dies
o If obligation has prescribed during his lifetime or unenforceable against him, not be
a claim against his estate when he shall be dead
• Source
o Contract
o Tort
o Operation of law (R.R. 12-2018)
• Requisites
o The liability must represent a personal obligation of the deceased at the time of his
death
o The liability was contract in good faith and for adequate and full consideration
o The claim must be a debt or claim which is valid in law and enforceable in court; and
o The indebtedness must not have been condoned by the creditor during the lifetime of
the decedent, or the actions to collect must not have prescribed.
o The claim arose out of a debt instrument, the debt instrument must be notarized
o If, the debt was contracted within 3 years before the death of the decedent, the estate
must submit statement showing the disposition of the proceeds of the loan.
• Dizon v. CTA – if the debts were condoned after the decedents death, the debts are
deductible, following the date of death valuation rule
 o Actual claims of decedent’s creditors may be fully allowed as deductions from his
gross estate despite the fact that the said claims were reduced or condoned through
compromise agreements entered into by the Estate with its creditors, based on the
following grounds:
▪ There is no law which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be considered in
determining the net value of the estate; and
▪ Claims as generally construed under Rules on Special Proceedings refer to
debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased
before his death. (Dizon v. CTA and CIR, G.R. No. 140944, 2008)
o Documentary requirements for different kinds of unpaid obligations:
▪ Loans
• Debt instrument must be notarized at the time the indebtedness was
incurred
o EXCEPT for loans granted by financial institutions where
notarization is not part of the business practice
• Duly notarized certification from the creditor as to the unpaid balance
of the debt, including interest as of the time of death;
• Proof of financial capacity of the creditor to lend the amount at the time
the loan was granted; and
• Statement under oath by the administrator or executor of the estate
reflecting the disposition of the proceeds of the loan if said loan was
contracted within three years prior to the death of the decedent.
▪ For unpaid obligations from purchase of goods or services:
• Documents evidencing purchase of goods or service (like official receipts,
etc.) or contracts of service;
• Duly notarized certification from the creditor as to the unpaid balance
of the debt, including interest as of the time of death; and
• Certified true copy of the latest audited balance sheet of the creditor
with a detailed schedule of its receivable showing the unpaid balance.
▪ For settlements made through court, the documents filed in court and the
court order approving such claims, in addition to the documents above.
• There is no requirement to add the amount to the gross estate (as compared to claims
against invsolvent persons/mortgaes). This is a DIRECT DEDUCTION.
• Propstra v. U.S – where a lien claimed against the estate was certain and enforceable on
the date of the decedent's death, the fact that the claimant subsequently settled for lesser
amount did not preclude the estate from deducting the entire amount of the claim for estate
tax purposes. These pronouncements essentially confirm the general principle that post-
death developments are not material in determining the amount of the deduction – Date of
death valuation rule.
• Date-of-Death Valuation Rule - The properties and rights are transferred to the successors
at the time of death. (Civil Code, art. 777)

CLIAMS AGAINST INSOLVENT PERSONS

 SEC. 86. Computation of Net Estate. (A) Deductions Allowed to the Estate of Citizen or a
Resident. (3) For claims of the deceased against the insolvent persons where the value of
decedent’s interest therein is included in the value of the gross estate.
• Here, the value of the decedent’s interest is included in the value of the gross estate.
o They are deductions from the gross estate
▪ SUBJECT to the condition that the full amounts of the receivables are first
included in the gross estate
• The deduction ofrm the gross estate will be the uncollectible portion.
• Insolvent Persons are those defined under FRIA (R.A. 10142) and other existing laws.
o Insolvent shall refer to the financial condition of a debtor that is generally unable to
pay its or his liabilities as they fall due in the ordinary course of business or has
liabilities that are greater than its or his assets. ( R.A 10142)
UNPAID MORTHGAES OR INDEBTEDNESS ON PROPERTY
SEC. 86. Computation of Net Estate. (A) Deductions Allowed to the Estate of Citizen or a Resident.
(4) For unpaid mortgages upon, or any indebtedness in respect to, property where the value of
decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the
value of the gross estate, but not including any income tax upon income received after the death
of the decedent, or property taxes not accrued before his death ( accrued after death), or any estate
tax.
The deduction herein allowed in the case of claims against the estate, unpaid mortgages or
any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that
they were contracted bona fide and for an adequate and full consideration in money or money’s
worth. There shall also be deducted losses incurred during the settlement of the estate arising
from fires, storms, shipwreck, or other casualties, or from robbery, theft, or embezzlement, when
such losses are not compensated for by insurance or otherwise, and if at the time of the filing of
the return such losses have not been claimed as deduction for the income tax purposes in an income
tax return, and provided that such losses were incurred not later than the last day for the payment
of the estate tax as prescribed in Subsection (A) of Section 91.
• The mortgage or indebtedness will be claimed as a deduction from the gross estate.
• If the loan is merely an accommodation loan, where the proceeds of the loan went to another
person, the value of the unpaid loan must be included in the receivable of the estate. (R.R.
12-2018)
• For 1) claims against insolvent persons and 2) unpaid mortgage/ indebtedness on property,
the values of each must first be added to the gross estate.
o These are called zero-sum computations. They do not really benefit the heirs because
these transactions were not supposed to be part of the gross estate anyway. Note that
the value of the property undiminished by the mortgage must be included in the gross
estate. (R.R. 12-2018)
o Taxes are deductions from the gross estate if such taxes accrued PRIOR to the
decedent's death. (R.R.12-2018)
o Those that accrued after the decedent's death are not deductions from gross estate.
These taxes can NOT be deducted:
▪ Income tax on income received after death
 ▪ Property taxes not accrued before death
▪ Estate tax
LOSSES
SEC. 86. Computation of Net Estate. (A) Deductions Allowed to the Estate of Citizen or a
Resident. (4) Paragraph 2. 2nd sentence. – There shall also be deducted losses incurred during the
settlement of the estate arising from fires, storms, shipwreck, or other casualties, or from robbery,
theft, or embezzlement, when such losses are not compensated for by insurance or otherwise, and
if at the time of the filing of the return such losses have not been claimed as deduction for the
income tax purposes in an income tax return, and provided that such losses were incurred not later
than the last day for the payment of the estate tax as prescribed in Subsection (A) of Section 91.
• Losses are deductible from the gross estate if:
o Arising from fire, storm, shipwreck, or other casualty, robbery, theft or
embezzlement;
o Not compensated by insurance or otherwise;
o Not claimed as a deduction in an income tax return of the estate subject to income
tax;
o Occurring during the settlement of the estate; and
o Occurring before the last day for the payment of the estate tax (one year after the
decedent's death, or the allowed extension).
VANISHING DEDUCTIONS
SEC. 86. Computation of Net Estate. (A) Deductions Allowed to the Estate of Citizen or a Resident.
(5) Property Previously Taxed. - An amount equal to the value specified below of any property
forming part of the gross estate situated in the Philippines of any person who died within five (5)
years prior to the death of the decedent, or transferred to the decedent by gift within five (5) years
prior to his death, where such property can be identified as having been received by the decedent
from the donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or which
can be identified as having been acquired in exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1)
year prior to the death of the decedent, or if the property was transferred to him by gift,
within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year
but not more than two (2) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years
but not more than three (3) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years
but not more than four (4) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
 Twenty percent (20%) of the value, if the prior decedent died more than four (4) years
but not more than five (5) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
These deductions shall be allowed only where a donor's tax or estate tax imposed under this
Title was finally determined and paid by or on behalf of such donor, or the estate of such prior
decedent, as the case may be, and only in the amount finally determined as the value of such
property in determining the value of the gift, or the gross estate of such prior decedent, and only
to the extent that the value of such property is included in the decedent's gross estate, and only to
the extent that the value of such property is included in the decedent’s gross estate, and only if in
determining the value of the estate of the prior decedent, no deduction was allowable under
paragraph (5) in respect of the property or properties given in exchange therefor. Where a
deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then
the deduction allowable under said Subsection shall be reduced by the amount so paid. Such
deduction allowable shall be reduced by an amount which bears the same ratio to the amounts
allowed as deductions under paragraphs (2), (3), (4) and (6) of this Subsection as the amount
otherwise deductible under said paragraph (5) bears to the value of the decedent's estate. Where
the property referred to consists of two or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.
Section 86. – (A)(5). – Property Previously Transferred:
A. Sources of property
a. Property which was part of the gross estate situated in the PH of any person who died
5 years before the death of the decedent
i. “within 5 years prior to decedent’s death”
b. Transferred to the decedent via gift within 5 years prior to his death
B. Identification of property:
a. Received by the decedent from the donor by gift
b. Received from a prior decedent by gift, bequest, devise or inheritance
c. That which was acquired in exchange to the property so received.
C. Amount of allowable deduction:
• 100% of the value
o Condition:
▪ Prior decedent died 1 year prior to the death of the decedent; or
▪ If the property was transferred to him by gift within the same period prior
to his death.
• 80% of the value of such transferred ( gifted) property:
o Condition:
▪ Prior decedent died more than 1 year but not more than 2 years prior to the
death of the decedent; or
▪ If the property was transferred to him by gift within the same period prior
to his death.
• 60%
o Condition
▪ Transferred to decedent more than 2 years but not more than 3 years; or
 ▪ If the property was transferred to him by gift within the same period prior
to his death
• 40%
o Condition:
▪ More 3 years but not more than 4 years prior to the death of the decedent;
or
▪ If the property was transferred to him by gift within the same period prior
to his death
• 20% of the value
o Condition
▪ More than 4 years but not more than 5 years prior to the death of the
decedent; or
▪ If the property was transferred to him by gift within the same period prior
to his death
D. Condition for effectivity of (C.)
a. Where a donor’s or estate tax was finaly determined and paid by or on behalf of such
donor or estate of such prior decedent
b. Only in the amount finally determined as the value of such property
c. Only to the extent that the value of such property is included in the decedent’s gross
estate
d. Only if in determining the value of the estate of the prior decedent, no deduction was
allowable under par. 5 in respect of the property or properties gi=given in exchange
therefor.
E. CONCEPT OF VANISHING DEDUCTIONS ( PROPERTY PREVIOUSLY TAXED)
a. Purpose – to minimize the effects of a double tax on the same property within a short
period of time.
b. Conditions for allowance:
i. There is a property forming a part of the gross estate of the present decedent
situated in the Philippines;
ii. The present decedent acquired the property by inheritance or donation within
5 years prior to his death;
iii. The property subject to vanishing deduction can be identified as the one
received from the prior decedent, or from the donor, or can be identified as
having been acquired in exchange for the property so received;
iv. The property acquired formed part of the gross estate of the prior decedent, or
of the taxable gift of the donor;
v. The estate tax on the prior transfer or the gift tax on the gift must have been
paid; and
vi. The estate of the prior decedent has not previously availed of the vanishing
deduction.
c. Percentage of vanishing deduction – the rate depends on the interval between the
death of present decedent and death of prior decedent (if the property was acquired
by inheritance) or death of present decedent and date of gift (if the property was
acquired by donation).
F. INGLES VANISHING DEDUCTIONS CONDITIONS:
 a. The present decedent died within five years from receipt of the property from a prior
decedent or donor
b. The property on which the vanishing deduction is being claimed must be located in
the Philippines;
c. The property must have formed part of the taxable estate of the prior decedent, or of
the taxable gift of the donor;
d. The estate tax on the prior succession or the donor's tax on the gift must have been
finally determined and paid;
e. The property must be identified as the one received from the prior decedent or donor,
or something acquired in exchange therefore;
f. No vanishing deduction on the property was allowable to the estate of the prior
decedent.
G. HOW DO WE COMPUTE?
a. Get the basis. Either the
i. value of the property in the prior estate
ii. value used for donor's tax purposes
iii. the value of the property in the present estate, whichever is LOWER.
b. The Step 1 value will be reduced by any payment made by the present decedent on
any mortgage or lien on the Property (when such mortgage/lien was used as a
deduction On the prior decedent’s estate, or gift of the donor)
c. Step 2 value shall be further reduced by:
𝑆𝑡𝑒𝑝 2 𝑣𝑎𝑙𝑢𝑒
X 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠, 𝑙𝑜𝑠𝑠𝑒𝑠, 𝑖𝑛𝑑𝑒𝑏𝑡𝑒𝑑𝑛𝑒𝑠𝑠, 𝑡𝑎𝑥𝑒𝑠 𝑎𝑛𝑑 𝑡𝑟𝑎𝑛𝑠𝑓𝑒𝑟𝑒𝑠 𝑓𝑜𝑟 𝑝𝑢𝑏𝑙𝑖𝑐 𝑢𝑠𝑒
𝐺𝑟𝑜𝑠𝑠 𝑒𝑠𝑡𝑎𝑡𝑒
d. Final Formula :{ [(Basis for vanishing deduction – mortgage or lien on property)/gross
estate] x Allowable deduction under par 2 } x percentage of allowable deductions.
i. a - Value of property
ii. b – mortgage/lien on property
iii. c – ratio of allowable deduction under 1 and 3 under par 2 to the value to the
value of decedents estate
iv. GE- gross estate
v. r – rate of vanishing deduction
(𝑎−𝑏 )
vi. formula: ( × 𝑐) × 𝑟
𝐺𝑆

TRANSFERS FOR PUBLIC USE

SEC. 86. Computation of Net Estate. (A) Deductions Allowed to the Estate of Citizen or a Resident
(6) Transfers for Public Use. - The amount of all the bequests, legacies, devises or transfers to or
for the use of the Government of the Republic of the Philippines, or any political subdivision
thereof, for exclusively public purposes.
• Deduct the value of the property transferred to the government
• In last will and testament or transfer to take effect after the death

FAMILY HOME
(7) The Family Home. - An amount equivalent to the current fair market value of the decedent's
family home: Provided, however, That if the said current fair market value exceeds Ten million
pesos (P10, 000,000),[72] the excess shall be subject to estate tax.
• The allowable deduction is the amount equivalent to the current FMV of the family home.
0 But the maximum amount you can deduct is P10,000,000. The family home follows the
definition of the Family Code: it's the dwelling house (including the land where it's situated),
where the husband and wife, or a head of the family, and members of their family reside.
It's deemed constituted on the house and lot from the time it's actually occupied as a family
residence and considered as such for as long as any of its beneficiaries actually resides
therein. However, actual occupancy shall not be considered interrupted or abandoned in
such cases as the temporary absence from the constituted family home due to travel or
studies or work abroad. O The family home is generally characterized by permanency, A
person may only constitute only one family home. (R.R. 12. 2018) O Head of the family is an
unmarried or legally separated man or woman with one or both parents, or with one or more
brothers or sisters, or with one or more legitimate, recognized natural or legally adopted
children living with and dependent upon him or her for their chief support, where such
brothers of sisters or children are not more than 21 years old, unmarried and not gainfully
employed or where such children, brothers or sisters, regardless of age are incapable of self-
support because of mental or physical defect, or any of the beneficiaries mentioned in Article
154 of the Fam Code who is living in the family home and dependent upon the head of the
family for legal support. Requisites for deducting the family home: O Must be the actual
home of the decedent and his family at the time of his death, as certified by the Barangay
Captain of the locality; O Total value of the family home must be included as part of the
gross estate (zero-sum!); and O Deduction equivalent to current FMV, or the extent of the
decedent's interest (whether conjugal/community of exclusive property), whichever is lower,
but not exceeding P10,000,000. (R.R.12-2018) For a person married at the time of death,
and who was under a system of conjugal partnership or absólute community, the deduction
for the family home is 1/2 of the FMV, but should not exceed P10,000,000, if such family
home was conjugal property or community property.
AMOUNTS RECEIVABLE UNDER R.A. 4917
(8) Amount Received by Heirs Under Republic Act No. 4917 . – Any amount received by the heirs
from the decedent’s employee as a consequence of the death of the decedent-employee in
accordance with Republic Act No. 4917: Provided, That such amount is included in the gross estate
of the decedent.
• Retirement benefits received by employees of private firms in accordance with a reasonable
benefit plan maintained by the employer are EXEMPT from all taxes, provided that the
retiring employee has been in the services of the same employer for at least 10 years and is
not less than 50 years old at the time of his retirement. The amount must:
o have been received by the heirs of the decedent-employee as a consequence of the
latter's death,
o and included in the gross estate of the decedent.
• "REASONABLE PRIVATE BENEFIT PLAN" means a pension, gratuity, stock bonus or
profit sharing plan maintained by an employer for the benefit of some or all of his officials
and employees, wherein contributions are made by such employer or officials and
 employees, or both, for the purpose of distributing to such officials and employees the
earnings and principal of the fund thus accumulated, and wherein it is provided in said plan
that at no time shall any part of the corpus or income of the fund be used for, or be diverted
to, any purpose other than for the exclusive benefit of the said officials and employees.

NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL PARTNERSHIP

Section. 86. (C) Share in the Conjugal Property . - The net share of the surviving spouse in the
conjugal partnership property as diminished by the obligations properly chargeable to such
property shall, for the purpose of this Section, be deducted from the net estate of the decedent.
• Formula for computation of NHE:
o Gross estate ( value of property left) – debts and charges ( excluding legacies and
devices) + value of all collationable donations inter vivos = NHE ( charge or imputable
donations, other donations charged to free disposal)

ALLOWABLE DEDUCTIONS FOR NON-RESIDENT NON- CITIZEN ESTATES (NR-NCE)

SECTION 86. (B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a
citizen of the Philippines, by deducting from the value of that part of his gross estate which at the
time of his death is situated in the Philippines:
• FORMULA: Gross Estate – Properties not located in the Philippines
• Included only properties situated in the Philippines
(1 )Standard Deduction. – An amount equivalent to Five hundred thousand pesos
(P500,000.00);
• Standard deduction of P 500k
o Automatically deduct from the gross estate
o Formular: Gross estate – ( Properties not located in Ph + P 500k standard
deduction)
(2 )That proportion of the deductions specified in paragraphs (2), (3), (4) of Subsection (A) of
this Section which the value of such part bears to the value of his entire gross estate
wherever situated;
(4) Transfers for Public Use. - The amount of all bequests, legacies, devises or transfers to or
for the use of the Government of the Republic of the Philippines or any political subdivision
thereof, for exclusively public purposes.
• Non-resident Alien decedent
o Has properties within and without the Philippines
o Subject to tax only with his/her property within the Philippines
• Allowable deductions:
o Standard deduction of P 500K
o The proportion of the total losses and indebtedness which the value of such part bears
to the value of his entire gross estate wherever situated. This includes:
▪ Claims against the estate
▪ Claims against insolvent persons
 ▪ Unpaid mortgages, taxes, and casualty losses
o Vanishing deductions
o Transfer for public use
o Net share of the surviving spouse in the conjugal property or community property.
• Allowable deductions for the proportion of total losses and indebtedness, formula”
𝐺𝑠𝑃𝐻
o 𝑊𝐺𝑆 𝑥 𝐶𝐴𝐸+𝐶𝐼𝑃+𝑈𝑀+𝑇+𝐶𝐿
(3 )Property Previously Taxed.- An amount equal to the value specified below of any property
forming part of the gross estate situated in the Philippines of any person who died within
five (5) years prior to the death of the decedent, or transferred to the decedent by gift within
five (5) years prior to his death, where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior decedent by gift, bequest,
devise or inheritance, or which can be identified as having been acquired in exchange for
property so received:
• gross estate situated in the Philippines of any person who died 5 years ( within 5 years)
prior to the death of the decedent
• source of property
o Identified as part of the gross estate situated in the Ph of the transferor
o Transferred to the decedent by gift within 5 yrs prior to his/her death
▪ Identification of property:
• Received by the decedent from the donor by gift
• Received from prior decedent by gift, bequest, devise or inheritance ;
or
• Acquired in exchange for property so received.
One hundred percent (100%) of the value if the prior decedent died within one (1) year prior
to the death of the decedent, or if the property was transferred to him by gift, within the
same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not
more than two (2) years prior to the death of the decedent, or if the property was transferred
to him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not
more than three (3) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but
not more than four (4) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but
not more than five (5) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death.
These deductions shall be allowed only where a donor's tax, or estate tax imposed under this Title
is finally determined and paid by or on behalf of such donor, or the estate of such prior decedent,
as the case may be, and only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent, and only to the extent
that the value of such property is included in that part of the decedent's gross estate which at the
time of his death is situated in the Philippines; and only if, in determining the value of the net
estate of the prior decedent, no deduction is allowable under paragraph (2) of Subsection (B) of this
Section, in respect of the property or properties given in exchange therefore. Where a deduction
was allowed of any mortgage or other lien in determining the donor's tax, or the estate tax of the
prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction
allowable under said paragraph shall be reduced by the amount so paid. Such deduction allowable
shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions
under paragraphs (1) and (3) of this Subsection as the amount otherwise deductible under
paragraph (2) bears to the value of that part of the decedent's gross estate which at the time of his
death is situated in the Philippines. Where the property referred to consists of two (2) or more
items, the aggregate value of such items shall be used for the purpose of computing the deduction.
• Condition for applicability of deduction
o Donor’s tax or estate tax imposed is finally determined and paid by or on behalf of
the donor
o only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent, and
only to the extent that the value of such property is included in that part of the
decedent's
▪ yung estate ng prior decedent, yung included lang sa gross estate ng
decedent yung finally determined yung value ay only to the extent ng estate
ng prior decedent
o if, in determining the value of the net estate of the prior decedent, no deduction is
allowable under paragraph (2) of Subsection (B) of this Section, in respect of the
property or properties given in exchange therefore
• Where deduction is allowed upon property of prior decedent

NET ESTATE COMPUTATION OF MARRIED PERSONS

SECTION 85. (H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a
decedent shall not, for the purpose of this Chapter, be deemed a part of his or her gross estate.
SECTION 86. (C) Share in the Conjugal Property . - The net share of the surviving spouse in the
conjugal partnership property as diminished by the obligations properly chargeable to such
property shall, for the purpose of this Section, be deducted from the net estate of the decedent.
• Talks about Net share of the spouse. Note: as diminished by the obligations properly
chargeable to such property

GROSS ESTATE
• The gross estate of the decedent who was married and who was under the system of absolute
community of property ot conjugal property of gains during the marriage consists of
o Exclusive properties of the decedent;
o Community properties
 • Exclusive properties
o Property acquired during the marriage by gratuitous title (inheritance/donation) by
either spouse and the fruits as well as the income thereof.
▪ Unless the donor, testator, or grantor states that they will be part of the
community property
o Property for personal and exclusive use of either spouse
▪ Jewelry will for part of the community property
o Property acquired BEFORE the marriage by either spouse who has legitimate
descendants by a former marriage and the fruits as well as the income of such
property.
• Community Property
o All properties owned by the spouses at the time fo the celebration of the marriage or
acquired thereafter (presumed to belong to the community)
• The family home constituted by the husband and wife is community property
o Proceeds of life insurance taken out by the decedent on his own life, when includible
in the gross estate, will be exclusive property if the premiums were paid out of
exclusive funds
o They will be community property if the premiums were paid out of community funds.

DEDUCTIONS FROM GROSS ESTATE = SAME FROM A

EXEMPTION FROM ESTATE TAX

SEC. 87 Exemption of Certain Acquisitions and Transmissions. –-The following shall not be taxed:
A. The merger of usufruct in the owner of the naked title;
B. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary;
C. The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and
D. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which inures to the benefit of any individual:
Provided, however, That not more than thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used by such institutions for administration purposes.
ALSO:
• Irrevocable life insurance to someone other than the estate, administrator, or executor;
• GSIS/SSS benefits;
• Retirement benefits of private firms approved by the BIR; and
• Separate property of the surviving spouse.
TAX CREDIT PAID TO FOREIGN COUNTRY
SECTION 86 (D) Tax Credit for Estate Taxes paid to a Foreign Country. -
(1 )In General. - The tax imposed by this Title shall be credited with the amounts of any estate
tax imposed by the authority of a foreign country.
• Credit – add ( any amount of money ) to an account
(2 )Limitations on Credit. - The amount of the credit taken under this Section shall be subject
to each of the following limitations:
a) The amount of the credit in respect to the tax paid to any country shall not exceed the
same proportion of the tax against which such credit is taken, which the decedent's net
estate situated within such country taxable under this Title bears to his entire net estate;
and
b) The total amount of the credit shall not exceed the same proportion of the tax against
which such credit is taken, which the decedent's net estate situated outside the
Philippines taxable under this Title bears to his entire net estate.

• To minimize the onerous effect of taxing the same property twice, a tax credit against
Philippine estate tax is allowed for estate taxes paid to foreign countries.
o One foreign country
o What you paid to the foreign country
Tax Credit Limit = Net Foreign Estate X Tax here in Philippines
Entire foreign estate
• Between what you paid to the foreign country and the tax credit limit here, you choose
whatever is lower as what you can credit.
• Limitation B: Tax Credit Limit = Total Foreign Net Estate X Tax here in Philippines
Entire Net Estate
• Between the two, choose whatever is lower.