1 Page J.A.

Villanueva, CPA

DEDUCTIONS FROM GROSS ESTATE SUMMARY OF ALLOWABLE DEDUCTION FROM GROSS ESTATE
DECEDENT
DEDUCTION
Resident/Citizen Nonresident Alien
There are charges which naturally diminish the amount of the
A. Ordinary Deductions
inheritance of the heirs. RR 12-2018 in relation to sections 86(A) and 1. LITE Allowed Allowed*
86(B) of the Tax Code as amended under TRAIN Law, allows 2. Vanishing Deduction Allowed Allowed
deductions from the gross estate to arrive at the taxable net estate 3. Transfer for Public Use Allowed Allowed
B. Special Deductions
which is used as a basis in determining the applicable estate tax due.
1. Standard Deduction Allowed (5M) Allowed (500K)
2. Family Home Allowed NA
Classification of Deductions: 3. RA 4917 Allowed NA

1. Ordinary Deductions: C. Share of the Surviving Spouse Allowed Allowed

These conceptually include items which diminish the

amount of the inheritance.
Exception: Property Previously Taxed/Vanishing General Principles of Deductions from Gross Estate:
Deduction 1. Substantiation Rule:
2. Special Deductions: As a rule, items of deduction must be supported with
These are items which do not reduce the inheritance but documentary evidence to establish their validity.
are nonetheless allowed by the law as incentive deductions 2. Matching Principle:
against gross estate in the determination of the net taxable As a rule, items of deduction must pertain to properties that
estate. are part of the gross estate.
3. Share of the Surviving Spouse: 3. No Double Classification Rule:
This is applicable only to married decedents as it pertains Items of deduction cannot be claimed simultaneously under
to share of the surviving spouse in the net common properties several deduction categories.
of the spouses. 4. Default presumption on Ordinary Deductions:
In the case of married decedents, ordinary deductions are
presumed to be against the common properties unless proven
to be against an exclusive property of either spouse.

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Transfer and Business Taxation: Valencia and Roxas Relevant Revenue Regulations Related Laws
2 Page J.A. Villanueva, CPA

ORDINARY DEDUCTIONS: iv. The debt must not have been condoned by the
1. LITe (Losses, Indebtedness, Taxes, etc.) creditor or the action to collect from the decedent
a. Losses must not have been prescribed.
It shall pertain to casualty losses arising from acts of God
and acts of man. Classification Rules for Claims against the Estate:
• Family benefit rule
Requisites for Deductibility: If the obligation was contracted or incurred for the
i. Arising exclusively from acts of God and/or acts of benefit of the family, the claim shall be classified
man as deduction against common property. Otherwise,
ii. Not compensated by insurance the property classification rule shall be applied.
iii. Not claimed as deduction in an income tax return Property classification rule
of the estate Claims follow the classification of the relevant
iv. Incurred during the settlement period of the estate property.
(within 1 year from the date of death).
*For substantiation requirements, refer to RR 12-2018
b. Indebtedness or Claims against the Estate *It includes unpaid mortgages on properties included in
Claims is generally construed to mean debts or demands the gross estate which are contracted in good faith and
of a pecuniary nature which could have been enforced for adequate and full consideration.
against the deceased in his lifetime and could have been
reduced to simple money judgements. c. Taxes
These are unpaid taxes that accrued prior to the death of
Requisites for Deductibility: the decedent.
i. The liability represents personal obligation of the
deceased existing at the time of his death d. Claims Against Insolvent Persons
ii. The liability was contracted in good faith and for These are receivables due from persons who are not
adequate and full consideration in money or financially capable of meeting their obligations. These are
money's worth claims by the decedent during his lifetime that are not
iii. The liability must be a debt or claim which is valid collectible.
in law and enforceable in court

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Requisites for Deductibility: d. Inclusion of the Property- the property must have
i. The incapacity of the debtor to pay his obligation included in the gross estate of the prior decedent or gross
should be proven; gift of the donor.
ii. The full amount owed by the insolvent person must e. Previous Taxation on the Property- the estate/donor's tax
be included in the decedent's gross estate and the on prior succession/donation must have paid.
amount uncollectible shall be allowed as a f. No previous vanishing deduction on the property- No
deduction; and Vanishing Deduction was allowed in determining the
iii. If the insolvent could only pay partial amount, the value of the net estate of the prior decedent.
full amount owed shall be included in the gross
estate, and the amount uncollectible shall be Initial Value XX
allowed as a deduction. Mortgage Paid by the CD (XX)
Initial basis (IB) XX
2. TRANSFER FOR PUBLIC USE
Proprtional deduction
It includes all the amount of bequests, legacies, devises, or [(IB/GE)*(OD excp VD) (XX)
transfer to or for the use of the government of the Republic of Final Basis XX
the Philippines, or any of its political subdivision thereof, for Multiply by VD rate %%
the exclusive public purpose. Vanishing Deductions XX

3. VANISHING DEDUCTIONS (PROPERTY PREVIOUSLY Initial value is whichever is lower between the value of the
TAXED)
property:
In the gross estate of the prior decedent or in gross gift of the
Requisites for Deductibility: donor; and
a. Death- the present decedent died within 5 years from the
► In the gross estate of the present decedent.
date of death of the prior decedent or date of gift. VD Rates
b. Identity of the Property- the property with respect to Period Rate
which deduction is sought can be identified as the one %
Within 1 year
received from the prior decedent, or from the donor, or
Beyond 1 year to 2 years 80%
as the property acquired in exchange for the original
Beyond 2 Years to 3 years 60%
property so received. Beyond 3 years to 4 years 40%
C. Location- the property must be located in the Philippines.
Beyond 4 years to 5 years 20%

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Transfer and Business Taxation: Valencia and Roxas Relevant Revenue Regulations Related Laws
4 Page J.A. Villanueva, CPA

SPECIAL DEDUCTIONS: NET SHARE OF THE SURVIVING SPOUSE:

1. STANDARD DEDUCTION This is equal to the 50% of the Common Properties after
This amount shall be allowed as an additional deduction without deducting Common Ordinary Deductions.
need of substantiation.
Resident/Citizen- P5,000,000
Nonresident Alien- P500,000

2. FAMILY HOME

The amount of family home allowable as a deduction would be

whichever is lower of P10,000,000 or the fair market value at
the time of the decedent's death, of the family home and the
land on which it stands.

Requisites for Deductibility:

a. The decedent was married or if single, was the head of
the family.
b. The family home as well as the land on which it stands
must be owned by the decedent.
C. The family home must be the actual residential home of
the decedent and his family at the time of his death, as
certified by the Brgy. Captain of the place where the
family home is situated.
d. Allowable deduction must not exceed P10,000,000.

3. AMOUNTS RECEIVED BY HEIRS UNDER RA 4197

Any amount received by heir/s from the decedent's employer

as a consequence of the death of the decedent-employee in
accordance with RA 4197, provided such amount is included as
part of the gross estate of the decedent.

Business and Transfer Taxation: Banggawan Transfer and Business Taxation: Tabag and Garcia National Internal Revenue Code as Amended
Transfer and Business Taxation: Valencia and Roxas Relevant Revenue Regulations Related Laws