Co-ownership - when 2 or more heirs or
beneficiaries inherit an undivided property
from a decedent, or when a donor makes a
gift of an undivided property in favor of two
or more donees.
Co ownership may exists
Inheritance Estate tax
Donation Donor's tax
Both are classified as TRANSFER TAXES.
But income from such properties are
subject to INCOME TAXES.
 Co-owners are taxed individually on
their distributive share in the income of
the co-ownership. The co-ownership
itself is not taxable.
 When inherited property remained
undivided for more than 10 years and
no attempt was ever made to divide
the same among the co-heirs, nor was
the property under administration
proceedings not held in trust, the
property should be considered as
owned by an unregistered general
partnership, consequently, taxable as
corporation.
Illustration
A, B and C are the heirs of Benny who
(Benny) died on April 2019. The properties
of Benny comprised solely of real property
located in Imus, Cavite, valued at
P50,000,000 as the highest of the
acquisition cost in 1990, zonal value and
fair market value, at the time of his death.
The property is primarily deriving its net
rental income of P10,000 per each tenants
per month. The property holds 150
tenants. In February 25,2020, the property
remained undivided.
Questions:
1. Is the property considered as co-
ownership or not? Yes, there are 3
beneficiaries who inherit an undivided
property.
2. What amount should be reported as
taxable income of the co-ownership? Zero.
Co-ownership is not taxable.
3. What amount should each heir report in
their individual returns for the year 2020,
assuming that it was only February 25,
2020 that the accumulated net rental
income is distributed, as their share in the
net rental income of the income of the
property they inherited? 5,000,000
Estate
Income tax of an estate refers to the
tax on income received by the estate
during the period of administration or
settlement.
The properties and the income which
accrues, from the time of period of
enjoyment of life up to the death, will form
part of the Gross Estate of the deceased
person subject to estate tax.
Income from the properties of the
deceased person, from the period of
administration or settlement up to the
period of actual settlement or if the estate
is already settled, will form part of the
GROSS INCOME of the ESTATE.
 Administration or settlement period
refers to the period when the
properties left by a decedent is not yet
finally transferred to heirs/beneficiaries
 While under administration, the estate
may earn income, thus, the
corresponding income tax should be
paid.
Applicable Tax Trusts
Income Tax Right on property, real or personal,
< 250,000 Exempt held by one party for the benefit of another.
>250,000, 15% excess over 250,000 Trusts agreements allows individuals
<400,000 to create sustained benefits for an
>400,000, 22,500 + 20% excess of individual entity
<800,000 400,000
>800,000, 102,500+25% of excess over Parties to a trust
<2,000,000 800,000  Trustor/Grantor-person who establish
>2,000,000 402,500+30% of excess over a trust
, 2,000,000  Trustee - one whom confidence is
<8,000,000 reposed as regards property for the
>8,000,000 2,202,500+355 of excess benefit of another
over 8,000,000  Beneficiary - person whose benefit
trust is created
Deductions from estate gross income  Fiduciary - any person or corporation
that holds in trust an estate of another
Gross income xx person or persons. Fiduciary may exist
Less: Deduction only if a legal trust is created.
Business expenses xx
Special Deduction Income of a trusts may be taxable to the
Distribution's of the estate income of heir trustee, beneficiary or grantor.
or beneficiaries xx
(taxable income of legatee/heir Trust is taxable to
/beneficiaries) 1. Trustee if
Taxable income of the estate xx  The income to be accumulated or held
Tax Due xx for future distribution whether ordinary
income or gain from sale of assets
Illustration included in the corpus of the trust
Karl died 2 years ago leaving an  Income of a trust administered in a
undivided property deriving income from foreign country is taxable to the trustee
rentals. His heirs were Ace and Levi. The 2. Grantor if
property is under administration through  If it is a revocable trust
the decedent's executors. The following  The income of trust, shall be applied
data were provided in 2019. for the benefit of the grantor
Rental income of the estate 800,000 3. Beneficiaries
Deductible operating expenses 420,000  If the income is to be distributed to the
beneficiaries and is irrevocable trust
Gross Income 800,000  The distribution of the year's income to
Deduction: Business expenses 420,000 an heir or beneficiary is a special item
Taxable income of the estate 380,000 of deductionn for the trust
 At the same time, special item of
Over 250,000 but not over 400,000 income to the heir/beneficiary
In excess of P250,000= 130,000 x 15%
Tax Due 19,500