Deductions from Gross

Estate
Resident Citizen, Non-Resident Citizen,
Resident Alien
1. Expenses, losses, indebtedness and taxes Under Train Law
a. Funeral expenses Deleted/Repealed
b. Judicial expenses of the testamentary/intestate proceedings Deleted/Repealed
c. Claims against the estate Ok
d. Claims of the deceased against insolvent persons Ok
e. Unpaid mortgages/indebtedness Ok
f. Unpaid taxes Ok
g. Casualty losses Ok
2. Property previously taxed or vanishing deduction Ok
3. Transfer for public use Ok
4. Family home
5. Standard deduction equivalent to one million pesos (P1,000,000) Should be
5,000,000
6. Medical Expenses Repealed

7. Amount received by heirs under Republic Act 4917 ok

8. Net share of surviving spouse in the conjugal partnership or community property. ok

Claims Against the Estate
• It is an obligation contracted by the decedent when he was alive which he should
have settled or paid during his lifetime. But because he died without paying the
obligation and because said obligation is not terminated by his death, his estate is
being allowed to deduct the claim so that his creditor, in turn, may collect from the
estate.
• The word “claim” is generally construed to mean 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 judgments.
• It is indebtedness in respect of property may arise out of: contract, tort or
operation of law.
 Requisites for Deductibility
✔ The liability represents a personal obligation of the deceased existing at the time of
his death except unpaid obligations incurred incident to his death such as unpaid
funeral expenses and unpaid medical expenses;
✔ The liability was contracted in good faith and for adequate and full consideration
in money or money’s worth.
✔ The claim must be a debt or claim which is valid in law and enforceable in court.
✔ The indebtedness must not have been condoned by the creditor or the action to
collect from the decedent must not have prescribed.
✔ Substantiation requirements have to be complied with
 Illustration:
Mr. Manglapus during the lifetime obtained a loan of P500,000 from Mr. X.
The debt instrument was duly notarized. A year after, Mr. Manglapus died with
the loan unsettled.

Answer:
✔ The full amount of loan may be deducted from the gross estate of Mr. Manglapus.
✔ However, if the loan was obtained within the three year period , the administrator or executor
of the estate must submit a statement of disposition of the loan proceeds.
Claims Against Insolvent Persons
• The decedent-creditor during his lifetime must have lent another
person-debtor, a certain sum of money. Here, the creditor dies unable to
collect from the debtor because of the debtor’s insolvency. Although the
creditor’s death does not extinguish the right of his estate to collect from his
debtor, the estate is being allowed a deductible for the claim because of the
hopelessness of collection from the debtor by the estate.
Rev. Reg. 12-2018
Under Section 6(3) of RR 12-18 allowed as deductions are Claims of the Deceased Against
Insolvent Persons as defined under R. A. 10142 or the Financial Rehabilitation and Insolvency Act
of 2010 and other existing laws, where the value of the decedent’s interest therein is included in
the value of the gross estate.
• For claims of the deceased against the insolvent persons to be deductible,
the full amount of the claim must be included in the gross estate. The
incapacity of the debtors too pay their debts due to insolvency must be
proven. The amount of receivable which is uncollectible may be allowed as a
deduction from the gross estate.
Illustration
• Mr. Manglapus’s estate has a claim of P600,000 against Mr. X, a debtor
declared insolvent. Mr. X’s assets are worth P3M while his liabilities P9M
Answer: The full amount of the claim of P600,000 must be included in the gross estate. The
proportionate amount of P200,000 (P600,000 x P3M/P9M) is still collectible. The amount
deductible from the gross estate is P400,000. (P600,000 – P200,000).
 Unpaid Mortgages (Under train law, being lump together with unpaid
taxes and casualty losses)

✔ It exists when the decedent leaves property encumbered by mortgage.

✔ For unpaid mortgage to be deductible, the fair market value of the property
mortgaged must be included in the gross estate in full.
✔ The unpaid mortgage deductible shall be to the extent that it was contracted
bona fide and for an adequate and full consideration in money or money’s
worth.
• In case unpaid mortgage payable is being claimed by the estate, verification must
be made as to who was the beneficiary of the loan proceeds:
if the loan is found to be merely an accommodation loan where the proceeds
went to another person, the value of the unpaid loan must be included as a
receivable of the estate.
if there is a legal impediment to recognize the same as receivable of the estate,
said unpaid obligation/mortgage payable shall not be allowed as a deduction
from the gross estate.
in all instances, the mortgaged property, to the extent of the decedent’s interest
therein, should always form part of the gross taxable estate.
Illustration
• Mr. Manglapus mortgaged his house and lot to Banco Filipino for P1.5
million. He died having paid only 50% of the mortgage loan. The fair
market value of the mortgaged house at the time of his death is P2.5 million.
Answer: The fair market value of the mortgaged house, which is P2.5 million shall form part of the
gross estate. The unpaid mortgage of P750,000 shall be allowed as deduction
Unpaid Taxes (Under train law, being lump together with unpaid mortgages
and casualty losses)

• These are taxes which have accrued as of the death of the decedent but
which were unpaid as of the time of death. This deduction will not include:
✔ Income tax upon income received after death
✔ property taxes not accrued before his death, or
✔ estate tax due from the transmission of his estate.
• The above-mentioned taxes shall be chargeable against the income of the
estate because the same accrue after the death of the decedent.
Illustration
• On April 15, 2015, Mr. Manglapus while on his way to the BIR to file his
income tax return and pay the tax payable of P20,000 for calendar year 2014,
figured in a car accident and died.
• Since the income tax which Mr. Manglapus was supposed to pay the day he
died had accrued before his death, the same shall be allowed as deduction
from his gross estate in full.
 Casualty Losses (Under train law, being lump with unpaid mortgages and
unpaid taxes)

✔ There shall also be deducted losses incurred during the settlement of the estate arising
from
❖ fires, storms, shipwreck, or other casualties, or
❖ robbery, theft or embezzlement
✔ Subject to the following conditions that such losses:
1. are not compensated for by insurance or otherwise;
2. at the time of the filing of the return, have not been claimed as a deduction for income
tax purposes in an income tax return; and
3. were incurred not later than the last day for payment of the estate tax.
Illustration
Five months after Mr. Manglapus died and the estate was being settled, a house which he
owned and which was appropriately declared as forming his gross estate was totally destroyed
by fire. The house which had a fair market value of P1.5 million at the time of death was not
compensated for by insurance.
If the loss has not been claimed as deduction for income tax purposes, the fire loss
equivalent to the fair market value of the house or P1.5 million shall be deductible from the
gross estate. This is so because all the other necessary conditions have been met.
Assuming that the fire loss occurred during the settlement of the estate but beyond the
six-month period during which the estate tax is supposed to be paid, the loss shall not be
deductible.
Property Previously Taxed or Vanishing
Deduction
• The Tax Code also allows as deduction from the gross estate certain amount
pertaining to property previously taxed (PPT).
• This is also referred to as vanishing deduction.
• This deduction is being allowed to lessen the impact of successive taxation
of the same property within a very short period due to the death of the
decedent-transferee.
 Requisites for Deductibility
✔ Present decedent must have died within five years from date of death of prior decedent or
date of gift.
✔ The property with respect to which the deduction is claimed must have formed part of the
gross estate situated in the Philippines of the prior decedent or taxable gift of the donor.
✔ The property must be identified as the same property received from prior decedent or
donor or the one received in exchange therefor.
✔ The estate taxes on the transmission of the prior estate or the donor’s tax on the gift must
have been finally determined and paid.
✔ No vanishing deduction on the property or the property given in exchange therefor was
allowed to the prior estate.
Limitations on Amount Deductible
1. Value of the property – The deduction is limited by the value of the property
previously taxed of the aggregate value of such property if more than one item, as
finally determined for the purpose of the prior estate tax (or gift tax) or the value
of such property in present decedent’s gross estate, whichever is lower;
2. Deduction for mortgage or other lien – The initial value in no. 1 above shall be
reduced by the total amount paid, if any, by the present decedent on any mortgage
or other lien on the property where a deduction was allowed, by reason of the
payment, of such mortgage or other lien from the gross estate of the prior
decedent, or gift of the donor, in determining the estate tax of the prior decedent
or the donor’s tax.
3. Deductions for expenses, etc. – The value as reduced in no. 2 above shall be
further reduced by an amount which bears the same ratio to the amounts
allowed as deductions for expenses, losses, indebtedness, taxes and transfers
for public use as the amount otherwise deductible for property previously taxed
bears to the value of the decedent’s gross estate. Note that family home,
standard deductions, medical expenses and amount received under R.A. 4917
are not among the deductions hereunder.
4. Percentage of Deductions – The vanishing deduction shall be the value (final
basis) in no. 3 above multiplied by the following percentage of deduction:
Percentage Transfer more than But not more than
100% One year
80% One year Two years
60% Two years Three years
40% Three years Four years
20% Four years Five years
The step-by-step computation of the vanishing
deduction
1. Value taken of PPT XXX
Less: Mortgage debt (or other lien paid, if any (1st
deduction) XXX
Initial basis XXX

2. Initial basis__________ X Expenses, etc, and

Value of gross estate of present decedent transfers for public purposes = 2 nd deduction

3. Initial basis xxx

Less: 2nd deduction xxx
Final basis xxx
Multiply by percentage of deduction x%
Vanishing deduction
• If there is no mortgage debt paid, the value taken of property previously
taxes would be the initial basis. If only part of the mortgage is paid, then
only that part is deductible.
Illustration:
• On August 14, 2012, Mr. Manglapus died leaving his house and lot and van
to Junior, his only son who is still a bachelor. The estate tax corresponding
to the transmission of these property were paid. Following are the relevant
data:
Property Fair market value at the time of death Unpaid mortgage at the time of death
Sancho’s Junior’s Sancho’s Junior’s
House & lot 2,400,000 2,550,000 240,000 30,000
Van 360,000 210,000
 On Oct 19, 2015, Junior died. His gross estate including the house & lot
and van were declared at P9.6M while deductions (for expenses, losses,
indebtedness, taxes, etc. and transfer for public purpose) amounted to P1.8M
The vanishing deduction is computed below:

1. Value taken of PPT(P2,400,000+P210,000) P2,610,000

Less: Mortgage debt or other lien paid, if any 1st deduction
(240,000 – 30,000) 210,000
Initial basis 2,400,000

2. P2,400,000/9,600,000 x 1,800,000 = P450,000

3. Initial basis 2,400,000

less: 2nd deduction 450,000
Final basis 1,950,000
Multiply by percentage of deduction 40%
Vanishing deduction 780,000

*The percentage of deduction is 40% because from August 14, 2012 to Oct. 19, 2015 is more than
three years but less than four years or three years, two months and five days to be exact.
• Date of death of the prior decedent – December 25, 2014
• Date of death of the present decedent – August 18, 2019
• 8 +12
(07) +30 = 48
2019 – 08 – 18
2014 – 12 - 25
4 - 7 - 23 - 20% percentage
Transfer for Public Purpose
• There shall be allowed as deduction from gross estate 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
exclusive public purposes.
Illustration:
• Mr. Manglapus, in his will, transferred a 1,000 sq m. lot with fair market
value of P2M to the provincial government of Laguna to be developed as a
public park.
Answer: The full amount of P2million shall be deducted from the gross estate
Family Home
• The amount deductible from the gross estate as family home shall be the
current fair market value of the decedent’s family home at the time of death.
However, if the said current fair market value exceeds one million pesos
(P1,000,000), the excess shall be subject to estate tax.
TRAIN LAW or RA 10963
The TRAIN Law raises the maximum allowable Family Home deduction to P10,000,000.
✔ Family home is the dwelling house, including the land on which it is situated, where the husband and wife, or a head of the
family, and members of their family reside, as certified to by the Barangay Captain of the locality.
✔ The family home is deemed constituted interrupted or abandoned in such cases as the temporary absence from the
constituted family home due to travel or studies or work abroad, etc.
✔ In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent for
business or pleasure, one still intends to return.
✔ The family home must be part of the properties of the absolute community, or of the conjugal partnership, or of the
exclusive properties of either spouse depending upon the classification of the property (family home) and the property
relations prevailing on the properties of the husband and wife.
✔ It may also be constituted by an unmarried of a family on his on her own property.
✔ For purposes of availing of a family deduction to the extent allowable, a person may constitute only one family home
Beneficiaries of a Family Home
• The husband and wife, or the head of a family, and
• Their parents, ascendants, descendants including legally adopted children,
brothers and sisters, whether the relationship be legitimate or illegitimate,
who are living in the family home and who depend upon the head of the
family for legal support.
Rev.Reg. 12-2018
• Section 6(7)(1) 12-18 defines “husband and wife” and “unmarried head of a
family, “ as follows:
Husband and wife – Legally married man and woman
Unmarried Head of a Family
 Requisites for deductibility
✔ 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 Barangay Captain of the locality
where the family home is situated;
✔ The total value of the family home must be included as part of the gross estate of
the decedent, and
✔ Allowable deduction must be in an amount equivalent to the current fair market
value of the family home as declared or included in the gross estate, or the extent of
the decedent’s interest (whether conjugal/community or exclusive property),
whichever is lower, but not exceeding P1,000,000.
 Standard Deduction
✔ It is new deduction introduced in the Tax Code of 1997, medical expenses
and amounts received by heirs under RA 4917 being the two others.
✔ The standard deduction does not apply to non-resident alien decedents.
✔ A deduction in the amount of one million (P1,000,000) shall be allowed as
an additional deduction without need of substantiation.
✔ The full amount of P1,000,000 shall be allowed as deduction for the benefit
of the decedent.
TRAIN Law or RA 10963
The TRAIN Law increase the Standard Deduction to P5,000,000.
Medical Expenses
TRAIN LAW or RA 10963

The TRAIN Law deletes this item as an allowable deduction.

Amount Received by Heirs RA 4917
• Any amount received by the heirs from the decedent’s employer as a
consequence of death of the decedent-employee in accordance with Republic
Act 4917 shall be deductible, Such amount must be included in the gross
estate of the decedent.
Illustration
• Mr. Manglapus’ unexpected death came as a sad news to his employer whom
he served for fifteen years. Consequently, his son received P60,000 as
benefit in accordance with RA 4917.
The full amount of P60,000 shall be included as part of the gross estate of Mr. Manglapus. The
same amount is deductible.
Net Share of the Surviving Spouse
• After deducting the allowable deductions pertaining to the conjugal or
community properties included in the gross estate, the one-half share of the
surviving spouse must be removed to ensure that only the decedent’s
interest in the estate is taxed.
Deductions from the Gross Estate of a
Non-Resident Alien Decedent
• The estate of a non-resident alien decedent consists of property in the Philippines and in other country or countries.
For estate tax purposes, only his property in the Philippines shall be considered in the gross estate computation The
estate is entitled to the following deductions:

1. Expenses, losses, indebtedness and taxes to limitation as follows

Gross estate, Phil x World expenses, losses, = deduction allowed
World, Gross Estate indebtedness and taxes
2. Property previously taxed. Vanishing deduction on property situated in the Philippines
3. Transfers for public use of property situated in the Philippines
4. Net share of the surviving spouse.
Section 86(B) provides that 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 is at the time of his death is situated in the
Philippines that following items of deductions:
1. Standard deduction – a deduction in the amount of P500,000 shall be allowed without need of substantiation. The full
amount of P500,000 shall be allowed as deduction for the benefit of the decedent.
2. 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. Losses and indebtedness shall include the following:
2.1 Claims against the estate
2.2 Claims of the deceased against insolvent persons where the value of the interest is included in the value of the gross
estate.
2.3 Unpaid mortgages, taxes and casualty losses
 The allowable deduction under this subsection shall be computed using the
following formula:
Phil Gross Estate/World gross estate x Item No. 2 = Allowable Deduction

3. Property Previously Taxed

4. Transfers for Public Use
5. Net share of the surviving spouse in the Conjugal Partnership or Community
Property
Net Taxable Estate
• The transfer of the net estate of every decedent, whether resident or
nonresident of the Philippines, as determined in accordance with the Code,
shall be subject to the estate tax. The basis of estate tax is the net estate.
This is arrived at by deducting from the gross estate the allowable
deductions.
 Tax Rates
If the net taxable But not over Tax shall be Plus Of the excess
estate is over over
P200,000 Exempt
P200,000 500,000 P0 5% P200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And over 1,215,000 20% 10,000,000
 TRAIN Law or RA 10963
• The TRAIN Law amends the graduated rates of estate tax under Section 84
of the NIRC to a fixed rate of six percent (6%) based on net estate, it reads:

There shall be levied, assessed, collected and paid upon the

transfer of the net estate as determined in accordance with
Sections 85 and 86 of every decedent, whether resident or
nonresident of the Philippines, a tax at the rate of six percent
(6%) based on the value of such net estate.
If the net taxable Prior to train law Under Train Law
estate is
1). 500,000 500,000@6% = 30,000
On the first 500,000 15,000
2).