Deduction from Gross estate

1. Ordinary deduction
2. Special
3. Shares of surviving spouse

Ordinary deduction

L – Losses

I – Indebtedness (claims against the estate)

T – Taxes

E – Etc (claims against insolvent person

Losses

- Pertains to casualty losses

- Not included bad debts expense, not casualty losses but civil losses, Requisites
1. Act of god or man
2. Not compensated by insurance- in case compensated sya ng insurance dapat included sya sa
gross estate
3. Not claimed as deduction in income tax return – it must only be deduct once, pag nadeduct na
sa itr you will no longer use it sa deductions sa gross estate
4. Incurred during the settlement the estate – 1 year lang ang time frame if di ka nakapag settle
within the prescribed timeframe di mo sya nadeclare as losses, so after timeframe r4egardless
the losses is true or not di mo na sya pwedeng include sa allowable deduction

I – indebtedness (cl aims against the estate)

- decedent is the debtor

- personal obligation existing at the time of death with full consideration
- di kasama yung mga “i promise to give this – to –“

sources:

1. contract – In the form of sale (credit)

2. tort – obligation because you commit a crime
3. operation of law –

substamtiate requirements

Simple loan:
 a. the debt instrument must be duly notarized at the time the indebtedness was incurred NOT AT
THE TIME OF Death
- if financial institution di na need ng notarized since yun na yung main business nila, other than
financial institution required amg notarized
b. duly notarized certification from the creditor as to the unpaid balance including the interest
PWEDENG AT THE TIME OF DEATH
a. if corporation-sworn certification signed by the president, or other principal officer of the
corporation
b. if partnership – should be signed by the general partner
c. if financial institution dapat yung branch manager na may alam sa credit
 RELATIVES BY 4TH DEGREE WHETHER CONSANGUINITY OR AFFINITY CANNOT CERTIFY AS LENDER
UNLESS HE FILED THE REALTED DOCUMENTS WITHIN 15 DAYS UPON EXECUTION OF THE
INSTRUMENT.
c. Proof of financially capacity of the creditor
d. A statement of oath executed by the executor or administratit of the estate reflecting the
disposition of the proceeds of the loan if the said loan was contracted within 3 years prior to the
decedents death (need ng proof na the loan was granted within 3 year prior to the decedents
death

Purchase of goods and services

a. Pertinent documents of the purchases. Duly acknowledged and signed by the decedent and the
creditor. (proof lang na may na deliver or may napurchase na goods)
b. Notarized certification of the unpaid balance – same format sa simple loan
c. Certified true copy of latest audited balance sheet of the creditor with detailes subsidiary ledger
showing the unpaid balance of the decedent debtor
d. When the settlement is made through legal proceedings, pertinent documents are required

Mortgage

T - Taxes

Incurred before death (unpaid) – must be included as an allowable deduction

Incurred after death – not included as an allowable deduction, ilalagay na sya sa income tax estate (if it
is related sa decedent after death

E – claims against insolvent person

- Uncollectible amount sa kanyang debtor, uncollectible ang allowable deduction

Requisites:

1. The incapacity of the debtor must be proven, liabilities is mas Malaki sa assets
 2. The full amount must be included in the gross estate and the uncollectible amount as allowable
deduction

Transfer for public purposes

- It can be include as an allowable deduction

- It is subject to scrutiny, para alam ni bir na may transfer

Vanishing deductions

- It vanished eventually pero paunti unti lang

- It is used as an deduction to battle double taxation (not prohibited pero dinidiscourage na
gamitin)
- Ways of governemnt to discourage double taxation
- Deduction made if there is a prior gratuitous transfer made na ngayon namatay na yung
nakareceive ng property

Requisites:

1. Death – the present decedent died within 5 years from the date of prior decedents death of
prior date of gift (pwedeng donor or estate tax)
2. Identity of property
3. Location of the property, must be in the Philippines, if it is n abroad vanishing deduction is not
allowed
4. Inclusion of property in the gross estate
5. Previous taxation of the property – if di natax before di mo pwedeng gamitin ang vanishing
deduction
6. No previous vanishing deduction

Why do we need to less mortgage: paid?

- Example: May 100k na value tapos si lolo may mortgage na 20k bale 80k yung pinamana niya sa
anak, and nasubject sa estate tax ni tatay. Ang computation is 100k less unpaid mortgage which
is 80k and nasubject sa estate
- Sa 20k nagbayad si anak ng 10k so may 10k pa na mortgage, and consider as consideration sya
and di naka enjoy ng estate tax since di kasama sa computation
- And yung sobrang 10k is pwede oang ideduct
- Ang paid mortgage sa initial basis is yung sa payment ni present decedent which is si anak
- Pag sinama pa yung ibang mortgage or yung unpaid mortgage liliit yung initial basis and lalaki
yung maleless, malulugi si government

SPECIAL DEDUCTIONS – di sya naincurred ni decedent, special consideration lang

 1. Standard Deduction
2. Family home
3. RA 4917

Standard Dedcution

1. Citizen/ Resident – 5M, if below 5m ang gross estate mo di ka required mag bayad ng estate tax
2. NRA – 500k

RA 4917

- Related sa employer
- So if namatay ang employee, may binibigay na pera si employer, so pwedeng gamitin as
allowable deduction pero pwedeng mainclude sa gross estate yung perang natanggap pero
naless pa rin sa allowable deduction under special deduction. 100% deductions

Family home

- Applicable to married and head of the family – 10m (ceiling)

- So kung namatay kang single di ka allowed magclaim ng family home
-