Exclusions and Deductions from the Gross Estate;

Estate Tax Computation;

Documentary Stamp Tax
TX101
Module 10
Part 2
Exemptions from the Gross Estate
• The merger of the usufruct in the owner of the naked title
• The transmission or delivery of the inheritance or legacy of the fiduciary
heir or legatee to the fideicommissary
• The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor
• All bequest, devices, legacies or transfer to social welfare, cultural and
charitable institutions
Exclusions from the Gross Estate
• a. Amounts received as war damages
• b. Amounts received from the United States
Veterans Administration
• c. Benefits received from the GSIS
• d. Benefits received from the SSS
• e. Retirement benefits of employees of
private firm (R.A. 4917)
• f. Intangible personal property of a non-
resident alien decedent under the reciprocity
clause
• g. Grants and donations to the Intramuros
Administration.
• h. Proceeds of life insurance where the
beneficiary is irrevocably appointed
• i. Proceeds of life insurance under a group
insurance taken by employer (not taken out
upon his life)
• j. Transfer by way of bona fide sales
• k. Transfer of property to the National
Government or to any of its political
subdivisions
• l. Separate property of the surviving spouse
• m. Properties held in trust by the decedent
• n. Acquisition and/or transfer expressly
declared as not taxable
Deductions from the Gross Estate
• Ordinary Deductions • Special Deductions
▫ Claims against the estate ▫ Family home
▫ Claims against insolvent persons ▫ Standard deduction
▫ Unpaid mortgage ▫ Amount received under RA 4917
▫ Transfer for public purpose
▫ Property previously taxed (vanishing
• Other
deductions)
▫ Share of the surviving spouse
Indebtedness (Claims Against the Estate)
• These are the obligations of the decedent which is enforceable against
him while he is still alive and can be enforced against his estate upon his
death.
• Claims against the estate or indebtedness in respect of property may
arise out of the following sources:
▫ 1. Contract
▫ 2. Tort
▫ 3. Operation of law
Requisites for Deductibility
• a. The liability represents a personal obligation of the deceased existing at the time of his
death
• b. The liability was contracted in good faith and for adequate and full consideration in
money or money’s worth
• c. The claim must be a debt or claim which is valid in law and enforceable in court
• d. The indebtedness must not have been condoned by the creditor or the action to
collect from the decedent must not have prescribed.
• e. If the claim was based on a debt instrument, such instrument must be NOTARIZED.
(Except loans granted by financial institutions where notarization is not part of the
business practice of the financial institution lender.)
• f. If a loan was incurred within 3 years before the decedent death, the administrator, or
executor is required to render a statement showing the disposition of the loan proceeds.
Amount and Items Deductible
• Debts or demands of pecuniary nature which could have been enforced
against the deceased in his lifetime and could have been reduced to
simple money terms
• Deducted from:
▫ Common property if connected to common
▫ Exclusive property if connected to exclusive
Claims against Insolvent Persons
• This shall be deductible but the full amount of the claim must first be
included in the gross estate.
• Only the uncollectible portion shall be allowed as deductions.
• Requisites for deductibility:
▫ a. The value of the claims is included in the gross estate.
▫ b. The debtors are incapable of paying their debts.
• Deducted from:
▫ Common property if connected to common
▫ Exclusive property if connected to exclusive
Unpaid Mortgage
• Requisites for deductibility:
▫ a. The fair market value of the mortgaged property undiminished by such
mortgage or indebtedness has been included as part of the gross estate
▫ b. The mortgage indebtedness was contracted in good faith and for an
adequate and full consideration
• Only the amount of unpaid mortgage is deductible
• Deducted from:
▫ Common property if connected to common
▫ Exclusive property if connected to exclusive
Transfer for Public Use
• Amount deductible
▫ Amount of all bequest, legacies, devises or transfer to or for the use of the Government
of the Philippines, or any political subdivision for exclusively public purpose.
• Requisites for deduction
▫ 1. The disposition must be
 a. testamentary in character (in the last will and testament) or
 b. by way of donation mortis causa (should take effect after death)
 c. executed by the decedent before his death.
▫ 2. In favor of the Government of the Philippines or any of its political subdivisions.
▫ 3. Exclusive for public purpose.
▫ 4. The value of the property given is included in the gross estate.
Property Previously Tax (Vanishing Deduction)
• This is a deduction derived from a property that was previously subjected to transfer tax.
• Requisites for deduction
▫ 1. Death - The present decedent must have died within five (5) years from the receipt of the
property from a prior decedent or donor.
▫ 2. Identity of the Property - The property involved must have been a property transferred by a
prior decedent or donor to the present decedent or the property acquired in exchange for the
original property so received.
▫ 3. Inclusion of the Property - The property must have formed part of the prior decedent’s gross
estate situated in the Philippines or been included in the total amount of the gifts of the donor
made within 5 years prior to the present decedent’s death.
▫ 4. Previous taxation of the property - The estate tax on the prior succession must have been
finally determined and paid by the prior decedent. The same applies to gifts, in that donors
must have taken care of the donor’s tax.
▫ 5. No previous vanishing deduction on the property - The vanishing deduction on the property
must not have been claimed by the previous estate involving the same property.
Rates of Vanishing Deduction
• If the present decedent died within the following period after the date
of prior decedent’s death or after the date of donation:
Format of Computation

• *** Value taken is the LOWER between the fair market value of the property in the gross estate of the prior decedent or
the fair market value of the gift and the fair market value of the same property in the gross estate of the present decedent.
• Notes:
• 1. Under conjugal partnership of gains vanishing is a deduction from exclusive property.
• 2. Under absolute community of property, vanishing deduction may be deducted from exclusive property or community
property.
Illustrative Example
• An unmarried decedent died leaving properties he inherited 4 and ½ years ago which had a
fair market value of P800,000 at the time of his death. The property was valued at P650,000 at
the time of inheritance, and unpaid mortgage of P50,000 paid by the present decedent. Other
properties in his gross estate had fair market values of P1,000,000. The total expenses, losses,
indebtedness, taxes and transfer for public use amounted to P300,000. How much was the
vanishing deduction?
Family Home
• The family home refers to the dwelling house, including the land on which it is situated,
where the husband and the wife, or an unmarried person who is the head of the family and
members of the family reside, as certified by the Barangay Captain of the locality.
• Conditions for the allowance of family home deduction from the gross estate:
▫ a. 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 the family home is situated
▫ b. The total value of the family home must be included as part of the gross estate of the
decedent, and
▫ c. 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 to the extent of the decedent’s
interest (whether conjugal/community or exclusive), whichever is lower, but not exceeding
P10,000,000.
Deductible Amount
• Exclusive property
▫ Full value included in the gross estate or P10,000,000 whichever is lower
• Conjugal/community property
▫ One-half (1/2) of the value included in the gross estate or P10,000,000
whichever is lower
• Partly exclusive property, partly conjugal/community property
▫ Exclusive part (full value included in the gross estate) plus
Conjugal/Community part (1/2 x value included in the gross estate) = Total**
▫ **Total or P10,000,000 whichever is lower
Standard Deduction
• Amount deductible
▫ The amount deductible is P5,000,000 (citizen or a resident) or P500,000
(nonresident) without any required substantiation
Amount Received by Heirs Under R.A. No. 4917
• 1. RA No. 4917 is entitled “an act providing the retirement benefits of employees of
private firms shall not be subject to attachment, levy, execution, or any tax
whatsoever”
• 2. The amount received by heirs from decedent’s employer as a consequence of the
death of the decedent employee is included in the gross estate of the decedent
• 3. The amount above is also allowed as deduction from gross estate
• Amount deductible and requisites
▫ Any amount received by the heirs from the decedent’s employer as a consequence of
the death of the decedent employee in accordance with Republic Act No. 4917 is
allowed as deduction provided that the amount of the separation benefit is included as
part of the gross estate of the decedent
Share of the Surviving Spouse
• Applicable only to married decedents
• Equal to one half (1/2) of the net conjugal/community properties
Net Distributable Estate vs Net Taxable Estate
• Net distributable estate - The result after the reduction of the gross estate by actual
expenses or payments
• Net taxable estate - The result of the application of the law under estate taxation
Administrative Provisions
• Tax form - BIR Form 1801 – Estate Tax Return
• Estate tax returns are filed
▫ 1. In all cases of transfer subject to tax;
▫ 2. Where the said estate consists of registered or registrable property (regardless of the value of the gross
estate).
 a) Real Property
 b) Motor Vehicle
 c) Shares of Stock
• Person/s who will file the returns
▫ 1. Executor
▫ 2. Administrator
▫ 3. Any of the legal heirs
• Period when the returns are filed
▫ Within 12 months (1 year) after the decedent’s death
• Returns to be supported with statements certified by a CPA
▫ When the estate tax returns show a gross value exceeding P5,000,000
Illustrative Example
• The decedent is a resident unmarried head of family with the following data:
▫ Real and personal properties – P14,000,000
▫ Family home – P30,000,000
▫ Unpaid real estate tax – P2,000,000
• How much is the net taxable estate and net distributable estate?
• How much is the estate tax to be paid?
Illustrative Example
• The decedent is a resident alien, married, with the following data:
▫ Real and personal properties (conjugal) – P14,000,000
▫ Family home (conjugal) – P30,000,000
▫ Exclusive properties – P5,000,000
▫ Conjugal deductions – P2,000,000
• How much is the net taxable estate and net distributable estate?
• How much is the estate tax to be paid?
Documentary Stamp Tax
• An excise tax
• It is not an imposition on the document itself but on the privilege to
enter into a taxable transaction
• Persons liable
▫ Imposed against the person making, signing, issuing, accepting, or
transferring the document or facility evidencing the transactions (any of
the parties)
▫ If one party is exempt from DST, the other party who is not exempt shall be
the one directly liable for the tax
Documentary Stamp Tax Bases and Rates
• https://www.bir.gov.ph/index.php/tax-information/documentary-stamp-
tax.html