Deductions-from-gross-estate.docx

RESIDENT CITIZEN, NON-RESIDENT CITIZEN & RESIDENT ALIEN DECEDENTS Deductions from Gross Estate I.

NIRC

TRAIN LAW

ORDINARY DEDUCTIONS 

Funeral Expenses

Lower between the: i. Actual funeral expenses But shall not (whether paid or not) exceed ₱200,000 ii. 5% of the gross estate 

Judicial Expense

 Claims against the Estate

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Claims against Insolvent Persons

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Expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return. Consist of bona fide unpaid personal obligations of the decedent of a pecuniary nature. These may arise out of contract, tort, or operation of law.These must be incurred in good faith by the decedent during his lifetime, and can be enforced against the estate by his creditors. It excludes funeral and medical expenses If the claim is in the form of loan, the following requirements must be complied with: 1. The instrument must be notarized except if it’s not the business practice of the financial institution-lender to notarized such instruments 2. Notarized certification from the creditor as to the unpaid balance of the debt, inclusive of interest 3. Proof of financial capacity of the creditor to lend the amount at the time the loan was granted 4. If the loan was contracted within 3 years prior to the death of the decedent, a statement under oath executed by the administrator/executor of the estate stating the disposition of the proceeds of the loan. The full amount of the claim must be included in the gross estate.

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DELETED

SAME WITH NIRC

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Unpaid Mortgages

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Unpaid Taxes

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Casualty Losses

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Vanishing Deduction (Property Previously Taxed)

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The insolvency of the debtor must be proven. The amount of the receivable which is uncollectible may be allowed as a deduction from the gross estate. The fair market value of the property mortgaged must be included in the gross estate in full. (at the time of his death) 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. These are taxes which have accrued as of the death of the decedent but which where unpaid as of the time of death. This are excluded:  Income tax upon income received after death;  Property taxes not accrued before his death; or  Estate tax due from the transmission of his estate. Losses incurred during the settlement of the estate 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. This is 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 1. Present decedent must have died within 5 years from date of death of the of prior decedent or date of gift. 2. The property must have formed part of the gross estate situated in the Philippines of the prior

SAME WITH NIRC

THE TRAIN LAW LUMPS THIS ITEM TOGETHER WITH UNPAID TAXES AND CASUALTY LOSSES

THE TRAIN LAW LUMPS THIS ITEM TOGETHER WITH UNPAID MORTGAGES AND CASUALTY LOSSES

THE TRAIN LAW LUMPS THIS ITEM TOGETHER WITH UNPAID MORTGAGES AND UNPAID TAXES

SAME WITH NIRC

Transfers for Public Use

II.

SPECIAL DEDUCTIONS Family Home

decedent or taxable gift of the donor. 3. The property must be identified as the same property received from prior decedent or donor or the one received in exchange therefore. 4. The estate tax on the transmission must have been finally determined and paid. 5. No vanishing deduction on the property or the property given in exchange therefor was allowed to the prior estate.  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.  Deducted only after the ordinary deductions have been deducted from the gross estate.  The amount deductible from the gross estate shall be the current fair market value of the decedent’s family at the time of death. However, the excess from ₱1,000,000 shall be subject to estate tax.  Requisites for Deductibility 1. The family home must be the actual residential home, as certified by the Barangay Captain where the family home is situated; 2. The total value of the family home must be included as part of the gross estate of the decedent; and 3. Allowable deduction must be in amount equivalent to: i. Current fair market value of the family home as whichever declared or included in the is lower, gross estate, or but not ii. The extent of the exceeding ₱1,000,000 decedent’s interest (whether conjugal/community or exclusive property)

SAME WITH NIRC

THE TRAIN LAW RAISES THE MAXIMUM ALLOWABLE FAMILY HOME DEDUCTION TO ₱10,000,000

Standard Deduction

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Medical Expenses

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Amounts Received by Heirs under R.A. 4917

III.

SHARE OF THE SURVIVING SPOUSE

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A deduction in the amount of ₱1,000,000 shall be allowed as an additional deduction without need of substantiation. The full amount of ₱1,000,000 shall be allowed as deduction for the benefit of the decedent. Medical expenses incurred by the decedent, whether paid or unpaid, within 1 year prior to his death and duly substantiated with receipts shall be allowed as deduction from gross estate. It shall not exceed ₱500,000. Paid or unpaid, any excess from ₱500,000 shall not be allowed as deduction under any category. Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee shall be deductible and included in the gross estate of the decedent. The ½ share of the surviving spouse shall be removed to ensure that only the decedent’s interest in the estate is taxed. AMOUNT OF DEDUCTION = ((CONJUGAL PROPERTIES – CONJUGAL DEDUCTION)/2)

THE TRAIN LAW INCREASES THE STANDARD DEDUCTION TO ₱5,000,000

DELETED

SAME WITH NIRC

NON-RESIDENT ALIEN DECEDENT 

NIRC For estate tax purposes, only his property in the Philippines shall be considered in the gross estate computation. Here are the following deductions: 1. Expenses, losses, indebtedness and taxes (ELIT) subject to limitation as follows:

Gross Estate, Phil. Gross Estate, World

World ELIT

Deduction allowed

2. Vanishing Deduction on property situated in the Philippines. 3. Transfers for public use situated in the Philippines. 4. Net share of the surviving spouse.

TRAIN LAW  THE TRAIN LAW DELETES THE “NODEDUCTION ALLOWANCE” PROVISION.  Deductions: 1. Standard Deduction – a deduction in the amount of ₱500,000. 2. The proportion of total losses and indebtedness includes: i. Claims against the estate ii. Claims of the insolvent person iii. Unpaid mortgages, taxes and casualty losses. FORMULA: Allowable Phil. Gross Estate Item deduction World Gross Estate no. 2

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No deduction shall be allowed, unless the executor, or anyone of the heirs, as the case may be, includes in the return the required to be filed the value at the time of the decedent’s death of that part of his gross estate not situated in the Philippines.

3. Vanishing Deductions 4. Transfers for Public Use 5. Net Share of the Surviving Spouse in the Conjugal Partnership or Community Property.