DEDUCTIONS
FROM GROSS
ESTATE
What are the allowable deductions for Estate Tax Purposes?
For a citizen or resident alien
1. Standard deduction – A deduction in the amount of Five
Million Pesos (P5,000,000.00) shall be allowed as an
additional deduction without need of substantiation.
2. Claims against the estate.
3. Claims of the deceased against insolvent persons where
the value of the decedent’s interest therein is included in
the value of the gross estate
4. Unpaid mortgages, taxes and casualty losses
What are the allowable deductions for Estate Tax Purposes?
For a citizen or resident alien
5. Property previously taxed
6. Transfers for public use
7. The family home - fair market value but not to exceed
P10,000,000.00
8. Amount received by heirs under Republic Act No. 4917
Net share of the surviving spouse in the conjugal partnership
or community property
What are the allowable deductions for Estate Tax Purposes?
For a non-resident alien
1. Standard deduction – P500,000.00
2. Proportion of the following deductions
a. Claims against the estate.
b. Claims of the deceased against insolvent persons
where the value of the decedent’s interest
therein is included in the value of the gross
estate
What are the allowable deductions for Estate Tax Purposes?
For a non-resident alien
c. Unpaid mortgages, taxes and casualty losses
3. Property previously taxed
4. Transfers for public use
Net share of the surviving spouse in the conjugal
partnership or community property
STANDARD DEDUCTION
• For a citizen or resident alien
5,000,000
The full amount shall be allowed as deduction without need
of substantiation.
• For a non-resident alien
500,000
The full amount shall be allowed as deduction without need
of substantiation.
CLAIMS AGAINST THE ESTATE
Requisites:
The debt instrument was notarized.
Statement showing disposition of proceeds of loan.
It is contracted within 3 years from the date of death.
CLAIMS AGAINST THE ESTATE
• For a citizen or resident alien
The full amount shall be allowed as deduction.
• For a non-resident alien
Proportion amount shall be allowed as deduction.
Gross Estate, Philippines Claims against Deduction
Gross Estate, World the Estate allowed
CLAIMS AGAINST THE ESTATE
Example:
Mr. Manglapus, single, died on February 12, 2018, leaving the
following assets and liabilities.
Property in the Philippines 3,500,000
Property in Australia 3,000,000
Unpaid Obligations 500,000
CLAIMS AGAINST THE ESTATE
Answer:
• For a citizen or resident alien
500,000
• For a non-resident alien
Proportion amount shall be allowed as deduction.
3,500,000 500,000 269,230.77
6,500,000
CLAIMS AGAINST INSOLVENT PERSON
• For a citizen or resident alien
The full amount shall be allowed as deduction and it must be
included in the gross estate.
• For a non-resident alien
Proportion amount shall be allowed as deduction and the full
amount of claim must be included in the gross estate.
Gross Estate, Philippines Claims against Deduction
Gross Estate, World Insolvent person allowed
CLAIMS AGAINST INSOLVENT PERSON
Example:
Mr. Manglapus, single, died on February 12, 2018, leaving the
following assets and liabilities.
Property in the Philippines 3,500,000
Property in Australia 3,000,000
Claims against insolvent person 500,000
CLAIMS AGAINST THE ESTATE
Answer:
• For a citizen or resident alien
500,000
• For a non-resident alien
Proportion amount shall be allowed as deduction.
3,500,000 500,000 269,230.77
6,500,000
UNPAID MORTGAGES
• For a citizen or resident alien
The unpaid mortgage shall be allowed as deduction. The FV of the
property mortgaged must be included in the gross estate.
• For a non-resident alien
Proportion amount of unpaid mortgage shall be allowed as
deduction. The FV of the property mortgaged must be included in
the gross estate.
Gross Estate, Philippines Unpaid Deduction
Gross Estate, World Mortgage allowed
UNPAID MORTGAGES
Example
Mr. Manglapus mortgages his house and lot to Banco
Filipino for P1.5 million. He died leaving having paid only
50% of the mortgage loan. The FV of the mortgaged house
and lot at the time of his death is P2.5 million.
Answer:
The FV 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 deductions.
UNPAID TAXES
These are taxes which have accrued as of the death of the
decedent but which unpaid as of the time of death. This deduction
will not include:
• Income tax upon income received after death.
• Property taxes not accrued before the death
• Estate tax due from the transmission of his death.
UNPAID TAXES
• For a citizen or resident alien
The unpaid taxes shall be allowed as deduction.
• For a non-resident alien
Proportion amount of unpaid mortgage shall be allowed as
deduction.
Gross Estate, Philippines Unpaid Deduction
Gross Estate, World Mortgage allowed
UNPAID TAXES
Example
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.
Answer:
Since the income tax which Mr. Manglapus was supposed to pay
the day he died has accrued before his death, the same shall be
allowed as deduction from his gross estate.
CASUALTY LOSSES
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:
Are not compensated by insurance
At the time of the filing of the return, have not been
claimed as a deduction for income tax purposes.
Were incurred not later than the last day for payment
of the estate tax
CASUALTY LOSSES
• For a citizen or resident alien
The unpaid taxes shall be allowed as deduction.
• For a non-resident alien
Proportion amount of unpaid mortgage shall be allowed as
deduction.
Gross Estate, Philippines Unpaid Deduction
Gross Estate, World Mortgage allowed
CASUALTY LOSSES
Example
Five months after Mr. Manglapus died and while 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 FV of P1.5
million at the time of death was not compensated by
insurance.
CASUALTY LOSSES
Answer:
If the loss has not been claimed as deduction for income tax
purposes, the fire loss equivalent to the FV of the house or P1.5
million shall be deductible from the gross estate.
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 short
period due to the death of the decedent-transferee.
Requisites:
• Present decedent must have died within 5 years from the
date of prior decedent.
• The property is situated in the Philippines and formed
part of the decedent gross estate.
PROPERTY PREVIOUSLY TAXED(PPT)
• For a citizen or resident alien
Allowed as deduction.
• For a non-resident alien
Allowed as deduction on property located in the Philippines.
PROPERTY PREVIOUSLY TAXED(PPT)
Percentage of deductions:
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
PROPERTY PREVIOUSLY TAXED(PPT)
Step by step computation:
1. Value taken of PPT xxx
Less: Mortgage debt(1st Deduction) xxx
Initial basis xxx
PROPERTY PREVIOUSLY TAXED(PPT)
Step by step computation:
2. Initial basis Expenses, etc 2nd
Value of Gross and transfer for Deduction
estate of present public use
decedent
PROPERTY PREVIOUSLY TAXED(PPT)
Step by step computation:
3. Initial basis xxx
Less: 2nd Deduction xxx
Final basis xxx
Multiply by percentage of
deduction x%
Vanishing deduction xxx
PROPERTY PREVIOUSLY TAXED(PPT)
Example:
On August 14, 2012, Mr. Sancho 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. On October 19, 2015, Junior died. His
gross estate including the house and lot and van were
declared at P9.6 million while deductions (for expenses,
losses, indebtedness, taxes, etc. and transfer for public use)
amounted to P1.8 million.
PROPERTY PREVIOUSLY TAXED(PPT)
Example:
Following are the relevant data.
Property FV at the time of death Unpaid Mortgage at
the time of death
Sancho Junior Sancho Junior
House & lot 2,400,000 2,550,000 240,000 30,000
Van 360,000 210,000
PROPERTY PREVIOUSLY TAXED(PPT)
Answer:
1. (2,400,000+210,000) 2,610,000
(240,000-30,000) 210,000
initial basis 2,400,000
2. 2,400,000 1,800,000 450,000
9,600,000
PROPERTY PREVIOUSLY TAXED(PPT)
Answer:
3. 2,400,000
(450,000)
1,950,000
40%
780,000
TRANSFER FOR PUBLIC USE
For a citizen or resident alien
There shall be allowed as deduction from gross estate the
amount of all bequest, legacies, devises, or for the use of
the Government of the Philippines, or any political
subdivision thereof, for exclusive public purposes.
For non-resident alien
Transfer for public use of property situated in the
Philippines.
TRANSFER FOR PUBLIC USE
Example:
Mr. Manglapus, in his will. Transferred a 1,000sq.m. lot
with FV of P2 million to the provincial government of
Laguna to be developed as a public park.
Answer:
The full amount of P2 million shall be deducted from gross
estate.
FAMILY HOME
Family home is a 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 Brgy. Captain of the locality.
For a citizen or resident alien
fair market value but not to exceed P10,000,000
For non-resident alien
Not allowed as deduction
AMOUNT RECEIVED BY HEIRS UNDER R.A.
4917
For a citizen or resident alien
Any amount received by the heirs from the decedent’s
employer as a consequence of the death of the decedent-
employee in accordance with R.A 4917 shall be deductible
For non-resident alien
Not allowed as deduction
AMOUNT RECEIVED BY HEIRS UNDER R.A.
4917
Example:
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 R.A. 4917.
Answer:
The full amount 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.
