LA PATRIA COLLEGE

Santiago City

College of Accountancy and Management

INSTRUCTIONAL MODULE in AEC005
Business and Transfer Taxation

TOPIC/S: DEDUCTION FROM GROSS ESTATE

A. Nature of Deduction from Gross Income
B. Rules of Deduction
C. Valuation of Deductions from Gross Estate
D. Ordinary Deductions
• LIT
• Claims against insolvent person
• Claims against the estate
• Transfer for public purpose
E. Special Deduction
F. Standard Deduction
G. Vanishing Deduction
H. Family Home
I. Medical Expenses
J. Share of the Surviving Spouse

OBJECTIVES/ LEARNING OUTCOMES:

At the end of the period, the learners are expected to be able to:
1. Apply the general principles of deduction against gross estate in computing the total deductions
available for decedent;
2. Explain briefly the classification and deduction rules on deductions;
3. Enumerate the ordinary deductions and its limits;
4. Use the computational procedures of the share of the surviving spouse; and
5. Compute accurately the deductible expense of a resident, citizen and non-resident alien decedent.

DISCUSSION
DEDUCTION FROM GROSS ESTATE
REFERENCES:
Banggawan, R. (2019). Business and Transfer Taxation: Laws, Principles and Application. Aurora Hill,
Baguio City: Real Excellence Publishing
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WORKSHEET
Week 5 (September 21-25, 2020)

General Guidelines:
a. Write your answers on a clean sheet of bond paper with your name, course and year level, week
number course number, and course description. Use black ball pen in writing your answers.
Example: RUMAUAC, AIZA P. BSA 1 WEEK 1
BACC 008 BUSINESS AND TRANSFER TAXATION
b. After writing your, install the CamScanner application on your smartphone and use to capture
image/s of your answer sheet/s.
c. Send your answer sheet to the personal Microsoft Teams accounts of your instructor Ms. Aiza P.
Rumauac and to your Program Head Mr. Michael D. Almazan thru Microsoft Teams.
d. Your answer sheet should be sent in PDF form and name your file with this format: Course number-
Week number- Activity number/Quiz number (all in capitalized letter).
Example: ACC0102-WEEK1-ACTIVITY1-3/QUIZ1-2.
e. Deadline of seatwork: March 12, 2021
SEATWORK
1. Baby Vilianueva died leaving a property which was inherited three years ago from his father. In
computing the vanishing deduction, which of the following items shall serve as a multiplier deduction
in computing the deduction from the initial basis?
A. Benefits received under RA 4917
B. Medical expenses
C. Standard deduction
D. Transfer for public purpose

2. Statement 1: if the proceeds of a mortgage loan is merely an accommodation loan, its value must
be included in the gross estate as a receivable amount and as a deduction thereof.
Statement 2: If there is legal impediment to recognize the accommodation loan as receivable of the
estate, the unpaid mortgage payable shall not be allowed as a deduction from the gross estate.
A. Only the first statement is correct.
B. Both statements are correct.
C. Only the second statement is correct.
D. Neither statement is correct.

3. Which of the following statements is incorrect regarding an unpaid mortgage?

A. Unpaid mortgage, as deduction from the gross estate of a resident citizen, must pertain to a
property mortgaged which is situated either within or without the Philippines.
B. Unpaid mortgage, as deduction from the gross estate of a non-resident alien, must pertain to a
mortgaged property which is situated within the Philippines only.
C. If the unpaid mortgage was contracted by a prior decedent on a property inherited by the present
decedent before marriage, it is chargeable against the community property if it benefited the
community property of the spouses.
D. If the unpaid mortgage was contracted by a prior decedent on a property inherited by the present
decedent during marriage, it is chargeable against the community property of the spouses if it
benefited the community property of the prior decedent.

4. Which of the following losses is deductible?

A. Destruction of a house by an earthquake which killed the decedent.
B. Shipwreck which occurred before the death of the decedent but was only discovered after his
burial.
C. Total wreckage of a car in an accident but was fully compensated by a comprehensive insurance.
D. Theft which occurred during burial of the decedent.

5. All of the following, except one, are deductible from the gross estate of a decedent who died
September 30, 2014
A. Income tax on income earned from January to September 29, 2014
B. Gift taxes on donations given June 12, 2014.
C. Real property taxes payable during the last quarter of 2014.
D. Income tax on income earned during the last quarter of 2014.

6. One of the following is deductible as claim against the estate

A. An obligation contracted by the decedent one (1) day before he died.
B. An obligation of the decedent which prescribed while the decedent was still alive.
C. An obligation which was not reduced in writing under the Statutes of Fraud.
D. An obligation which shall be paid by the heirs.

7. Which statement is incorrect about claims against insolvent persons?

A. They must be included in the gross estate even if uncollectible.
B. They must be duly notarized.
C. The deduction is only the uncollectible portion.
D. The insolvency of the debtor must be established.

8. Rodolfo, a citizen of the Philippines and resident of Bacolod City, died testate on May 10, 2015.
Among his gross estate are properties inherited from his deceased father who died April 4, 2012,
What percentage of deduction will be used in computing the amount of vanishing deduction?
A. 80% of the value taken as basis for vanishing deduction.
B. 100% of the value taken as basis for vanishing deduction.
C. 60% of the value taken as basis for vanishing deduction.
D. 40% of the value taken as basis for vanishing deduction.

9. In determining the net estate of the decedent, which of the following rules is correct? (RPCPA)
A. Real estate abroad is included in the gross estate of a decedent who is a nonresident alien.
B. Shares of stocks being intangible property shall be included in the decedent's gross estate
wherever situated.
C. Vanishing deduction must be subject to limitations.
D. Funeral expenses are deductible to the extent of 5% of the total gross estate but not exceeding
P100,000.
 10. The following are requisites in order that claims against the decedent's estate may be deductible
except
A. They must be existing against the estate.
B. They must be reasonably certain as to amounts.
C. They must have been prescribed.
D. They must be enforced by the claimants.

APPLICATION: Solve the following problem accurately. (2 points each)

1. A decedent died single, leaving a family home which consists of a piece of land that he inherited 3 –
1/2 years ago (with a value at the time of P600,000) with a fair value of P800,000 at the time of his
death, and a house thereon which he built at a cost of P650,000, and a fair market value at the time
of his death of P450,000. Other properties in his gross estate have a fair market value of P550,000.
Unpaid obligations at the time of his death amounted to P300,000. The vanishing deduction is:

2. Pepe died on August 15, 2015. His data are as follows:

Community properties P2,000,000
Exclusive properties of Pepe 3,000,000
Exclusive properties of Pepe's wife 1,000,000
Deductions (except standard deduction) 700,000

Included in the P3,000,000 is a parcel of land worth P200.000 and a car worth P400.000,
respectively. The land was donated to him by his uncle on May 4, 2013 with a value of P150,000. At
the time of the donation, the land was mortgaged for P 30,000 which was paid by his uncle. The car
had a value of P500.000 when it was inherited by Pepe from his mother 2 1/2 years ago an mortgaged
for P50,000 which was paid by Pepe before he died. The vanishing deduction on the estate of Pepe
is:

3. The following expenses and obligations were left by Boning upon his death:
Notes payable, not notarized P30,000
Loans payable, PNB 300,000
Accounts receivable, debtor not insolvent 40,000
Accounts receivable, debtor is insolvent 60,000
Death benefits from employer 200,000
Mortgage paid 50,000
Income taxes on income of decedent's estate 7,500
The total amount deductible from gross estate is:

4. Ta Pue, a nonresident alien, single, died leaving the following properties and deductions Shares ,
domestic corporation P500,000 Shares, foreign corporation 500,000 Tangible personal property
1,500,000 Deductible expenses 500,000. Assuming there is no reciprocity, the estate tax payable is:

5. Elopre, married June 5, 2013 died on April 29, 2015 with the following data: Gross estate -
community property, P3,000,000; exclusive, P2,000,000. Said amount includes a land which he
received as gift from his father a month before the marriage, valued at P540,000. His father
mortgaged the land for P20,000 which was paid by Elopre. Elopre mortgaged also said land for
P50.000 but was able to pay only P20.000 until his death. Expenses claimed (excluding the unpaid
mortgage) amounted to P170,000. In the number above, the net taxable estate is:

Prepared by:

AIZA P. RUMAUAC, CPA

Instructor