DEDUCTIONS FROM THE GROSS ESTATE

COMMON DEDUCTIONS
●​ These are items which law on estate tax allows to
be subtracted from the value of the gross estate in ●​ This is for married decedents, deductions from the
order to arrive at the net taxable estate. gross estate are presumed to be
Net Taxable Estate conjugal/communal deductions, unless specifically
●​ It represents the net amount of estate identified by its nature or by law as an exclusive
subject to estate tax deduction.

●​ Deductions from gross estate are highly TIMING FOR ALLOWABLE DEDUCTIONS
disfavored. The one who claims for deductions
The deductions allowed from the gross estate are the
must be able to justify the claim or right. (CIR vs.
decedent’s:
P.J. Kiener Company Ltd.)

A.​ Unpaid obligations BEFORE DEATH

RULES ON DEDUCTIONS FROM THE GROSS ESTATE
B.​ Standard deductions incurred on or before the
The following rules are observed on the items of allowable
burial; and
deductions from the gross estate:
C.​ Losses sustained ON OR BEFORE THE
1.​ VALID DEDUCTIONS
SETTLEMENT DATE of the estate tax
2.​ SUBSTANTIATION
a.​ Losses ON OR BEFORE DEATH are
3.​ COMMON DEDUCTIONS
NOT DEDUCTIBLE because the
4.​ TIMING FOR ALLOWABLE DEDUCTIONS
property is not yet part of the gross
5.​ NO DOUBLE DEDUCTIONS AND NOT
estate.
COMPENSATED

NO DOUBLE DEDUCTIONS AND NOT

VALID DEDUCTIONS
COMPENSATED
●​ All deductions from gross estate must be
●​ Deductions and losses that have been deducted
specifically granted and within the limits provided
from the GROSS INCOME are no longer allowed
by law
to be deducted from the GROSS ESTATE and vice
versa
A.​ SPECIAL DEDUCTIONS
●​ The special deductions may not be actual
●​ To be deductible, the amount of loss is not
expenses reducing the decedent’s gross
compensated for by any insurance or extra-judicial
estate but they are deductible because
settlement.
they are specifically granted by the
NIRC/TRAIN LAW. Special deductions
include VALUATION OF DEDUCTIONS FROM GROSS
ESTATE
●​ Deductions of Filipino Citizen or Resident Alien
PARTICULARS ALLOWABLE
DEDUCTIONS ●​ The following items are allowable deductions from
the gross estate of Filipino citizen or resident alien:
A.​ Standard 5,000,000 (Sec. 86 of 1.​ ORDINARY DEDUCTIONS
Deduction TRAIN LAW) ●​ These are expenses, losses,
indebtedness, taxes, transfers
B.​ Family Home 10,000,000
for public use (ELITT), and
C.​ Amount received Any amount provided, vanishing deductions
under R.A. 4917 That such amount is 2.​ SPECIAL DEDUCTIONS
included in the gross ●​ These refer to deductions
estate of the decedent deductible because they
●​ As a rule, items of expenses or obligations are specifically granted by
which are not allowed to be deducted law
directly cannot be deducted indirectly 3.​ Share of the surviving spouse (which is
50% of net conjugal or net community
property)
SUBSTANTIATION
●​ All deductions allowed from the gross estate must
ORDINARY DEDUCTIONS
be proven to be true.
○​ Receipts, Contracts, In-voice ●​ These are expenses, losses, indebtedness, taxes,
●​ Deductions claimed in the estate tax return must transfers for public use (ELITT), and vanishing
be supported with documentary evidences deductions
 ●​ ELITT deductions actually reduce the taxable
Loss
estate as well as the amount of distributable estate
to their heirs. They consist of the following: ●​ The estate tax should be filed within one (1) year
A.​ Casualty losses from the decedent’s death. R.A 10963 extends the
B.​ Claims against insolvent person period from six (6) months to one (1) year.
C.​ Claims against the estate
D.​ Unpaid taxes and mortgages B.​ CLAIMS AGAINST INSOLVENT PERSONS
●​ A person is insolvent if his assets are insufficient to
A.​ LOSSES discharge his liabilities.
●​ They include all losses incurred DURING THE
SETTLEMENT OF THE ESTATE arising from ●​ If the insolvent debtor has remaining assets, the
robbery, theft, embezzlement, fire, shipwreck, cash proceeds from the sale of the assets will be
storms, and/or casualties (an accident, mishap, or used to pay his obligation in the following order:
disaster) 1.​ Unpaid taxes to the government
○​ ROBBERY 2.​ Secured mortgage loan to preferred
■​ The taking or attempting to take creditors; and
something of value by force or 3.​ The balance of cash proceeds will be
threat of force of intimidation used to pay ordinary creditors
○​ THEFT
■​ The taking of another person’s On the part of the CREDITOR, the claim against an
property without that person’s insolvent person includes a loss in the form of
permission or consents with the UNCOLLECTIBLE ACCOUNTS (bad debts?).
intent to deprive the rightful owner ●​ To be deductible against the gross estate, the
of it. following rules must be observed:
○​ EMBEZZLEMENT 1.​ The amount of said claims has been
■​ The act of dishonestly withholding initially included as part of the gross
assets or funds for the purpose of estate; and
using it. It often involves the 2.​ The incapacity of the debtor to pay his
trusted individuals stealing a debt is proven not merely alleged.
portion of the trusted funds.
○​ CASUALTY LOSS C.​ CLAIMS AGAINST ESTATE
■​ Is sudden, an unexpected or
●​ Claims means something that is owed or
unusual event. Other casualties
obligations to pay which could have been enforced
are events similar to fore, storm,
against the deceased during his lifetime
or shipwreck
●​ A person's obligation, if properly and legally
The loss should have been incurred (on the property
enforceable against him when he was still alive,
included in the gross estate) NOT LATER THAN THE
will not be extinguished by the fact of death and
LAST DAY FOR THE PAYMENT OF THE ESTATE TAX as
the obligation shall remain as CLAIMS AGAINST
long as:
THE ESTATE.
1.​ The amount of loss is not compensated by any
insurance or extra-judicial settlement; and
Claims against the estate or indebtedness may arise out of
2.​ They have not been claimed as deductions from
the following
GROSS INCOME for income tax purposes at the
1.​ CONTRACT
time of filing of the estate tax return
a.​ This is an agreement between two
ILLUSTRATION ON AMOUNT OF DEDUCTIBLE LOSS
persons whereby one binds himself, with
●​ In the last week of proceedings for the final
respect to other, to guve something or to
disposition of the estate of the decedent to the
render some service
heirs, a storm damaged the beach house
2.​ TORT OR QUASI DELICT
amounting to 100,000. Since, the beach house
a.​ An obligation to pay for the damages done
was insured, the amount of 25,000 was recovered
to another due to an act or omission by
from the insurance.
fault or negligence without pre-existing
contractual relation between the parties
The amount of deductible loss would be computed as
3.​ OPERATION OF LAW
follows:
a.​ A legal obligation that is created
Amount of damage 100,000 automatically as dictated by statutes.

Less: Amount recovered 25,000

REQUISITES CLAIMS AGAINST THE ESTATE
from the insurance
Claims against the estate are allowed as deductions from
Amount of Deductible 75,000 the gross income if the following requisites are present:
 1.​ The liability represents a personal obligation of the balance sheet with a detailed schedule the
decedent existing at the time of his death, unpaid balance of the decedent debtor.
EXCEPT:
○​ Unpaid obligation incurred which is d.​ Statement under oath executed by the
incident to his death such as unpaid administrator or executor of the estate
funeral expenses reflecting the disposition of the proceeds
○​ Unpaid medical expenses of the loan if the said loan was contracted
2.​ The liability was contracted in good faith and for within three (3) years before the death of
adequate and full consideration in money or the decedent.
money’s worth
3.​ The claim must be a debt or claim which is valid in
D. UNPAID MORTGAGE
law and enforceable in court
4.​ The indebtedness must not have been condoned ●​ Unpaid mortgages are unpaid indebtedness of the
by the creditor or the action to collect from the decedent debtor which is secured by his/her
decedent must not have been prescribed. property, contracted in good faith and for adequate
ILLUSTRATION CLAIMS AGAINST THE ESTATE and full consideration in money or money’s worth.
After the death of Mr. Tsugj, he left the following obligations ●​ To be deductible, the property mortgaged must be
part of the gross estate at fair market value gross
Obligations Amounts of any unpaid mortgage.
○​ Where the decedent owns less than all of
Court ordered 100,000
compensatory damage the property covered by a mortgage, only
a proportionate amount is deductible.
Unpaid credit card 75,000 ●​ In all instances, mortgage property, to the extent of
the debtor decedent’s interest therein, should
Bank Loan 25,000 always form part of the gross taxable estate of the
gross taxable estate.
Total unsettled obligations 200,000

Illustration
The total unpaid obligations amounting to 200,000 is ●​ Mr. Nanlumo died leaving a property in Tagaytay
deductible from the gross estate as a CLAIMS AGAINST which has a FMV of 2M. The Tagaytay land was
THE ESTATE mortgaged to secure a 1M loan. At the time of Mr.
Nanlumo’s death, the mortgage has an unpaid
SUBSTANTIATION REQUIREMENT FOR CLAIMS balance of 75,000 and the land has a FMV of 4M.
AGAINST THE ESTATE
In case of Simple Loan QUESTION
A.​ The debt instrument must be fully notarized at the 1.​ How much of the land value should be included in
time the indebtedness was incurred the gross estate of Mr. Nanlumo?
a.​ Except 2.​ How much could be deducted from the gross
i.​ Loans granted by financial estate as unpaid mortgage?
institution where notarization is not
part of the business practice/policy ACCOMMODATION LOAN
b.​ Duly notarized certification from the ●​ If the loan was found to be an accommodation
creditor as to the unpaid balance of the loan where the loan proceeds went to another
debt, including interest as of the time of person, the value of the unpaid loan must be
the death included as receivables of the estate.
●​ Ibang tao (hindi ○​ If there is a legal impediment to recognize
kamag-anak) the accommodation loan as receivable of
i.​ From the creditor, and the the estate, the said unpaid
certification must be state the obligation/mortgage payable shall not be
specific amount and allowed as a deduction from the gross
estate
ii.​ 4th degree of Affinity or
Consanguinity (hindi valid ang ILLUSTRATION
certification from the creditor) the 1.​ Mr. Gulang, while alive, received a 4M loan from
loan instrument must be filed sa Banco de Pera. The loan is secured by Mr.
Revenue District Office. Copy of Gulang’s only property in Baguio which has a FMV
loan Instrument duly filed in RDO. of 7M at the time of his death.
1.​ 15 days ●​ During the settlement of the estate, it was
c.​ Proof of financial capacity of the creditor to discovered that the loan was borrowed by
lend the amount at the time the loan was Mr. Gulang II, older brother of Mr. Gulang.
granted, as well as its latest audited The loan balance at the time of Mr. Gulang
 death is 2M but Mr. Gulang II has not paid
TRANSFER FOR PUBLIC USE
any amount of the loan.
●​ This refers to the amount of bequests, legacies, or
QUESTION transfers to or for the use of the government of
1.​ How much is the net estate of Mr. Gulang? the Republic of the Philippines or any political
Answer subdivision thereof. It is deductible from the
●​ The net estate of Mr. Gulang is 9,000,000 gross estate as long as the amount is used
computed as follows: EXCLUSIVELY for PUBLIC PURPOSES.

●​ The transfer should be through testamentary

Property Amount succession. Oral transfer are not deductible.
Baguio House 7,000,000
●​ A bequests, legacies, or transfers made OTHER
Add: receivable from Mr. +​ 4,000,000 THAN for the Philippine government exclusively for
Gulang II public purposes is NOT ALLOWED as deduction
from gross estate.
Less: Unpaid Mortgage - -​ 2,000,000
Banco de Pera
●​ In general, a person cannot donate property which
Net Estate 9,000,000 does not exclusively belong to him. The property
transferred is presumed as an exclusive property
of the decedent UNLESS it is stated that the
D.1. UNPAID TAXES property transferred for public use is conjugal and
the transfer is with the consent of the surviving
●​ In general, taxes incurred before the date of
spouse
decedent’s death and remains unpaid as of the
date of death are deductible
ILLUSTRATION
●​ To be DEDUCTIBLE, taxes should qualify as a
1.​ In the last will and testament of Mr. Kupad,
claim against the estate. Taxes should be
assigned 200,000 to be transferred to the QC LGU
enforceable obligations of the decedent at the time
exclusively for public purposes.
of his death.
●​ The gross estate of Mr. Kupad is
determined to be 1,000,000 exclusive
The following taxes are DEDUCTIBLE from the gross
property and 2,000,000 conjugal property
estate:
●​ Assume that Mr. Kupad donated another
1.​ Property taxes accrued prior to the decedent’s
200,000 to the government of China
death;
2.​ Unpaid taxes on income received by the decedent
QUESTIONS
before his death;
1.​ Where should the 200,000 transfer to the QC-LGU
3.​ Gift taxes, on lifetime gifts (donation inter—vivos)
be deducted?
which are unpaid upon death.
2.​ How much is the deductible amount from Mr.
Kupad’s exclusive property?
The following taxes are NOT DEDUCTIBLE from gross
estate:
1.​ Income tax upon income received after death of
the decedent; TRAIN LAW AMENDMENT
2.​ Property taxes not accrued before the decedent’s
●​ The TRAIN Law or R.A. 10963 removes the
death; and Estate tax
deductions from gross estate pertaining to actual
funeral expenses, judicial expenses, and medical
ILLUSTRATION
expenses BUT INCREASED THE AMOUNT OF
1.​ The gross estate of Mr. Kupitan includes a real
STANDARD DEDUCTIONS FROM 1M TO 5M.
property with a FMV of 5,000,000 at the date of
death. The real property tax amounting to 20,000
remains unpaid. PROPERTY PREVIOUSLY TAXED (VANISHING
●​ After the death of Mr. Kupitan, an income DEDUCTION
tax of 10,000 becomes due from the ●​ There are situations where properties are
income earned by the property from the transferred between persons in a short periods of
date of death up to the end of the taxable time causing a series of transfer taxation
year. ●​ The tax code allows as deduction from the gross
QUESTION estate certain amount pertaining to property
1.​ For estate tax computation, how much is the previously taxed (PPT). This is also referred to as
deduction for unpaid tax? vanishing deduction
 ●​ The property previously subjected to estate or the net estate of Filipino decedents, or resident
donor’s tax may be allowed to be reduced by a alien decedents.
certain determined amount called vanishing ●​ They are deductible in their full amount or with limit
deductions as provided by law from the decedent net estate
●​ The deduction is allowed to lessen the effect of after deducting the ordinary (original) deductions.
successive taxation of the same property within a ○​ These special deductions are as follows:
very short time due to the death of the 1.​ Standard deductions;
decedent-transferee 2.​ Family home;
3.​ Amount received by heirs under
If the same property is included in the gross estate of the R.A. No. 4917
present decedent, its value may be deducted in computing
the net taxable estate, subject to the following conditions:
1.​ STANDARD DEDUCTIONS

1.​ FIVE YEAR RULE ●​ A standard deduction (SD) of 5,000,000 is allowed

●​ The present decedent died within five (5) as a special deduction from the net estate without
years from receipt of the property through the need for substantiation. (Article 86 (A) (1),
gratuitous transfer; NIRC as amended by R.A 10963 TRAIN Law)
●​ This deduction is not an optional deduction. As a
2.​ PHILIPPINE SITUS RULE standard deduction, every decedent (Filipino
●​ The property from which a vanishing citizen/resident alien) is allowed by law to deduct
deduction that is being claimed must be the full amount of 5,000,000 (5M) from the gross
located in the Philippines; estate.
●​ For non-resident alien a standard deduction of
3.​ PREVIOUS TRANSFER TAXES RULE 500,000 is allowed
●​ An estate or donor’s tax must have been
actually paid on such property. 2.​ FAMILY HOME
●​ Family home is the dwelling house, including the
4.​ NO PREVIOUS VANISHING DEDUCTION RULE
land on which it is situated, where the husband
●​ No similar deduction must have been
and wife, or a head of a family, and members of
allowed for the same property in the estate
their family resides
of the immediate prior decedent to the
●​ The family home is generally characterized by
present decedent; and
permanency, which mean it is the place to which
●​
whenever absent for business or pleasure, one still
5.​ THE SAME PROPERTY RULE
intends to return. A decedent person is entitled
●​ The property on which vanishing
only to ONE family home
deductions is being claimed must be:
●​ The amount is equivalent to the current fair market
a.​ The one identified as the SAME
value of the decedent family home, which shall not
PROPERTY RECEIVED from the
exceed ten million (10M), to be deducted from the
prior decedent or from a donor, or
gross estate. (R.A 10963 TRAIN Law, which
amend Sec. 86, NIRC.
●​ The one which can be identified as having
○​ The EXCESS shall be subject to estate
been ACQUIRED IN EXCHANGE FOR
tax.
PROPERTY SO RECEIVED.
●​ The TRAIN Law removes the condition, for
exemption or deduction, which is a certification
from the barangay that the family home is the
decedent’s family home.

3.​ AMOUNT RECEIVED BY THE HEIRS UNDER

R.A 4917
●​ Amount received by the heirs as provided by
special law is a special deduction
●​ The amount received by the heirs under R.A 4917
shall be allowed as deduction from the gross
estate provided that such amount is included as
part of the gross estate. (Sec. 86, NIRC as
amended by R.A 10963 TRAIN Law)
●​ R.A 4917 provides that retirement benefits is not
SPECIAL DEDUCTIONS subject to any tax.
●​ Special deductions are deductions that are
categorically permitted by special laws to reduce
The following items refer to the amount received by the
heirs which are not subject to any tax under R.A 4917
1.​ Retirement benefits received by officials and
employees of private firm, whether individual or
corporate, in accordance with a reasonable private
benefit plan maintained by the employer,
PROVIDED that
a.​ The retiring official or employee has been
in the service of the same employer FOR
AT LEAST TEN (10) YEARS and is not
less than fifty (50) years of age at the time
of retirement; and
b.​ The benefits granted under R.A 4917 shall
be availed of only ONCE by an official or
employee

TREATMENT OF AMOUNT RECEIVED UNDER R.A 4917

FOR ESTATE TAX PURPOSES
The amount received under R.A 4917 may be treated as
either:
1.​ EXEMPTION AND EXCLUSION
Amount received by the heirs under R.A 4917 is treated as
items under EXEMPTION AND EXCLUSION from the
gross estate under special laws.
●​ The basis of the treatment for estate tax purposes
is that under R.A 4917, the benefits received by
employees of private firms SHALL NOT BE
SUBJECT TO ATTACHMENT, LEVY,
EXECUTION, OR ANY TAX WHATSOEVER

1.​ DEDUCTIONS FROM THE GROSS ESTATE

However, under Section 86 as amended by R.A. 10963 or
the TRAIN LAW, the retirement benefits is treated as
deduction from the gross estate PROVIDED THAT THE
SAME WAS INCLUDED IN THE GROSS ESTATE OF THE
DECEASED

SHARE OF SURVIVING SPOUSE

●​ The net share of the surviving spouse in the
conjugal or communal property, net of the
obligations properly chargeable therein, shall be
deducted from such amount to arrive at the net
estate.
●​ The share of the surviving spouse in the conjugal
or communal property is 50%.