BM1903
DEDUCTIONS FROM GROSS ESTATE
Concept of Deductions from Gross Estate
In inheriting properties, there are charges which naturally diminish the amount of such inheritance of the heirs.
Hence, the law allowed deductions from the gross estate. In addition to these charges, the law also allows
certain deductions in the nature of incentives from the gross estate (Banggawan, 2015).
Deductions from gross estate are items which the law on estate tax allows to be subtracted from the value of
the gross estate in order to arrive at the net taxable estate (Bureau of Internal Revenue, Tax Code, 2019).
Presentation of Deductions in the Estate Tax Return
Under the Tax Code, the separate or exclusive property of the surviving spouse is not deemed part of the gross
estate of the decedent spouse. If the decedent was married, his gross estate would consist of his exclusive
properties and his share in the conjugal or community properties (De Leon & De Leon, Jr., 2013).
GROSS ESTATE
LESS: Ordinary Deductions
Claims against the estate
Claims against insolvent persons
Unpaid mortgages
Property previously taxed
(Vanishing Deduction)
Transfer for Public Use
Others
Estate after deductions
LESS: Special Deductions
Family Home
Standard Deduction
Others
Net Estate
LESS: Share of the Surviving Spouse
NET TAXABLE ESTATE
Multiplied by: Estate tax rate
ESTATE TAX DUE
EXCLUSIVE
P xxx,xxxx
CONJUGAL/COMMUNAL
P xxx,xxxx
TOTAL
P xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
xxx,xxxx
P xxx,xxxx
xxx,xxxx
xxx,xxxx
P xxx,xxxx
xxx,xxxx
xxx,xxxx
P xxx,xxxx
(Net Conjugal Estate divided by 2)
x 1/2
xxx,xxxx
xxx,xxxx
xxx,xxxx
P xxx,xxxx
xxx,xxxx
P xxx,xxxx
6%
P xxx,xxx
The ‘conjugal/communal’ column is left blank if the decedent is single (Banggawan, 2015).
General Principles of Estate Deductions
1. Substantiation Rule – This general rule states that supporting documents must be presented for all the
items of deductions. Examples are receipts, invoices, contracts, financial statements, and other proofs that
exist to verify validity. The only exception to this rule is the deduction allowed for ‘standard deduction.’
(Banggawan, 2015)
2. Matching Principle – This general rule states that an item of deduction must be part of the gross estate to
be deductible therefrom. No deduction is allowed for items that are not part of the gross estate (Banggawan,
2015). Examples are:
• Obligations of the exclusive properties of the surviving spouse cannot be claimed as deductions
because the said properties are not included in the gross estate.
• Unpaid obligation before death
• Losses sustained on or before the settlement date of the estate tax.
Losses of properties before the death of the taxpayer are not deductible because the properties are no
longer part of the gross estate of the decedents at the date of death.
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3. ‘No Double Classification’ Rule – This general rule states that an item of deduction cannot be claimed
under several deduction classifications. Only one classification is allowable (Banggawan, 2015). Examples
are:
• A family home destroyed by any casualty during the settlement of the estate cannot be simultaneously
deducted as a ‘family home’ and a ‘casualty loss.’
• Losses claimed in the income tax return of the estate cannot be claimed again as a deduction in the
estate tax return.
To be deductible, the amount of loss is not compensated for by any insurance or extra-judicial
settlement.
4. Common Deductions – This general rule states that in the case of married decedents, ordinary deductions
are presumed to be against the common properties unless proven to be the exclusive property of either
spouse. This is in line with the rule that properties are common properties unless proven to be exclusive
(Banggawan, 2015).
Classification of Deductions
The following are the classification of deductions (Banggawan, 2015):
• Ordinary Deductions – These deductions generally include items which diminish the amount of the
inheritance. The only exception here is the deduction for ‘property previously taxed’ which is a tax incentive
but is classified as ordinary deductions in pursuant to the new estate tax form.
• Special Deductions – These deductions are items which do not reduce the inheritance but are nonetheless
allowed by the law as deductions against the gross estate in the determination of the net taxable estate.
• Share of the Surviving Spouse – This deduction pertains to the interest of the surviving spouse in the net
conjugal or communal properties of the spouses. This portion is not owned by the decedent and will not be
transmitted by the decedent as part of the inheritance; hence, it must be removed in the determination of
the taxable estate.
Ordinary Deductions
The following are the ordinary deductions allowed from the value of the gross estate (Bureau of Internal
Revenue, Republic Act No. 10963, 2017).
Claims Against Insolvent Persons
These claims are a form of loss but are presented as a separate item of deduction in the tax return. The
deductible amount of claim against insolvent persons is the unrecoverable amount of claim. The value of
decedent's interest therein is included in the value of the gross estate (Banggawan, 2015).
Illustration: Mr. Lopez died, leaving a total receivable of P200,000 from Mr. Ramos. The latter was declared
bankrupt by the court with only P800,000 total assets but with P2,000,000 total liabilities.
Analysis: The deductible amount of claim against the estate shall be:
(𝑃𝑃2,000,000 − 𝑃𝑃800,000) ×
𝑃𝑃200,000
= 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷, 𝟎𝟎𝟎𝟎𝟎𝟎
𝑃𝑃2,000,000
If there are zero recoveries, the entire amount of claim shall be presented as a deduction. Either way, the
P200,000 claim must be included in the gross estate.
Claims Against the Estate
The word ‘claims’ is generally construed to mean debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime and could have been reduced to simple money adjustments.
Requisites for Deductibility of Claims Against the Estate (Bureau of Internal Revenue, Revenue Regulations
No. 12-2018, 2018)
1.
2.
3.
4.
The liability represents a personal obligation of the deceased existing at the time of his death;
The liability was contracted in good faith and for adequate and full consideration in money or money’s worth;
The claim must be a debt or claim which is valid in law and enforceable in court; and
The indebtedness must not have been condoned by the creditor or the action to collect from the decedent
must not have been prescribed.
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Substantiation Requirements (Bureau of Internal Revenue, Revenue Regulations No. 12-2018, 2018)
All unpaid obligations and liabilities of the decedent at the time of his death are allowed as deductions from the
gross estate. Provided, however, that the following requirements/documents are complied with/submitted:
1. The debt instrument must be duly notarized at the time the indebtedness was incurred;
2. If the loan was contracted within three (3) years before the death of the decedent, the administrator or
executor shall submit a statement showing the disposition of the proceeds of the loan;
3. Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of
the time of death; and
4. In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances
Unpaid Mortgages, Taxes, and Casualty Losses
a. Unpaid Mortgage – This includes mortgage upon, or any indebtedness, with respect to the property where
the value of the decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in
the gross estate.
Illustration: A decedent had a family home* amounting P1,500,000 which was encumbered by a mortgage.
Details about the mortgage were as follows:
Original amount
Less: Paid before death
Paid after death
Present Balance
Mortgage A
P 900,000
200,000
400,000
P 300,000
*Family home is a common property of the decedent and his
spouse. The proceeds of the mortgage were used for the family.
A deductible mortgage, just like other obligations, must have been incurred before death and still unpaid at
the point of death. Hence, the allowable deduction for ‘unpaid mortgage’ shall be the balance of the
mortgage at the point of death:
Original amount
Less: Paid before death
Balance at the date of death
Mortgage A
P 900,000
200,000
P 700,000
Presentation in the tax return:
Exclusive
Gross estate
P
Deductions:
Unpaid mortgage
P
-
Common
P1,500,000
P 700,000
Note:
•
The gross estate includes the value of the property undiminished by the mortgage.
• Only mortgages constituted during the lifetime of the decedent which still unpaid at the time of his death are deductible.
b. Unpaid Taxes – These include taxes such as income tax, business tax, and property tax which have accrued
as of the death of the decedent and which were unpaid as of the time of death. Only obligations existing at
the point of the decedents’ death are deductible while obligations, including taxes that are settled before
death, and those accruing after death are not deductible from the gross estate (Banggawan, 2015). The
following taxes are non-deductible: (a) tax on income earned after death; (b) property taxes accruing after
death; (c) business taxes accruing after death; and (d) estate tax on the transmission of the estate to the
heirs.
c.
Casualty Losses – These pertain to losses of properties of the estate during the settlement of the estate.
These may arise from fires, storms, shipwreck, or other casualties or from robbery, theft, or embezzlement
when such losses are not compensated for by insurance (Banggawan, 2015).
It must be emphasized that losses are deductible only if they occurred during the settlement of the estate
before the deadline of filing the estate tax return.
Source: Business & Transfer Taxation (Laws, Principles, and Applications with Tax Remedies), 2015, p. 466
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Illustration: Mr. Ramos died in a lethal car crash on November 02, 2x1a. The following losses of properties
were identified by his estate administrator:
Losses up to the point of death:
Value of car destroyed during the crash
Pilferage loss on merchandise revealed by the physical inventory count on October 31, 2x1a
Losses since the death of the decedent:
Fire loss on an insured building on December 25, 2x1a
Theft of personal valuables of Mr. Ramos on January 01, 2x1b
Value of cash robbed from Mr. Ramos’ residence on February 14, 2x1b
Value if inventories lost on a shipwreck on December 18, 2x1a to be claimed in the income tax
return of the estate
Value of an uninsured car destroyed during a storm on May 01, 2x1b
Unpaid loans receivable from a bankrupt customer
P 1,200,000
80,000
P 2,000,000
180,000
620,000
400,000
800,000
100,000
The deductible loss shall be:
Loss on the theft of personal valuables of Mr. Ramos on January 01, 2x1b
Loss on robbery
Total deductible loss
P 180,000
620,000
P 800,000
The following are considered as deductible losses (Bureau of Internal Revenue, Republic Act No. 10963, 2017):
a. Losses that are not compensated for by insurance or otherwise;
b. Losses that have not been claimed as a deduction for income tax purposes in an income tax return;
c. Losses incurred not later than the last day for the payment of the estate tax; and
d. Accommodation loan, which is one contracted by a person on behalf of another person with the contracting
person merely representing on behalf of the other person who will be the beneficiary of the loan proceeds.
These are presented as a receivable in the gross estate and is presented as a deduction. However, if there
is a legal impediment to recognize the same as a receivable, it may not be included in the gross estate
(Banggawan, 2015).
Illustration (Claims against the estate – Unmarried Decedent): The heirs identified the following obligations
of Mr. Raymond, a bachelor, who died on September 01, 2x1a:
Personal loan condoned by the creditor
The balance on the purchase price of a car, paid by the heirs on September 28, 2x1a
Prescribed promissory note
Bank loan
Interest on a bank loan, P30,000 accrued as of September 01, 2x1a
The deductible ‘claims against the estate’ shall be:
The unpaid balance on the purchased car at the point of death
Bank loan
Interest payable accruing as of the date of death
Total deductible claims against the estate
P 400,000
200,000
100,000
300,000
50,000
P 200,000
300,000
P 530,000
Presentation in the estate tax return:
Claims against the estate
Exclusive
P 530,000
Common
P
0
Illustration (Claims against the estate – Married Decedent): The executor of Mr. Xavier compiled the
following obligations:
The obligation of the exclusive properties of Mrs. Xavier
Unpaid funeral expense
Unpaid medical expense
Obligations accruing after death
Obligations of the family before decedent’s death
Obligations of the separate properties of Mr. Xavier
Unpaid mortgage on family properties
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P 500,000
100,000
200,000
150,000
300,000
600,000
1,000,000
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The deductible ‘claims against the estate’ shall be:
Obligations of the family before decedent’s death
Obligations of the separate properties of Mr. Xavier
P 300,000
600,000
P 900,000
Presentation in the estate tax return:
Claims against the estate
Exclusive
P 600,000
Common
P 300,000
Transfer for Public Use
This transfer includes the amount of all bequest, legacies, devises or transfer to or for the use of the government
of the Republic of the Philippines, or any political subdivision thereof, for the exclusive public purposes. These
must be indicated in the decedent’s last will and testament (Banggawan, 2015).
Illustration: Mr. Asuncion devised in his will the following properties:
A commercial land will be given to a public school
Land and building were given to a government-owned and controlled corporation (GOCC)
TOTAL
P 2,000,000
3,000,000
P 5,000,000
Analysis: The P5,000,000 must be included in the gross estate. Only the P2,000,000 can be claimed as a
transfer for public use. GOCCs are commercial and are not for public purposes.
Property Previously Taxed (Vanishing Deductions)
This is the amount equal to the value of any property forming part of the gross estate situated in the Philippines
of any person who died within five (5) years prior to the death of the decedent or transferred to the decedent by
gift within five (5) years prior to his death, where such property can be identified as having been received by the
decedent from the donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or which
can be identified as having been acquired in exchange for property so received (Bureau of Internal Revenue,
Republic Act No. 10963, 2017). Simply, where properties are transferred between persons in short periods of
time, causing a series of transfer taxation (Banggawan, 2015).
Due to the series of double transfer taxation, a deduction for property previously taxed is allowed by the law
against the gross estate to mitigate the impact of successive transfer taxation. This deduction for property
previously taxed based on decreasing deduction percentages is referred to as ‘vanishing deduction.’
Requisites of Vanishing Deduction
1. The present decedent must have died within five (5) years from the date of death of the prior decedent or
date of the gift.
2. The property must have been previously subjected to a transfer tax.
3. The property must be identified as the same property received from prior decedent or donor or the one
received in exchange thereof.
4. The estate taxes on the transmission of the prior estate or the donor’s tax on gift must have been finally
determined and paid.
5. No vanishing deduction on the property or the property is given in exchange thereof was allowed to the prior
estate.
Illustration 1: Mr. Andres died on June 03, 2x15 with the following properties in his gross estate:
Property
Condo Unit
Car
Residence
Building
Farmland
Mode of Acquisition
Purchase
Donation
Purchased using the money inherited by his father who died on July 15, 2x13
Purchased using the money received by way of donation on Dec. 25, 2x07
Inheritance from his mother who died November 18, 2x08
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Acquisition
July 01, 2x14
July 03, 2x12
Aug. 05, 2x14
June 01, 2x15
Apr. 01, 2x09
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Analysis:
1. Only properties received by way of donation and inheritance within five (5) years from the date of death can
be claimed with vanishing deduction.
2. Properties purchased using money or property from donation or inheritance received by the decedent within
five (5) years from his death.
3. The building was purchased using donated money but was received beyond five (5) years from June 03,
2x15. The agricultural land was also inherited beyond five years from June 03, 2x15. Hence, only the car
and residence can be claimed with vanishing deductions.
Procedure in Computing Vanishing Deduction
1. Determine the initial value. The fair market value of the property at the date of the first transfer is the initial
value or the fair value at the date of death, whichever is lower.
2. Determine the initial basis. The initial value reduced by any indebtedness on the property, which was
assumed and paid by the present decedent before his or her death. The computation follows:
Initial Value
P xxx,xxx
Less: Indebtedness assumed and paid before death
xxx,xxx
Initial Basis
P xxx,xxx
3. Determine the final basis. The initial basis reduced by a proportion of other ordinary deductions which the
initial basis bears over the gross estate of the decedent. The computation follows:
Initial Basis
Less: (Initial basis/Gross Estate) x (Losses, indebtedness, taxes, and transfer for public purpose)
Final Basis
P xxx,xxx
xxx,xxx
P xxx,xxx
4. Determine the vanishing deduction. The vanishing deduction is the final basis multiplied by the following
vanishing percentages:
If the decedent died within
One (1) year from receipt of the property
More than one (1) year but less than two (2) years from receipt of the property
More than two (2) years but less than three (3) years from receipt of the property
More than three (3) years but less than four (4) years from receipt of the property
More than four (4) years but less than five (5) years from receipt of the property
More than five (5) years
Vanishing Percentage
100%
80%
60%
40%
20%
0%
Illustration 1 (Basic Procedure): Mr. Harold died with the following properties and allowable deductions:
The car received as inheritance 3 years ago
Other properties
Gross Estate
Allowable ordinary deductions:
Mortgage on the car
Indebtedness and taxes
Transfer for public use
Total ordinary deductions before vanishing deductions
Value upon
inheritance
P 1,200,000
P
300,000
Value at death
P 1,000,000
9,000,000
P 10,000,000
P
100,000
1,300,000
300,000
P 1,700,000
Analysis: The vanishing deduction shall be determined as follows:
Initial value (lower of P1,200,000 and P1,000,000)
Less: Mortgage assumed and paid (P300,000 less P100,000)
Initial Basis
Less: Proportional other ordinary deductions
Initial basis/gross estate x other ordinary deductions (P800,000/P10,000,000) x P1,700,000)
Final Basis
Multiplied by: Vanishing Percentage (3 years)
Vanishing Deduction
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P 1,000,000
200,000
P 800,000
P
P
136,000
664,000
60%
398,400
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Illustration 2 (Integrative Application): Mrs. Zenaida Ramos died on July 01, 2x14, leaving the following
properties upon her death:
A ranch received as an inheritance on June 30, 2x09
An orchard bought on December 18, 2x12 using the donated money from a friend
A rest house inherited by Mr. Alfredo Ramos on March 21, 2x11
A commercial land donated by her mother on January 2x13
Family home
Other properties
P 2,000,000
P 3,000,000
P 4,000,000
P 1,000,000
P 2,000,000
P 7,000,000
The estate of Mrs. Zenaida Ramos claims the following deductions:
Losses
Claims against the estate
Unpaid mortgage
P 400,000
P 700,000
P 1,000,000
Additional information:
• The orchard had a fair value of P2,500,000 on December 18, 2x12.
• Mrs. Zenaida Ramos mortgaged the orchard on January 01, 2x13 for P1,500,000. P500,000 of the mortgage
was paid before her death.
• Mrs. Zenaida designated in her last will that the commercial land shall be donated to a government agency
for public use.
Analysis:
1. Compute the gross estate:
Ranch
Orchard
Commercial Land
Family Home
Other Properties
Gross Estate
P 2,000,000
3,000,000
1,000,000
2,000,000
7,000,000
P 15,000,000
2. Compute the deductible amount of other ordinary
deductions:
Losses
P 400,000
Claims against the estate
P 700,000
Unpaid mortgage
P 1,000,000
Transfer for public purpose
P 1,000,000
Total other ordinary deductions
P 3,100,000
3. Identify the properties that cannot be claimed with vanishing deductions:
a. The ranch was received more than five (5) years from July 01, 2x14, the date of death.
b. The rest house is not part of the gross estate because it fails the matching principle.
c. The commercial land is part of the other deduction category; no double deduction is allowed in estate
taxation.
4. Vanishing deduction must be claimed only with the orchard:
Initial value (lower of P2,500,000 and P3,000,000)
Less: Mortgage assumed and paid*
Initial Basis
Less: Proportional other ordinary deductions
Initial basis/gross estate x other ordinary deductions
[(P2,500,000/P15,000,000) x P3,100,000]
Final Basis
Multiplied by: Vanishing Percentage (< 2 years)**
Vanishing Deduction
P 2,500,000.00
0.00
P 2,500,000.00
516,666.46
P 1,983,333.54
80%
P 1,586,666.83
NOTE:
* The mortgage on the
orchard is a new
indebtedness of Mrs.
Zenaida.it is not passed-on
pre-existing debt.
** Dec. 18, 2x12-July 01,
2x14 is more than 1 year but
less than 2 years.
Special Deductions
Family Home
This includes the dwelling house, and 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 by the Barangay Captain of the locality. The family
home is deemed constituted on the house and lot from the time it is occupied as a family residence and is
considered as such for as long as any of the decedent’s beneficiaries resides therein. (Arts. 152 and 153, Family
Code)
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The residence shall be characterized by permanency, that is, the place to which, whenever absent for business
or pleasure, one still intends to return. Only one family home can be declared by a person to avail the family
home deduction (Banggawan, 2015).
Requisites for Deduction of Family Home
1. 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 where the family home is situated.
2. The value of the family home must be included as part of the total gross estate of the decedent; and
3. The amount of allowable deduction must be equivalent to the current fair market value of the family home
as declared or included in the gross estate, or the extent of the decedent’s interest (whether
conjugal/community or exclusive property), whichever is lower, but not exceeding P10,000,000. Any excess
shall be subject to estate tax.
Illustration 1: A decedent died, leaving a family home with a fair value of P7,000,000 at the date of his death.
The following shall be deductible for a family home under each of the following independent cases:
Analysis:
Value of family home
Multiplied by % owned
Decedent’s Interest
Limit
Deductible Family Home
Exclusive property
of the decedent
P 7,000,000
100%
P 7,000,000
P 10,000,000
P 7,000,000
Assuming the family home is
A common property of
the spouses
P 7,000,000
50%
P
3,500,000
P 10,000,000
P
3,500,000
Exclusive property of
the surviving spouse
P 7,000,000
0%
P
0
P
0
P
0
When the family home is the exclusive property of the surviving spouse, none of it is reflected in the gross
estate. Hence, there should be no deduction for a family home in accordance with the matching principle.
Illustration 2: Assuming the family home of the decedent has a fair value of P12,000,000 at the date of his
death. The following shall be deductible for a family home under each of the following independent cases:
Analysis:
Value of family home
Multiplied by % owned
Decedent’s Interest
Limit
Deductible Family Home
Exclusive property
of the decedent
P 12,000,000
100%
P 12,000,000
P 10,000,000
P 10,000,000*
*Note that the excess P2,000,000 will be subject to estate tax
Assuming the family home is
A common property of
the spouses
P 12,000,000
50%
P
6,000,000
P 10,000,000
P
6,500,000
Exclusive property of
the surviving spouse
P 12,000,000
0%
P
0
P
0
P
0
Illustration 3: Mr. Ramos died leaving a family home consisting of a lot valued at P4,000,000 and a house
valued at P2,100,000.
Given the different independent cases below, compute the amount to be included in the gross estate and the
deductible family home:
CASE 1
CASE 2
CASE 3
LOT
Exclusive of Mr. Ramos
Common Property
Common Property
HOUSE
Common Property
Exclusive of Mrs. Ramos
Exclusive of Mr. Ramos
Analysis:
CASE 1
Lot (separate property of the decedent)
House (common property)
To be reported in the gross estate
Decedent’s interest
Limit
Deductible Family Home
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Gross Estate
P 4,000,000
2,100,000
P 6,100,000
% Owned
100%
50%
Family Home
P 4,000,000
1,050,000
P 5,050,000
P 10,000,000
P 5,050,000
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CASE 2
Lot (common property)
House (separate property of the surviving spouse)
To be reported in the gross estate
Decedent’s interest
Limit
Deductible Family Home
CASE 3
Lot (common property)
House (separate property of the decedent)
To be reported in the gross estate
Decedent’s interest
Limit
Deductible Family Home
Gross Estate
P 4,000,000
0
P 4,000,000
% Owned
50%
0%
Gross Estate
P 4,000,000
2,100,000
P 6,100,000
% Owned
50%
100%
Family Home
P 2,000,000
0
P 2,000,000
P 10,000,000
P 2,000,000
Family Home
P 2,000,000
2,100,000
P 4,100,000
P 10,000,000
P 4,100,000
Illustration 4: Mr. Santos’ family home was gutted by fire, which resulted in his death. The family home has a
value of P2,000,000 at the time of the fire.
Analysis: There shall be no deduction for a family home as the property was already destroyed at the point of
death. Neither shall the loss be claimed as casualty loss pursuant to the matching principle.
Standard Deduction
A deduction in the amount of P5,000,000 shall be allowed without the need for substantiation. The full amount
of P5,000,000 shall be allowed as deduction for the benefit of the decedent.
Amounts received by heirs under R.A. 4917
Any amount received by the heirs from the decedent's employer because of the death of the decedent-employee
in accordance with Republic Act No.4917. Provided, that such amount is included in the gross estate of the
decedent (Bureau of Internal Revenue, Republic Act No. 10963, 2017).
Illustration 1: In 2x19, Mr. Willy resigned from his employment and received a P2,000,000 retirement pay from
his employer’s private benefit plan. Mr. Willy invested P1,000,000 in the stock market and used the other
P1,000,000 to purchase a car. In 2x19, Mr. Willy died leaving the car, which now has a value of P800,000 and
his investments with a value of P1,500,000.
Analysis: The amount to be included in the gross estate shall be:
Car
Investment in stocks
Total inclusion in gross estate
P
800,000
1,500,000
P 2,300,000
The deduction for benefits under R.A. 4917 shall be nil. The
NIRC qualified the exemption of the benefits received as a
consequence of death rather than retirement benefit received
during the lifetime of the decedent.
Illustration 2: Mr. Harold, a bachelor, died in a car accident. His heirs received a P1,500,000 termination pay
from his employer due to his death.
Analysis: The P1,500,000 termination pay shall be included in the gross estate and shall likewise be presented
as a deduction against the gross estate.
Share of the Surviving Spouse
The net share of the surviving spouse is one-half of the conjugal partnership property as diminished by the
obligations properly chargeable to such property shall be deducted from the net estate of the decedent.
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Illustration: A married decedent died with the following gross estate and allowable deductions, assuming under
the property regime of CPOG:
Separate properties of the decedent
Common properties
Gross Estate
P
800,000
1,500,000
P 2,300,000
Allowable deductions:
Claim against the estate – separate properties
Claim against the estate – common properties
Unpaid mortgage on separate properties
Unpaid mortgage on common properties
Loss of common properties
Transfer for public use
Vanishing deduction
Family home
Standard deductions
P 400,000
600,000
100,000
400,000
150,000
100,000
200,000
1,000,000
5,000,000
The share of the surviving spouse shall be computed as follows:
Gross Estate
Less: Ordinary deductions
Claim against the estate
Unpaid mortgage
Loss
Transfer for public use
Vanishing deduction
Net estate before special deductions
Divided by:
Share of the surviving spouse
Exclusive
P 1,200,000
Common
P 3,800,000
Total
P 5,000,000
400,000
100,000
600,000
400,000
150,000
1,000,000
500,000
150,000
100,000
200,000
P 3,050,000
P
100,000
200,000
400,000
P 2,650,000
2
P 1,325,000
Note (Banggawan, 2015):
•
•
•
As a rule, transfer for public use is deductible against exclusive properties of the decedent. Married persons cannot
dispose of common properties without the consent of the other spouse.
As a rule, a vanishing deduction is deducted against exclusive properties because it pertains to properties received by
way of inheritance or donation which are usually exclusive properties.
Exceptionally, if the transfer for public use or vanishing deductions pertain to common properties, the applicable
deduction is against common properties.
Note on Classification Benefits Under R.A. 4917
Death benefits under R.A. No. 4917 may be indicated as an ordinary deduction or a special deduction under
the category ‘Others’ in either classification. This can be made without defeating the law.
If the decedent is single, there is no tax issue on which classification to use. In the case of married decedents,
however, the following approach must be followed (Banggawan, 2015):
• If R.A. 4917 death benefit is classified as an ordinary deduction, the amount of benefits must be included in
conjugal properties of the spouses but is removed in full under ordinary deductions.
• If R.A. 4917 death benefit is classified as a special deduction, the amount of the benefits must be classified
as exclusive property in the gross estate, which consequently be treated as an exclusive deduction of the
decedent.
This is based on the argument that the death benefit under R.A. 4917 is an exclusive property of the
decedent since the amount is given only by reason of the decedent’s death.
Observe that there is consistency in the given approaches, common asset against common deduction, or
exclusive asset against exclusive deduction.
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Rules on Claimable Deductions per Decedent Classification
Claims Against the Estate, Claims Against Insolvent
Person, Losses, Unpaid Mortgages, Taxes
Transfer for Public Use
Vanishing Deduction
Family Home
Standard Deduction
Amounts received by heirs under R.A. 4917
Share of Surviving Spouse
Resident or Citizen
Nonresident Alien
✓
✓
✓
✓
✓
✓
✓
✓
✘
✓ (up to P500,000)
✘
✓
✓
✓
For the estate of NRA, only the proportion of the total losses and indebtedness which the value of such part bears to the value of his entire
gross estate wherever situated shall be deductible. Losses and indebtedness shall include (a) Claims against the estate, (b) Claims against
insolvent persons, and (c) Unpaid mortgages, taxes, and casualty losses.
Deductions Allowed to Nonresident Alien Decedents
Pursuant to TRAIN Law (R.A. 10963), the following are the deductions that nonresident aliens can claim:
1. A full amount of P500,000 shall be allowed as a standard deduction for the benefit of the decedent.
(Standard deduction)
2. Pro-rata deduction on claims against the estate, claims against the insolvent person and unpaid mortgages,
and casualty losses
The allowable deductible hereunder shall be computed using the following formula:
𝑃𝑃ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸
× 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑁𝑁𝑁𝑁. 2 = 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑐𝑐𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡
𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸
3. Property previously taxed
4. Transfer for public use
5. Net share of the surviving spouse in the conjugal property or community property
Summary of Deduction Rules
Deductions
Residents or Citizens
Nonresident Aliens
Unpaid mortgages, taxes and casualty losses
YES
YES (Prorata)
Claims against the estate
YES
YES (Prorata)
Claims against insolvent person
YES
YES (Prorata)
Transfer for public use
YES
YES
Vanishing deductions
YES
YES
Family home
YES
NO
Standard deductions
YES
YES
Benefits under R.A. 4917
YES
NO
Share of the surviving spouse
YES
YES
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Additional Illustrations
Illustration 1: Unmarried Decedent (Lawyer Philippines Admin, 2018):
Mr. X is an unmarried Filipino which has a family home of P30,000,000 and other property worth P14,000,000.
He has some unpaid real estate taxes of P2,000,000.
Family Home
Real and Personal Property
Gross Estate
Standard Deduction
Family Home Deduction
Unpaid Real Estate Taxes
Deductions and Obligations
NET ESTATE
Multiplied by:
ESTATE TAX DUE
30,000,000
14,000,000
5,000,000
10,000,000
2,000,000
P 44,000,000
P 17,000,000
P 27,000,000
6%
P 1,620,000
Note:
• P10,000,000 deduction is only used
when there is a family home, and when
that home is P10,000,000 and above.
• If the family home is less than
P10,000,000, then the deduction is only
up to the value of the home and not the
entire P10,000,000.
Illustration 2: Married Decedent (Lawyer Philippines Admin, 2018):
Using the same information from Illustration 1, the only difference is that there is a surviving spouse.
Family Home
Real and Personal Property
Gross Estate
Unpaid Real Estate Taxes
Obligations on Conjugal Property
NET CONJUGAL ESTATE
Surviving spouse share is ½ of the Net Conjugal Estate
30,000,000
14,000,000
Family Home
Real and Personal Property
Gross Estate
Standard Deduction
Family Home Deduction
Unpaid Real Estate Taxes
Surviving Spouse’s Share
All Deductions, Obligations, and Surviving Spouse’s Share
NET ESTATE
Multiplied by:
ESTATE TAX DUE
30,000,000
14,000,000
Note:
•
•
2,000,000
5,000,000
10,000,000
2,000,000
21,000,000
P 44,000,000
2,000,000
P 42,000,000
P 21,000,000
P 44,000,000
38,000,000
P 6,000,000
6%
P
360,000
If there are exclusive properties, then these have to be excluded from the surviving spouse’s calculation.
Exclusive properties are enumerated by the law and depend on what type of property regime governed
at the time of your marriage.
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Illustration 3: The decedent is unmarried with a family home more than P10,000,000 (Bureau of Internal
Revenue, Revenue Regulations No. 12-2018, 2018):
Family home
Real and personal properties
GROSS ESTATE
LESS: Ordinary Deductions
Unpaid real estate tax
LESS: Special Deductions
Family home
Standard deduction
Total Deductions
NET TAXABLE ESTATE
Multiplied by:
ESTATE TAX DUE
30,000,000
14,000,000
44,000,000
(2,000,000)
(10,000,000)
(5,000,000)
(17,000,000)
27,000,000
6%
P 1,620,000
Although the family home is valued at P30,000,000, the maximum allowable deduction for the family home is
P10,000,000.
Illustration 4: The decedent is married with a family home that is a conjugal property, more than P10,000,000
(Bureau of Internal Revenue, Revenue Regulations No. 12-2018, 2018)
Conjugal Properties:
Family Home
Real and Personal Properties
Exclusive Properties:
GROSS ESTATE
Less:
Ordinary Deductions
Conjugal Ordinary Deductions
Net Conjugal Estate
Special Deductions
Family Home
Standard Deductions
Total Deductions
NET ESTATE
Less:1/2 Share of Surviving
NET TAXABLE ESTATE
Multiplied by:
ESTATE TAX DUE
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Exclusive
5,000,000
5,000,000
Conjugal
30,000,000
14,000,000
44,000,000
(2,000,000)
42,000,000
Total
30,000,000
14,000,000
5,000,000
49,000,000
(2,000,000)
(10,000,000)
(5,000,000)
(17,000,000)
32,000,000
(21,000,000)
P 11,000,000
6%
P
660,000
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Illustration 5: The decedent is married with a family home that is an exclusive property, more than P10,000,000
(Bureau of Internal Revenue, Revenue Regulations No. 12-2018, 2018):
Exclusive
Conjugal
Total
Conjugal Properties:
Real and Personal Properties
14,000,000
14,000,000
Exclusive Properties:
Family Home
30,000,000
30,000,000
GROSS ESTATE
30,000,000
14,000,000
44,000,000
Less: Ordinary Deductions
Conjugal Ordinary Deductions
(2,000,000)
(2,000,000)
Net Conjugal Estate
12,000,000
Less: Special Deductions
Family Home
(10,000,000)
Standard Deductions
(5,000,000)
Total Deductions
(17,000,000)
NET ESTATE
27,000,000
Less:1/2 Share of Surviving
(6,000,000)
NET TAXABLE ESTATE
P 21,000,000
Multiplied by:
6%
ESTATE TAX DUE
P 1,260,000
Illustration 6: The decedent is unmarried with a family home below P10,000,000 (Bureau of Internal Revenue,
Revenue Regulations No. 12-2018, 2018):
Family Home
Real and Personal Properties
GROSS ESTATE
LESS: Ordinary Deductions
LESS: Special Deductions
Family Home
Standard Deduction
Total Deductions
NET TAXABLE ESTATE
Multiplied by:
ESTATE TAX DUE
9,000,000
14,000,000
(9,000,000)
(5,000,000)
23,000,000
(2,000,000)
14,000,000
(16,000,000)
P 7,000,000
6%
P
420,000
Illustration 7: The decedent is married with a family home that is a conjugal property and is below P10,000,000
(Bureau of Internal Revenue, Revenue Regulations No. 12-2018, 2018):
Conjugal Properties:
Family Home
Real and Personal Properties
Exclusive Properties:
GROSS ESTATE
Less: Ordinary Deductions
Conjugal Ordinary Deductions
Net Conjugal Estate
Less: Special Deductions
Family Home
Standard Deductions
Total Deductions
NET ESTATE
Less:1/2 Share of Surviving
NET TAXABLE ESTATE
Multiplied by:
ESTATE TAX DUE
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Exclusive
5,000,000
5,000,000
Conjugal
9,000,000
14,000,000
23,000,000
(2,000,000)
21,000,000
Total
9,000,000
14,000,000
5,000,000
28,000,000
(2,000,000)
(4,500,000)
(5,000,000)
(11,500,000)
16,500,000
(10,500,000)
P 6,000,000
6%
P
360,000
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Illustration 8: The decedent is married with a family home, which is an exclusive property and is below
P10,000,000 (Bureau of Internal Revenue, Revenue Regulations No. 12-2018, 2018):
Conjugal Properties:
Real and Personal Properties
Exclusive Properties:
Family Home
GROSS ESTATE
Less:
Ordinary Deductions
Conjugal Ordinary Deductions
Net Conjugal Estate
Special Deductions
Family Home
Standard Deductions
Total Deductions
NET ESTATE
Less:1/2 Share of Surviving
NET TAXABLE ESTATE
Multiplied by:
ESTATE TAX DUE
Exclusive
9,000,000
9,000,000
Conjugal
Total
14,000,000
14,000,000
14,000,000
9,000,000
23,000,000
(2,000,000)
12,000,000
(2,000,000)
(9,000,000)
(5,000,000)
(16,000,000)
7,000,000
(6,000,000)
P 1,000,000
6%
P
60,000
References
Aralar, R. B. (2007). Transfer and business taxation: Law and jurisprudence. Mandaluyong City: National Book Store.
Banggawan, R. B. (2015). Business & transfer taxation (laws, principles, and applications with tax remedies). Manila: Real
Excellence Publishing.
Bureau of Internal Revenue. (2017, July 24). Republic Act No. 10963. Retrieved from Bureau of Internal Revenue:
https://www.bir.gov.ph/images/bir_files/internal_communications_1/TRAIN%20matters/RA-10963-RRD.pdf
Bureau of Internal Revenue. (2018, January 25). Revenue Regulations No. 12-2018. Retrieved from Bureau of Internal
Revenue:
https://www.bir.gov.ph/images/bir_files/internal_communications_1/Full%20Text%20RR%202018/RR%20No%20
12-2018.pdf
Bureau of Internal Revenue. (2019). Estate Tax. Retrieved from Bureau of Internal Revenue:
https://www.bir.gov.ph/index.php/tax-information/estate-tax.html#et1
Bureau of Internal Revenue. (2019). Guide to Philippines Tax Law Research. Retrieved from Bureau of Internal Revenue:
https://www.bir.gov.ph/index.php/rulings-and-legal-matters/guide-to-philippines-tax-law-research.html
Bureau of Internal Revenue. (2019). R.A. No. 8424 (An Act Amending the National Internal Revenue Code). Retrieved from
Official Gazette: https://www.officialgazette.gov.ph/1997/12/11/republic-act-no-8424/
Bureau of Internal Revenue. (2019). Tax Code. Retrieved from Bureau of Internal Revenue:
https://www.bir.gov.ph/index.php/tax-code.html#title3
Bureau of Internal Revenue. (2019). Tax Reform for Acceleration and Inclusion (TRAIN). Retrieved from Bureau of Internal
Revenue:
https://www.bir.gov.ph/images/bir_files/internal_communications_1/Full%20Text%20RR%202018/RR%20No%20
12-2018.pdf
Chavez, J. J. (2018). The new Tax Code of the Philippines: For practitioners, entrepreneurs, and Bar candidates. Manila:
REX Book Store.
Dascil, R. T. (2018). NIRC of the Philippines. Manila: REX Book Store.
De Leon, H. S. & De Leon, Jr., H. M. (2013). The law on transfer and business taxation. Manila: REX Book Store.
Lawyer Philipines Admin. (2018). Philippine Estate Taxes 2018. Retrieved from Lawyers in the Philippines:
https://lawyerphilippines.org/2018/05/27/philippine-estate-taxes-2018
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