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Questions and Answers
What is the highest allowable amount for the family home deduction?
What is the highest allowable amount for the family home deduction?
What is the vanishing percentage for property received two years before the decedent's death?
What is the vanishing percentage for property received two years before the decedent's death?
Which of the following is NOT considered a special deduction?
Which of the following is NOT considered a special deduction?
How much standard deduction is allowed without the need for substantiation?
How much standard deduction is allowed without the need for substantiation?
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What total share is allowed to the surviving spouse from net conjugal properties?
What total share is allowed to the surviving spouse from net conjugal properties?
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Which deduction is applied at a 50% rate under special deductions?
Which deduction is applied at a 50% rate under special deductions?
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For how long must a property be held to incur a 20% vanishing deduction?
For how long must a property be held to incur a 20% vanishing deduction?
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Which of the following deductions is allowed only for married decedents?
Which of the following deductions is allowed only for married decedents?
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What must losses from casualty be in order to qualify as an ordinary deduction?
What must losses from casualty be in order to qualify as an ordinary deduction?
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Which of the following is NOT classified as an ordinary deduction?
Which of the following is NOT classified as an ordinary deduction?
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What is one of the key principles for claiming ordinary deductions?
What is one of the key principles for claiming ordinary deductions?
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Which rule prohibits claiming the same deduction in different classifications?
Which rule prohibits claiming the same deduction in different classifications?
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Which time frame is relevant for the deductibility of casualty losses?
Which time frame is relevant for the deductibility of casualty losses?
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What is the classification for losses against insolvent persons?
What is the classification for losses against insolvent persons?
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What must not happen for a loss to be deductible under the losses category?
What must not happen for a loss to be deductible under the losses category?
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What does the default presumption on ordinary deductions imply?
What does the default presumption on ordinary deductions imply?
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What is a requisite for a claim against the estate to be deductible?
What is a requisite for a claim against the estate to be deductible?
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Which of the following types of taxes are considered unpaid taxes at the time of death?
Which of the following types of taxes are considered unpaid taxes at the time of death?
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What is the purpose of an accommodation loan?
What is the purpose of an accommodation loan?
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Which deduction type is applied to transfers for public use in the Philippines?
Which deduction type is applied to transfers for public use in the Philippines?
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What role does the Family Benefit Rule play in claims against the estate?
What role does the Family Benefit Rule play in claims against the estate?
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What must happen for a claim against the estate to be considered valid in law?
What must happen for a claim against the estate to be considered valid in law?
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What defines vanishing deductions related to double transfer taxation?
What defines vanishing deductions related to double transfer taxation?
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What is required to determine the initial value of property for vanishing deductions?
What is required to determine the initial value of property for vanishing deductions?
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Study Notes
Estate Tax Return Deductions
- Gross estate is reduced by ordinary and special deductions to arrive at the net taxable estate.
- Deductions are classified as ordinary, special, and the surviving spouse's share.
General Principles of Estate Deductions
- Deductions require documentary evidence (substantiation rule).
- Deductions must relate to assets included in the gross estate (matching principle).
- Deductions cannot be claimed multiple times (no double classification rule).
- Ordinary deductions are presumed unless proven otherwise.
Ordinary Deductions: Losses, Indebtedness, Taxes (LIT)
- Losses: Deductible losses must be from casualty (fire, storm, etc.), uncompensated by insurance, sustained during estate settlement before the tax return deadline, and not claimed on income tax returns. Claims against insolvent persons are treated separately but function similarly. Losses on separate property reduce separate property; losses on common property reduce common property.
- Claims Against the Estate (Indebtedness): To be deductible, claims must represent a valid, enforceable personal obligation of the deceased (except unpaid medical expenses), contracted in good faith for adequate consideration. They must not be condoned or prescribed. Unpaid mortgages are reported separately from other claims against the estate. Family benefit rules and property classification rules govern the allocation of claims.
- Unpaid Taxes: Income, business, and property taxes accrued at death and unpaid at death are deductible.
Ordinary Deductions: Transfer for Public Use
- Bequests, legacies, devises, or transfers to the Philippine government or its subdivisions for exclusively public purposes are deductible. This must be explicitly stated in the will.
Ordinary Deductions: Vanishing Deductions
- Apply when a double-taxation scenario occurs within 5 years of the decedent's death, following a prior donation (inter vivos or mortis causa).
- Calculation involves determining the initial value (lower of fair market value at the time of the first transfer or death), initial basis (initial value less assumed and paid debts), final basis (initial basis less a proportional share of other ordinary deductions), and finally, the vanishing deduction (final basis x applicable percentage based on the time elapsed since the initial transfer).
- Vanishing percentages are: 100% (within 1 year), 80% (2 years), 60% (3 years), 40% (4 years), 20% (5 years), 0% (over 5 years).
Special Deductions
- Family Home: The value of the family home (dwelling and land) where the decedent and/or family resided (barangay captain certification required); maximum deduction is the lowest of the fair market value or ₱10,000,000.
- Standard Deduction: A ₱5,000,000 deduction requiring no substantiation.
- Benefits Under RA 4917: Retirement or termination benefits; ordinary deductions are fully deductible, special deductions are 50% deductible.
Share of the Surviving Spouse
- One-half of the net conjugal or community property; applies only to married decedents. This is deducted after other applicable deductions from the conjugal/community property. Only the decedent's share is subject to tax.
Deductions Allowed to Non-Resident Alien Decedents
- Prorated losses, indebtedness, and taxes.
- Property previously taxed (vanishing deductions – property must be within the Philippines).
- Transfer for public purpose.
- Share of the surviving spouse.
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Description
Test your knowledge on estate tax deductions, including the principles and classifications of ordinary and special deductions. This quiz covers essential aspects such as the substantiation rule, matching principle, and unique characteristics of losses related to estate settlements.
