This document discusses various deductions that can be taken from a gross estate for tax purposes in the Philippines, including ordinary expenses, losses, indebtedness, taxes, transfers for public use, and amounts received by heirs. It provides details on vanishing deductions, which allow a deduction on property received within 5 years that was previously taxed. An example calculation is shown for a vanishing deduction involving property inherited by Gina Dan from her mother Pina Dan that increased in value over time.

1. Taxation 2 │
DEDUCTIONS FROM GROSS ESTATE
FLABERT VILLASENCIO, CPA
Notre Dame of Dadiangas University

2. ORDINARY
SPECIAL
Expense
sLosses
Indebtedness
Taxes
Transfer for public use
Amount received by heir under RA 4917
Vanishing deductions
Share of surviving spouse
Funeral
Judicial Claims against the estate
Claims against insolvent person
Family home
Medical Expenses
Standard deduction
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3. Transfer for Public Use
oAll bequests, legacies, devises or transfers to or for
the use of the Philippine Government
oOther than the Philippine Government, NOT allowed
as deduction
oMust be through TESTAMENTARY succession
oDeductible from exclusive portion of the estate;
otherwise it is conjugal (must have written consent
of the other spouse)
oDeemed to have been done by the husband alone;
otherwise there should be express stipulation that
the wife joins the donation
oIf silent, it should be taken as an exclusive property

4. Vanishing Deduction
oTo lessen the burden of paying tax due to the short
period of property transfers by reason of early
deaths
oSame Property must be included in the gross estate
oTo be deductible:
o Present decedent died within 5 years from the receipt of
property through gratuitous transfer
o The property involve is within the Philippines
o Tax must have been actually been paid for such property
o It must came from a prior decedent
o No similar deduction must have been allowed to prior
decedent

5. Vanishing Deduction
oRate of Vanishing Deduction
100% - if within 1 year
80% - if > 1 year to 2 years
60% - if > 2 years to 3 years
40% - if > 3 years to 4 years
20% - if > 4 years to 5 years

6. Vanishing Deduction
oComputation of Vanishing Deduction
1.Value to be taken- previous transfer vs
present (Lower)
2.Initial Basis- Value taken less mortgage
paid
3.Proportionate Deduction from Initial Basis
= ELIT + TPU x (Initial Basis / Gross Estate)
4.Basis of Vanishing Deduction
Initial Basis less: Proportionate Deduction
4.Percentage of Deduction Level

7. Vanishing Deduction
Illustration:
Gina Dan, died on Oct 21, 2013 leaving a parcel
of land which she inherited from her mother,
Pina G.A Dan who died May 20, 2010. The value
of the property at the time of death of her
mother was 350,000 but it appreciated to
475,000 in 2013.
The gross estate, deductions and other data
consisted of the following:

8. Vanishing Deduction
Illustration:
Community Property 950,000
Exclusive Properties 650,000
Funeral Expenses 40,000
Judicial Expenses 25,000
Medical Expenses 15,000
Bequests to Phil Govt 10,000
Claims against the Estate 15,000
At the time of death of Pina, the parcel of land had an
unpaid mortgage of 50,000 of which 20,000 was paid
by Gina.

9. Vanishing Deduction
Illustration:
Solution:
Value in estate of prior decedent 350,000
Value in estate of present decedent 475,000
1. Lower Value 350,000
Less: Mortgage 20,000
2.Initial Basi 330,000
Less: Deductions (Pro-rated)
Funeral Exp 40,000
Judicial Exp 25,000
Transfer for Pub Use 10,000
Claims against Estate 15,000
Unpaid Mortgage 30,000
Total 120,000
3. Deductible (330,000/1,600,000 x 120,000) 24,750
4. Base 305,250
5. Rate (More than 3 years to 4 years) 40 %
oVANISHING DEDUCTION 122,100

10. SEATWORK: (1/2 CW)
4-20 TO 4-30
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