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ESTATE TAX DEDUCTIONS

 ORDINARY DEDUCTIONS:
1. Expenses, losses, indebtedness, and taxes (ELIT):
a. Funeral expenses
b. Judicial expenses for testamentary or intestate proceedings
c. Claims against the estate
d. Claims against insolvent persons included in the gross estate
e. Unpaid mortgages or indebtedness upon the property
f. Unpaid taxes
g. Losses incurred during the settlement of the estate
2. Property previously taxed (Vanishing deduction)
3. Transfers for public use
4. Net share of the surviving spouse in the conjugal or community property.

 SPECIAL DEDUCTIONS:
1. The Family home
2. Standard deduction
3. Medical expenses
4. Amount received by heirs under R.A. No. 4917 (Retirement Benefits of Employees of Private
Firms)

 Decedent: RC, NRC, RA


1. Expenses, losses, indebtedness, and taxes (ELIT):
a. Funeral expenses
b. Judicial expenses for testamentary or intestate proceedings
c. Claims against the estate
d. Claims against insolvent persons included in the gross estate
e. Unpaid mortgages or indebtedness upon the property
f. Unpaid taxes
g. Losses incurred during the settlement of the estate
2. Property previously taxed (Vanishing deduction)
3. Transfers for public use
4. The Family home
5. Standard deduction
6. Medical expenses
7. Amount received by heirs under R.A. No. 4917 (Retirement Benefits of Employees of Private
Firms)
8. Net share of the surviving spouse in the conjugal or community property.

 Decedent: NRA
1. Expenses, losses, indebtedness, and taxes (ELIT):
a. Funeral expenses
b. Judicial expenses for testamentary or intestate proceedings
c. Claims against the estate
d. Claims against insolvent persons included in the gross estate
e. Unpaid mortgages or indebtedness upon the property
f. Unpaid taxes
g. Losses incurred during the settlement of the estate
2. Property previously taxed (Vanishing deduction)
3. Transfers for public use
4. Net share of the surviving spouse in the conjugal or community property.

I. EXPENSES, LOSSES, INDEBTEDNESS, AND TAXES (ELIT)

A. ACTUAL FUNERAL EXPENSES

What are included as funeral expense?


- The term is not confined to its ordinary or usual meaning. It includes:
1. Mourning apparel of the surviving spouse and unmarried minor children of the deceased,
bought and used in the occasion of the burial;
2. Expenses of the wake preceding the burial including food and drinks;
3. Publication charges for death notices;
4. Telecommunication expenses in informing relatives of the deceased;
5. Cost of burial plot, tombstone monument or mausoleum but not their upkeep. In case
deceased owns a family estate or several burial lots, only the value corresponding to the
plot where he is buried is deductible;
6. Interment and/or cremation fees and charges;
7. All other expenses incurred for the performance of the ritual and ceremonies incident to
the interment.

Non-deductible funeral expenses:


1. Expenses incurred after the interment
2. Any portion of the funeral or burial expenses borne by relatives and friends of the
deceased
3. Medical expenses as of the last illness will no form part of funeral expenses but
should be claimed as medical expenses incurred within 1 year before the death of
the decedent.

B. JUDICIAL EXPENSES OF TESTAMENTARY OF INTESTATE PROCEEDINGS

What are included?


- Expenses allowed as deduction under this category are those incurred in the:
1. Inventory-taking of assets comprising the gross estate;
2. Administration;
3. Payment of debts of the estate;
4. Distribution of the estate among the heirs.

Non-deductible Judicial Expenses:

1. Expenditures incurred for the individual benefit of the heirs, devisees, legatees;

2. Compensation paid to a trustee of the decedent’s estate when it appeared that such trustee
was appointed for the purpose of managing the decedent’s real property for the benefit of the
testamentary heir;
3. Premiums paid on the bond filed by the administrator as an expense of administration since
the giving of a bond is in the nature of a qualification for the office and not necessary for the
settlement of the estate;

4. Attorney’s fees incident to litigation incurred by the heirs in asserting their respective rights.

C. CLAIMS AGAINST THE ESTATE


- 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 judgments.

Requisites for deductibility:

1. The liability represents a personal obligation of the deceased existing at the Time of his death
except unpaid obligations incurred incident to his death such as unpaid funeral expenses and
unpaid medical expenses;

2. The liability was contracted in Good faith and for adequate and full consideration in money or
money’s worth;

3. Must be a debt or claim must be Valid and enforceable in court;

4. The indebtedness must not have been Condoned by the creditor or the action to collect from
the decedent must not have prescribed (RR 2-2003; and

5. It must be duly substantiated.

D. CLAIMS AGAINST INSOLVENT

Requisites for deductibility:


1. The full amount of the receivables be included first in the gross estate; and
2. The incapacity of the debtors to pay their obligation is proven not merely alleged.

E. UNPAID MORTGAGES

Requisites for deductibility:

1. The value of the decedent’s interest therein, undiminished by such mortgage or


indebtedness, is included in the value of the gross estate; and
2. The mortgages were contracted bona fide and for an adequate and full consideration in
money or money’s worth.
F. UNPAID TAXES

Requisites for deductibility:


1. Taxes which have accrued as of or before the death of the decedent; and
2. Unpaid as of the time of his death, regardless of whether or not it was incurred in
connection with trade or business

Does not include:

1. Income tax upon income received after death;


2. Property taxes not accrued before his death; or
3. The estate tax due from the transmission of his estate.

G. LOSSES

Requisites for deductibility:


1. Were incurred during the settlement of the estate;
2. Arise from fire, storm, shipwreck, or other casualties, or robbery, theft or embezzlement;
3. Are not compensated by insurance or otherwise;
4. Are not claimed as deduction in the ITR of the estate at the time of the filing of the return;
and
5. Occur not later than the last day for payment of the estate tax (last day to pay: six months
after the decedent’s death). (Sec. 86[A][1][e], NIRC)

II. PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTIONS)


- The deduction allowed from the gross estate of citizens, resident aliens and non resident
estates for properties which were previously subject to donors or estate taxes.

Requisites for deductibility:


1. The present decedent died within 5 years from receipt of the property from the prior
decedent or donor;
2. The property on which vanishing deduction is being claimed is located within the
Philippines;
3. The property formed Part of the taxable estate of the prior decedent or of the taxable gift
of the donor;
4. The estate Tax on the prior succession or donor’s tax on the gift must have been finally
determined and paid;
5. The property on which the vanishing deduction is taken must be Identified as the one
received or acquired; and
6. No vanishing deduction was allowed on the same property on the prior decedent’s estate.
III. TRANSFERS FOR PUBLIC USE

Requisites for deductibility:


1. The disposition is in a last Will and testament;
2. To take effect after Death;
3. In favor of the Government of the Philippines or any political subdivision thereof;
4. For exclusive Public purposes; and
5. The value of the property given is Included in the gross estate.

IV. FAMILY HOME

Requisites for deductibility:


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 total value of the family home must be included as part of the gross estate of the
decedent; and
3. Allowable deduction must be in the amount equivalent to:
a. the current FMV of the family home as declared or included in the gross estate, or
b. the extent of the decedent’s interest (whether conjugal/community or exclusive
property), whichever is lower, but not exceeding P1, 000,000.

V. STANDARD DEDUCTION
- A deduction in the amount of P1,000,000 shall be allowed as an additional deduction
without need of substantiation.

VI. MEDICAL EXPENSES

Requisites for deductibility:


1. Medical expenses incurred by the decedent;
2. Incurred within one (1) year prior to the decedent’s death;
3. Must be substantiated with receipts; and
4. Shall not exceed 500,000 whether paid or unpaid.

VII. AMOUNTS RECEIVED BY THE HEIRS UNDER RA4917

Requisites for deductibility:


1. Amounts received by the heirs from the decedent’s employer;
2. Received as a consequence of the death of the decedent-employee; and
3. Amount is included in the gross estate of the decedent. (Sec. 86[A][7], NIRC)
VIII. NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL/COMMUNITY PROPERTY
- After deducting the allowable deductions appertaining to the conjugal or community
properties included in the gross estate, the share of the surviving spouse must be removed
to ensure that only the devedent’s interest in the estate is taxed.