CHAPTER 4: DEDUCTIONS FROM GROSS ESTATE 2. Property previously taxed.

Vanishing deduction
on property situated in the Philippines
PRE-TRAIN LAW 3. Transfers for Public Use of Property situated in
the Philippines
I. RESIDENT CITIZEN, NON-RESIDENT CITIZEN
4. Net Share of Surviving Spouse in the Conjugal
AND RESIDENT ALIEN DECEDENTS
Partnership or Community Property
The following are the deductions from the *No deduction shall be allowed unless the executor, or
value of gross estate: anyone of the heirs, includes in the return required to
1. Expenses, losses, indebtedness, and be filed the value of the decedent’s death of that part of
taxes his gross estate not situated in the Philippines
a. Funeral Expenses
b. Judicial Expenses of the *The estate shall not be allowed the ff deductions:
testamentary/intestate proceedings
 Family Home
c. Claims against the estate
 Standard deduction equivalent to P1,000,000
d. Claims of the deceased against
insolvent persons  Medical expenses
e. Unpaid mortgages/indebtedness  Amount Received by heirs under Republic Act
f. Unpaid Taxes 4917
g. Casualty losses PROVISIONS ON THE DEDUCTIBLE ITEMS FOR
2. Property previously taxed or vanishing RESIDENT CITIZEN, NON-RESIDENT CITIZEN AND
deduction
RESIDENT ALIEN DECEDENTS BEFORE TRAIN LAW:
3. Transfers for public use
4. Family Home Expenses, Losses, Indebtedness and Taxes
5. Standard Deduction equivalent to one
million pesos (P1,000,000) a. Funeral Expenses:
6. Medical Expenses Period Covered Rate Governing Law
7. Amount received by heirs under Up to Dec. 31, 5% of gross estate C.A. 466
Republic Act 4917 1972
8. Net Share of Surviving spouse in the Jan 1,1973 – 5% of gross estate P.D. 69
conjugal partnership or community July 27, 1992 but not exceeding
property P50 000
July 28, 1992 – 5% of gross estate R.A. 7499
Dec. 31 1997 but not exceeding
II. Non-Resident Alien Decedents
P100 000
On or after Jan. Lower amount R.A. 8424
1, 1998 between the
The following are the deductions:
actual funeral
expenses (whether
1. Expenses, Losses, Indebtedness and Taxes –
paid/unpaid) and
subject to limitation as follows 5% of the gross
estate, in no case
Gross Estate, PH ÷ Gross Estate, World to exceed
× World expenses, losses, indebtedness & taxes P200 000
Deduction Allowed

*Any unpaid portion in excess of P200,000 threshold

cannot be claimed as deduction under “claims against
the estate”.
Actual Funeral Expenses – incurred in connection with
the internment or burial of the deceased, duly
supported by invoices, receipts or other evidences
They include:
 Mourning apparel of the surviving spouse and
unmarried minor children of the deceased
bought and used on the occasion of the burial
 Expenses for the deceased’s wake, including
food and drinks
 Publication charges for death notices
 Telecommunication expenses in informing
relatives of the deceased
 Cost of burial plot, tombstones, monument or
mausoleum but not their upkeep.
In case the deceased owns a family estate or
several burial lots, only the value corresponding
to the plot where he is buried is deductible.
 Interment and/or cremation fees and charges
 All other expenses incurred for the performance
of the rites and ceremonies incident to
internment
Not deductible:
 Expenses incurred after internment
 Any portion of the funeral/burial expenses
borne or defrayed by relatives/friends
b. Judicial Expenses – expenses incurred during
the settlement of the estate but not beyond the
last day prescribed by law, or the extension
thereof, for the filing of the estate tax return or
those incurred in the:
a. Inventory of taking assets comprising the
gross estate
b. Their administration
c. The payment of debts of the estate
d. Distribution of the estate among the heirs
Expenses may include: (Any unpaid amount of
the following should be supported by the sworn
statement of account issued and signed by the
creditor)
 Fees of executor or administrator
 Attorney’s fees
 Court fees
 Accountant’s fees
 Appraiser’s fees
 Clerk hire
 Costs of preserving and distributing the
estate
 Costs of storing or maintaining property
of the estate
 Brokerage fees for selling property of
the estate
c. Claims Against the Estate
- Obligation contracted by the decedent
when he was alive but failed to settle or pay
during his lifetime
- Not terminated by his death
- In respect of property, may arise out of:
contract, tort or operation of law
Requisites for Deductibility of a
Liability/Claim/Indebtedness:
1. Represents a personal obligation of the
deceased existing at the time of death
except unpaid obligations incurred incident
to his death (unpaid funeral and medical
expenses)
2. Contracted in good faith and for adequate
and full consideration in money or money’s
worth
3. Must be a debt or claim which is valid in law
and enforceable in court
4. Must not have been condoned by the
creditor or the action to collect from the
decedent must not have prescribed
*Substantiation requirements have to be complied
with
d. Claims Against Insolvent Persons – creditor
dies unable to collect from the debtor because
of the debtor’s insolvency
- Full amount of the claim must be included
in the gross estate
- The receivable which is uncollectible may
be deducted from the gross estate
 - Incapacity of the debtors to pay debts due
to insolvency must be proven
Full Claim less Collectible = Amount
Deductible from the Gross Estate
Collectible Amount from Debtor = Full Claim
x (Assets/Liability of the Debtor)
e. Unpaid Mortgages – exist when the decedent
leaves property encumbered by mortgage
- Fair market value of the property
mortgaged must be included in the gross
estate in full
- Deductible amount shall be to the extent
that it was contracted bona fide and for an
adequate and full consideration in money
or money’s worth
If being claimed by the estate, verification
must be made as to who was the
beneficiary of the loan proceeds:
1. Loan is merely an accommodation loan
where the loan proceeds went to
another person - value of the unpaid
loan is included as a receivable of the
estate
2. If there is legal impediment to
recognize the same as receivable of the
estate – said obligation/payable shall
not be allowed as deduction from the
gross estate
3. In all instances, the mortgaged
property, to the extent of the
decedent’s interest therein, should
always form part of the gross taxable
estate
f. Unpaid Taxes – taxes which have accrued as of
the death of the decedent but which were
unpaid as of the time of death
This deduction will not include (chargeable
against the income of the estate):
1. Income tax upon income received after
death
2. Property taxes not accrued before his death
3. Estate tax due from the transmission of his
estate
g. Casualty Losses – arises from:
 Fires, storms, shipwreck or
other casualties
 Robbery, theft or
embezzlement
- Subject to the following conditions that
such losses:
1. Are not compensated for by insurance
or otherwise
2. At the time of the filing of the return,
have not been claimed as a deduction
for income tax purposes in an income
tax return
3. Were incurred not later than the last
day for payment of the estate tax
- If fire loss occurred during the settlement of
the estate but beyond the 6-month period
during which the estate tax is supposed to
be paid, loss shall not be deductible
Property Previously Taxed or Vanishing Deduction
– allowed to lessen the impact of successive taxation of
the same property within a very short period due to the
death of the decedent-transferee
Requisites for Deductibility
a. Present decedent must have died within 5
years from the date of death of prior
decedent or date of gift
b. The ppt with respect to which the
deduction is claimed must have formed part
of thegross estate situated in the
Philippines of the prior decedent or taxable
gift of the donor
c. The property must be identified as the
same property received from prior
decedent or donor or the one received in
exchange therefor
d. The estate taxes on the transmission of the
prior estate or the donor’s tax on the gift
must have been finally determined and paid
e. No vanishing deduction on the property or 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐵𝑎𝑠𝑖𝑠
2. 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐺𝑟𝑜𝑠𝑠 𝐸𝑠𝑡𝑎𝑡𝑒 𝑜𝑓 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑑𝑒𝑐𝑒𝑑𝑒𝑛𝑡
x
the property given in exchange therefor
Expenses etc & transfers for public
was allowed to the prior estate.
purposes
Limitations on Amount Deductible
= 2nd Deduction
1. Value of the property – whichever is lower 3. Initial Basis xxx
between the property previously taxed or Less: 2nd Deduction xxx
the aggregate value of such property if Final Basis xxx
more than one item or the value of such x %ofDeduction x%
property in present decedent’s gross estate Vanishing Deduction xxx
2. Deduction for mortgage or other lien –
initial value in #1 above shall be reduced by Transfers for Public Use
total amount paid, if any, by present
- the amount of all bequests, legacies,
decedent, on any mortgage or other lien on
devises or transfers to or for the use of the
the property where a deduction was
Government of the Republic of the
allowed
Philippines, or any political subdivision
3. Deduction for expenses, etc. – value in #2
thereof, for exclusive public purposes
shall be further reduced by an amount
which bears the same ratio to the amounts Family Home
allowed as deductions for expenses, losses,
indebtedness, taxes and transfers for public - Deductible amount is the current FMV of
use as the amount otherwise deductible for the decedent’s family home at the time of
property bears to the value of the death not exceeding P1,000,000
decedent’s gross estate - In excess of the said amount shall be
4. Percentage of Deductions – the value in #3 subject to estate tax
is the final basis/value of the vanishing - The dwelling house, including the land on
deduction multiplied by the following which it is situated, where the husband and
percentages wife/head of the family and members of
their family reside as certified to by the
Percentage Transfer But not Barangay Captain of the locality
more than more than - Permanency; a place to which whenever
100% 1 year absent for business/pleasure, one still
80% 1 year 2 years intends to return
60% 2 years 3 years
40% 3 years 4 years Beneficiaries of Family Home:
20% 4 years 5 years
1. The husband and wife, or the head of the
STEP-BY-STEP Computation of the Vanishing family
Deduction 2. Their parents, ascendants, descendants,
1. Value taken of ppt xxx including legally adopted children, brothers
Less: Mortgage debt and sisters whenever the relationship be
or other lien paid, if legitimate or illegitimate, who are living in
any (1st Deduction) xxx the family home and who depend upon the
Initial Basis xxx head of the family for legal support
 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 must be
included as part of the gross estate of the
decedent
3. Allowable deduction must be in an amount
equivalent to the current FMV of the
decedent’s interest (whether
conjugal/community or exclusive property),
whichever is lower, but not exceeding P
1,000,000
Standard Deduction
- In the amount of P 1,000,000 without the
need of substantiation
- Does not apply to non-resident alien
decedents
Medical Expenses
- Incurred by the decedent, whether
paid/unpaid, within 1 year prior to his death
and duly substantiated with receipts
- shall not exceed P500 000
Amount Received by the Heirs under Republic Act
4917
- Any amount received by the heirs from the
decedent’s employer as a consequence of
the death of the decedent-employee
- Such amount must be included in the gross
estate and deductible from gross estate
Net Share of the Surviving Spouse
- ½ share of the surviving spouse must be
removed after deducting the allowable
deductions pertaining to the conjugal or
community properties included in the gross
estate
TRAIN LAW
The TRAIN Law amend the deductions allowed to the
estate of a citizen or resident under Section 86(A) of
the NIRC- the deletion of Funeral, Judicial and Medical
Expenses, the lumping under one item of Unpaid
Mortgages and Casualty Losses, the increase in Family
Home maximum deduction from P1 Million to P10
Million, and the increase in Standard Deduction from
P1 Million to P5 Million.
RESIDENT CITIZEN, NON-RESIDENT CITIZEN AND
RESIDENT ALIEN DECEDENTS
1. Expenses, losses, indebtedness, and taxes
a. Claims against the estate
b. Claims of the deceased against
insolvent persons
c. Unpaid mortgages/indebtedness &
Casualty Losses – unpaid taxes also
lumped in
2. Property previously taxed or vanishing
deduction
3. Transfers for public use
4. Family Home - raises the maximum allowable
deduction to P10,000,000
5. Standard Deduction - increases to P5,000,000.
6. Amount received by heirs under Republic Act
4917
7. Net Share of Surviving spouse in the conjugal
partnership or community property
NON-RESIDENT ALIEN DECEDENT
The Train Law amends the deductions allowed
to Nonresident Estate under the Section 86(B) of the
NIRC- now entitled to a Standard Deduction of
P500,000. The value of the net estate of a resident not
a citizen of the Philippines shall be determined by
deducting from the value of the gross estate situated in
the Philippines at the time of death the following:
1. Standard Deduction - A deduction in the
amount of P500,000 shall be allowed without
need of substantiation. The full amount of
P500,000 shall be allowed as deduction for the
benefit of the decedent.
 2. Losses of Indebtedness subject to limitation Train Law

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. Losses
and indebtedness shall include the following:
2.1. Claims against the estate.
2.2. Claims of the deceased against
insolvent persons where the value of the
interest therein
Is included in the value of the gross
estate.
2.3. Unpaid Mortgages, taxes and casualty
losses.
The allowable deduction under this subsection shall be
computed using the following formula:
𝑃ℎ𝑖𝑙 𝐺𝑟𝑜𝑠𝑠 𝐸𝑠𝑡𝑎𝑡𝑒
__________________________
𝑊𝑜𝑟𝑙𝑑 𝐺𝑟𝑜𝑠𝑠 𝐸𝑠𝑡𝑎𝑡𝑒 𝑥 𝐼𝑡𝑒𝑚 𝑁𝑜. 2 = 𝐴𝑙𝑙𝑜𝑤𝑎𝑏𝑙𝑒 𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛
3. Property Previously Taxed
4. Transfer for Public Use
5. Net share of the Surviving Spouse in the
Conjugal Partnership or Community
Property.
CHAPTER 5
NET TAXABLE ESTATE AND ESTATE TAX
NET TAXABLE ESTATE (Pre-Train Law)
- A fixed rate of 6% based on net estate
CHAPTER VI
NET ESTATE AND ESTATE TAX OF UNMARRIED
DECEDENT
NET TAXABLE ESTATE
The net estate subject to tax or net taxable
estate is the basis for the computation of estate tax.
GROSS ESTATE Pxx
LESS: DEDUCTIONS xx
NET TAXABLE ESTATE Pxx
*ALL PROPERTY COMPRISING THE GROSS
ESTATE AND ALL DEDUCTIONS OF AN
UNMARRIED DECEDENT ARE EXCLUSIVE
IF THE DECIDENT IS A RECIDENT CITIZEN, NON –
RESIDENT CITIZEN AND RESIDENT ALIEN
 Gross estate shall consist of all his
property wherever situated
 Non – resident citizen: The percentage
taken to compute vanishing deduction
on the inherited personal property in
the Philippines is 80% because the time
interval between the two deaths was
more than one year but less than two
years

The basis of the estate tax is the net estate. This is IF THE DECIDENT IS A NON - RESIDENT ALIEN
arrived at by deducting from the gross estate the
allowable deductions.  Only his property situated in the
Philippines shall form part of his gross
TAX RATES estate
 The deduction his estate may claim is
If net subject to limitation
Of the
taxable But not Tax shall
Plus excess
estate is over be
over
over
P200,000 Exempt
P 200,000 500,000 P0 5% P200,000
500,000 2,000 000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And over 1,215,000 20% 10,000,000
 CHAPTER 7
CONJUGAL PARTNERSHIP OF GAINS:
PROPERTY RELATIONS IN MARRIAGE
MARRIAGE SETTLEMENT- The determination of the
gross estate of the decedent who is married will
depend upon the property relations between the spouses.
The spouse may, in the marriage settlements, agree
upon the regime of:
1. absolute community,
2. conjugal partnership of gains
3. complete separation of property
4. any other regime.
In the absence of a marriage settlement, or when the regime
agreed upon is void, the property relations of the spouses shall be
governed by the following regime or system:
1. Conjugal Partnership of Gains, if
married before August 3, 1988.
2. Absolute Community of Property, if
married on or after August 3,1988
Conjugal partnership of gains
Oftentimes referred to as the CPG, it is one of the
property relations between the spouses, under which
the husband and wife place in a common fund the
proceeds, products, fruits and income from their
separate properties and those acquired by either or
both spouses through their efforts or by chance, and,
upon dissolution of the marriage or of the partnership,
the net gains or benefits obtained by either or both
spouses shall be divided equally between them, unless
otherwise agreed in the marriage settlements.
In other words, the following are placed in a common
fund:
1. the proceeds, products, fruits and income from
their separate properties; and
2. those acquired by either or both spouses
through their efforts or by chance
Gross Estate under Conjugal Partnership of Gains
1. Exclusive property of the decedent
2. Conjugal Property
Exclusive properties of each spouse
(1) That which is brought to the marriage
as his or her own;
(2) That which each acquires during the
marriage by gratuitous title (through
pure liberality, as in donation and
testate/intestate succession);
(3) That which is acquired by right of
redemption, by barter or by exchange
with property belonging to only one of
the spouses; and
(4) That which is purchased with exclusive
money of the wife or of the husband.
Conjugal Partnership Property
(1) Those acquired by onerous title during
the marriage at the expense of the
common fund, whether the acquisition
be for the partnership, or for only one
of the spouses;
(2) Those obtained from the labor,
industry, work or profession of either or
both of the spouses;
(3) The fruits, natural, industrial, or civil,
due or received during the marriage
from the common property, as well as
the net fruits from the exclusive
property of each spouse;
(4) The share of either spouse in the
hidden treasure which the law awards
to the finder or owner of the property
where the treasure is found;
(5) Those acquired through occupation
such as fishing or hunting;
(6) Livestock existing upon the dissolution
of the partnership in excess of the
number of each kind brought to the
marriage by either spouse; and
(7) Those which are acquired by chance,
such as winnings from gambling or
 betting. However, losses therefrom
shall be borne exclusively by the loser-
spouse.

Claims against Insolvent Person

The inclusion of claims against insolvent person in the

gross estate of the decedent spouse as either exclusive
or conjugal property will depend on the nature of the
claim whether it is for an exclusive or for a conjugal
property.

Deductions from gross estate

1. Expenses, Losses, Indebtedness, and Taxes (ELIT)

a. Funeral expenses
b. Judicial expenses of the testamentary and
intestate proceeding
c. Claims against the estate
d. Claims of the deceased against insolvent
persons
e. Unpaid mortgages, etc.

2. Property Previously Taxed

(Vanishing deduction)

3. Transfers for Public Use

4. Family Home

5. Standard Deduction – P1 million

6. Medical Expenses

7. Amount received by heirs under RA 4917

8. One half net share of the surviving spouse in

the conjugal partnership property.