Chapter 7 I.

Ordinary Deductions
Deductions from gross estate
A. Expenses, Losses, Indebtedness and Taxes

Deductions 1. Funeral Expenses

are the amounts or items that the law allows to be
deducted from gross estate to arrive at net estate
the burden of proof to establish the validity of
claimed deductions is on the taxpayer
he must point to some specific provisions of the
stature in which that deduction is authorized, and
must be able to prove that he is entitled to the
deduction which the law allows
The deductions from gross estate should be
grouped into:
1. Those allowed if the decedent was a resident or
citizens
2. Those allowed if the decedent was a nonresident
alien
A. Deductions of residents or citizens
the amount deductible is the actual amount of
funeral expenses or in an amount equal to 5% of
the gross estate, whichever is lower, but in no case
to exceed P200,000
Actual funeral expenses - those which are actually
incurred (whether paid or still payable) up to the
time of internment or burial of the deceased. The
expenses must be duly supported by receipts or
invoices or other evidence to show that they were
actually incurred
Funeral expenses shall include the following:
a. The mourning apparel of the surviving spouse an
unmarried minor children of the deceased bought and
used on the occasion of the burial

In the case of a citizen or resident of the b. Expenses for the deceaseds wake, including food
Philippines, the value of the net estate shall be and drinks
determined by deducting from the value of the gross
estate the following: c. Publication charges for death notices

I. Ordinary Deductions d. Telecommunication incurred in informing relatives

of the deceased
A. Expenses, Losses, Indebtedness and Taxes (ELIT)
e. Cost of burial plot, tombstones, monument or
1. Funeral expenses mausoleum but not their upkeep. In case the
2. Judicial expenses deceased owns a family estate or several burial lots,
3. Claims against the estate only the value corresponding to the plot where he is
4. Claims against insolvent person buried is deductible
5. Unpaid mortgages
6. Unpaid taxes f. Interment and/or cremation fees and charges
7. Losses
g. All other expenses incurred for the performance of
B. Transfers for public use the rites and ceremonies incident to interment
C. Vanishing deductions
Not deductible - Expenses incurred after interment,
II. Special Deductions such as prayers, masses, entertainment, or the like
are not deductible; medical expenses as of the last
A. Family home illness will not form part of funeral expenses but
B. Standard deduction of P1,000,000 should be claimed as special deductions forming part
C. Medical expenses of medical expenses
D. Amount received by heirs under RA 4917

III. Share of Surviving Spouse in the Conjugal /

Community Properties
2. Judicial Expenses
expenses allowed as deduction under this category
are those incurred in the inventory-taking of assets
comprising the gross estate, their administration,
the payment of debts of the estate, as well as the
distribution of the estate among the heirs
stated differently, these deductible items are
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
The amount deductible is limited to expenses
incurred within the period for filing the estate tax
return, or the extension thereof
The amount deductible is limited to expenses
incurred in the settlement of the estate but within
the period for filing the return, or the extension
thereof
Judicial expenses may include:
a. Fees of executor or administrator of the estate
b. Attorneys fees and court fees such as
stenographic notes, transportation of witnesses,
printing and mimeographing of briefs and other costs
of suit
c. Accountants fees and appraisers fees
d. Cost of preserving and distributing the estate
e. Cost of storing or maintaining property of the estate
f. Brokerage fees for selling property of the estate
Any unpaid amount for the aforementioned cost and
expenses claimed under judicial expenses should
be supported by a sworn statement of account
issued and signed by the creditor
Expenses not essential to the proper settlement of
the estate but incurred for the individual benefit of
the heirs, legatees, or devisees are not allowed as
deductions
The following are not allowed as deductions:
a. Attorneys fees incident to litigation incurred by the
heirs in asserting their respective rights, or claims as
to who are entitled to the estate left by the deceased
b. Premium paid by a judicial administrator on his
bond are not deductible because the ability of the
appointee to give bond is in the nature of a
qualification for the office
c. The compensation of trustees such expenses being
for the account and benefit not of the estate but of the
beneficiaries
3. Claims against the estate
Claims - generally construed to mean debts or
demands of a pecuniary nature which could have
been enforced against the decedent during his
lifetime and could have been reduced to simple
money judgments
thus, there are debts which are properly chargeable
and enforceable against the estate
this refers to debts which are properly chargeable
and enforceable against the estate
Claims against the estate or indebtedness in
respect of property may arise out of:
a. contract
b. tort
c. operation of law
To be deductible, the following requisites must be
complied:
a. 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 (i.e. expenses incurred
up to the time of interment) and unpaid medical
expenses
b. That the liability was contracted in good faith and
for an adequate and full consideration in money or
moneys worth
c. The claim must be a debt or claim which is valid in
law and enforceable in court
d. The indebtedness must not have been condoned
by the creditor, or the action to collect from the
decedent must not have prescribed
In case of simple loans, the debt instrument
must he duly notarized at the time the indebtedness
was incurred, such as promissory notes or contract of
loan, except for loans granted by financial institutions
where notarization is not part of the business practice/
policy of the financial institution-lender.
Moreover, if the loan was contracted with 3
years prior to the death of the decedent, a statement
under oath must be executed by the administrator or
executor of the estate reflecting the disposition of the
proceeds of the loan.
A duly notarized certification from the creditor
or its responsible officer is required as to the unpaid
balance of the debt, including interest as of the time
of the debt.
 Unmatured claims are nevertheless Example: A claim against an insolvent person must be
deductible. However, claims barred by the statute of included in the gross estate
limitations are not allowed as deductions because
they are not lawful claims anymore.
Other properties of the decedent xx
All claims for money against the decedent Claims against insolvent xx
arising from contract, express or implied, whether the Gross estate xx
same be due, or not, or contingent may be filed in the Less: Deductions
probate court as claim against the decedent. Bad debt xx
Net estate xx
However, money claims arising after death of
the decedent except claims for funeral expenses, and
claims which are not for money cannot be filed under 5. Unpaid mortgages
the statute of non-claims in the probate court.

The following are considered as charges
against the conjugal partnership or the
community property of the spouses, and therefore
they are either conjugal or community property
deductions:
a. All debts and obligations contracted during the
marriage by the designated administrator-spouse for
the benefit of the community, or by both spouses, or
by one spouse with the consent of the other
Unpaid mortgage indebtedness is deductible if the
following conditions are complied with, namely:
a. The value of the decedents interest therein,
undiminished by such mortgage indebtedness, is
included in the value of the gross estate
b. That they were contracted bona fide and for an
adequate and full consideration in money or moneys
worth

b. Debts and obligations contracted by either spouse

without the consent of the other to the extent that the Example: A land valued at P400,000 is mortgaged to
family may have been benefited secure a loan of 150,000

c. Ante-nuptial debts of either spouse insofar as they Other properties of the decedent xx
have redounded to the benefit of the family Land 400,000
Gross estate xx
Less: Deductions
4. Claims against insolvent persons Unpaid mortgage 150,000
Net estate xx
One important requisite for its deductibility is that
the value of the decedents interest therein is
included in the value of the gross estate and that Unpaid mortgages are conjugal/community
the debtors are incapable of paying their property deductions if the proceeds of mortgage
indebtedness indebtedness had been beneficial to the conjugal
partnership or the absolute community of property
Claims against the estate are distinguished from even if the property mortgaged is an exclusive
claims against insolvent persons as follows: In the property.
first, the decedent as the debtor, while in claims
against insolvent persons, the decedent was the
creditor at the time of his death

Bad debts - claims against insolvent persons

The amount of deduction is the value of

indebtedness which cannot be collected anymore
because the debtor has been declared insolvent

It may be either exclusive or conjugal/community

property deduction

In case the claimed is an exclusive property of the

decedent, then it is an exclusive property deception
and the same should not be considered in the
computation of the share of the surviving spouse
The rules on whether the unpaid mortgage is In case of an accommodation loan where the
chargeable against the exclusive property of the loan proceeds went to another person, its value must
decedent or from the common property of the be included as a receivable of estate. If there is a
spouses is summarized below: legal impediment to recognize it as receivable of the
estate, said unpaid obligation/mortgage payable shall
not be allowed as a deduction from the gross estate.
Contracted before marriage
Example:
For the benefit of of - Chargeable against -
Thus if Ms. Mabait mortgaged her house to
Donor/prior decedent Exclusive property Mr. Bombay for P100,000 just to lend the money to
her brother, Mr. Tikapo, and thereafter she died, the
Exclusive property Exclusive property P100,000 is considered as an accommodation loan.
Conjugal/community Conjugal/community Therefore, the P100,000 which was loaned to
property property Mr. Tikapo should be included in her gross estate as a
receivable while the same amount should be
Conjugal/community
Family deducted as unpaid mortgage.
property
In all instances, the mortgaged property, to
Contracted during marriage the extent of the decedents interest therein, should
always form part of the taxable gross estate.

For the benefit of of - Chargeable against -

Conjugal/community Conjugal/community 6. Unpaid Taxes

property property
Exclusive property of
Exclusive property To be deductible, the taxes should have accrued
one spouse
before the death of the decedent
Property of donor/prior
Exclusive property
decedent
Then following are the taxes which are
deductible from the gross estate:

An unpaid mortgage attached to the inherited
property and in which the death of prior decedent took
place while the present decedent was still unmarried
is undoubtedly a deduction from his exclusive
properties if said mortgage still exists at the time of
death of present decedent.
If the decedent was a resident or citizen,
unpaid mortgages on properties located outside the
Philippines are nevertheless deductible because the
properties mortgaged are subject also to estate tax.
a. Income taxes on income received before the death
b. Property taxes which have accrued prior to the
death of the decedent
c. Gift taxes on inter vivos donations that are unpaid
until death
Taxes which have accrued after death are not
deductible because they are properly chargeable
against the income of the estate.

If the decedent was a non-resident alien,
indebtedness secured by mortgage of real property
situated outside the Philippines may not be deducted
where such property is not includible in the gross
estate.
Unpaid real property taxes at the time of
death are deductible even if payable after death
because real property taxes accrue on January 1st of
every year.

Where the decedent owned only 1/2 of the

property mortgaged so that 1/2 of its value was
included in his estate, only 1/2 of the mortgage debt
was deductible, even though the executor paid the
entire debt, the liability of the decedent being solidary,
inasmuch as the executor would be subrogated to the
rights of the mortgage as against the co-owner and
co-mortgagor.
7. Casualty Losses
Losses are deductible if the following
requested are compiled:
a. The value of the property lost must have been
included in the gross estate
b. The loss must arise from fire, storms, shipwreck or
other casualties, or from robbery, theft or
embezzlement
c. Such losses were incurred after the death but not
later than the last day for the payment of the estate
tax
d. It must not have been compensated by insurance
or otherwise
e. At the time of filing the return such losses have not
been claimed as a deduction in an income tax return
If the loss occurred before the decedents
death, or after the last day for payment of estate tax,
the same is not deductible, even if the tax was paid
beyond the prescribed period for payment.
Relation to income tax
A casualty loss to estate property during the
period of administration gives rise not only to a
deduction from the gross estate for estate tax
purposes but also a deduction from gross income in
determining the taxable income of the estate which is
under judicial settlement.
However, the estate cannot claim the
deduction for both purposes. It can either choose to
deduct such losses from the gross income or from the
gross estate for purposes of the estate tax.
B. Transfer for public purpose
The amount deductible shall be the entire
amount of all bequests, legacies, devises or transfers
to or for the use of the government of the Republic of
the Philippines, or any political subdivision thereof, for
exclusively public purposes.
Donations of property to foreign governments are
not deductible
Mortis causa donations of properties situated
abroad are deductible if the donee is the Philippine
Government or any of its political subdivisions
Bequest or legacy if the act of giving personal
property by will.
Legatee is the person to whom gifts of personal
property are given by will.
Devise is the transmission of real property by virtue
of a will.
Devisee is a person to whim gifts of a particular real
property are given by virtue of a will.
C. Vanishing Deductions
The vanishing deduction which is otherwise
known as property previously taxed is an allowed
deduction from the gross estate situated in the
Philippines of a person who died within 5 years from
the acquisition of the property by gift or inheritance.
The purpose of vanishing deduction is to
ease the harshness of successive taxation of the
same property within a relatively short period of time.
Vanishing deduction is allowed on the second
transmission of property. The first transfer must be
either by succession or donation inter vivos, but the
second transfer must be by succession only.
To be allowed as deduction, the following
conditions must be satisfied:
1. The property must be situated in the Philippines
2. That the donors tax or estate tax imposed on the
first transfer was finally determined and paid
3. The property can be identified as the one received
from prior decedent, or from the donor
4. The property must have formed part of the gross
estate of the prior decedent, or have been included in
the total amount of the gifts of the donor made within
5 years prior to the death of the present decedent
C. Vanishing Deductions

The following are the steps involved in

computing the vanishing deduction:

1. Identify the property subject to vanishing deduction

and give the property value (at the time previously
taxed and or the present value, whichever is lower)

2. Deduct mortgage or lien paid by the present

decedent on the property, if any. The result is the
Initial Basis.

3. From the initial bases, deduct the proportionate

share of the initial basis over the gross estate
multiplied by all the deductions, except family home,
standard deductions, medical expenses, amount
received under RA 4917, and the net share of the
surviving spouse in the conjugal or community
property. The result is the actual basis.

The amount deductible from the Initial Basis shall be

computed by applying the following formula:

Initial Basis x Deductions

Gross Estate

4. Multiply the actual basis by the appropriate rate,

based on the length the property has been acquired
by the present decedent, as follows:

More than Not more than Rate

xx 1 year 100%
1 year 2 years 80%

2 years 3 years 60%

3 years 4 years 40%
4 years 5 years 20%

Classification of Vanishing Deduction

Vanishing Deduction
always chargeable against the exclusive (separate)
property of the decedent if the spouses were under
the conjugal partnership of gains
thus, it is always classified as separate deduction

However, if they were under the absolute

community of property regime, the vanishing
deduction may be either chargeable against the
community property of the spouses, or from the
exclusive property of the decedent, depending upon
the classification of the subject property. It may
therefore, be classified either as an exclusive or
community property deduction.
 II. Special Deductions
A. Family Home
pertains to the dwelling house where the spouses
and their family reside, and the land on which it is
situated
it is the place to which whenever absent for
business or pleasure one still intends to return
it does not include the movables found therein
because it is limited only to the house and lot on
which the house is situated
may also be constituted by an unmarried head of
a family on his or her own property
for purposes of gross estate of the decedent, the
basis shall be the current fair market value or
zonal value of the family home, whichever is
higher
The following are the conditions for allowance of
family home as deduction:
1. The decedent must have died on or after July 28,
1992 and the total value of the family home must be
included as part of his gross estate
2. It must be the actual residential home of the
decedent and his family at the time of death, as
certified by the Barangay Captain of the locality where
the family home is situated
3. The amount deductible is the actual value as
declared or included in the gross estate, but not
exceeding P1,000,000
B. Standard Deduction
this is a fixed amount equivalent to 1,000,000
which is automatically deductible and not subject
to any substantiation
this is a separate and distinct item of deduction
which is independent form other items
the entire amount of P1,000,000 is deductible
from the net estate
like family home, medical expenses, and amounts
received by the heirs under RA 4917, the
standard deduction is not a multiplier deduction
for purposes of allocating the expenses in the
computation of vanishing deduction
C. Medical Expenses
Medical expenses include cost of medicines,
hospital bills, doctors fees, etc
Medical expenses as of the last illness will not form
part of funeral expenses but should be claimed as
special deductions forming part of medical
expenses
Medical expenses incurred by the decedent
are deductible, subject to the following conditions:
1. The expenses must have been incurred (whether
paid or unpaid within 1 year prior to his death
2. They must be substantiated with official receipts for
services rendered by the decedents attending
physicians, invoices, statements of accounts duly
certified by the hospital, and such other documents in
support thereof
3. That the deductible medical expenses shall in no
case exceed P500,000
Nota Bene: To be deductible, is it required that the
medical expenses must have been incurred while the
patient was confined in a hospital?
The tax code, as well as its implementing regulations,
is silent on this matter.
It is noteworthy, however, that in the United
States the term medical expenses as an item of
deduction include amounts paid for the diagnosis,
cure, relief, treatment, or prevention of disease, and
for treatments affecting any part or function of the
body, but they must be primarily for the alleviation or
prevention of a physical or mental defect or illness.
D. Amounts received by heirs under RA 4917
this is pertaining to benefits granted and received
by the heirs of decedent from his employer, as a
consequence of separation from service, due to
death of the decedent
provided, however, that such amount is included in
the gross estate of the decedent
III. Share of Surviving Spouse in the Conjugal /
Community Properties
The share of the surviving spouse in the
conjugal or community property as diminished by the
obligations properly chargeable to such property shall
be deducted from the gross estate.
Illustration 7 - 1 (Funeral Expenses)

Compute the amount of deductible funeral expenses in each of the following cases:

Case Gross Estate Actual Funeral Expenses

1 500,000 70,000

2 2,000,000 90,000
3 4,500,000 185,000
4 5,000,000 220,000

Case 5% of Gross Estate Actual Deductible

1 25,000 70,000 25,000
2 100,000 90,000 90,000

3 225,000 185,000 185,000

4 250,000 220,000 200,000

Illustration 7 - 2 (Judicial Expenses)

Malakas and Maganda had a disagreement in the sharing of inheritance of the estate of their parents. The
disagreement prompted both parties to bring the matter to the court. Both of them incurred and paid attorneys
fees incident to litigation.

a. Are the expenses borne by the opposing parties deductible from gross estate under judicial expenses?

No, expenses incident to litigation incurred by the heirs in asserting their respective rights are not
deductible.

Thus, a beneficiary seeking to establish the extent of his interest in the estate cannot deduct his legal
expenses.

b. How about administration expenses which relate to the probate estate?

To be deductible, expenses which relate to the probate estate must be incurred in the collection or
conservation of assets, the payment of debts or the distribution of the balance of the estate. They must be
incurred for the settlement of the estate as a whole as opposed to those incurred for the benefit of individuals
even though they may beneficiaries.

The test is: If the expenses are incurred to perfect the rights of the heir, then they are not deductible form
the gross estate.

Illustration 7 - 3 (Claims against the estate)

Manuba borrowed P50,000 from her sister, Malata. Before the indebtedness was paid, Manuba died.

a. Is the unpaid obligation deductible from the gross estate of Manuba?

Yes, it is a deductible item falling under claims against the estate.

b. How about is its deductibility would leave nothing to be distributed among the heirs?

It is still deductible. The rule provides that before an estate is distributed among the heirs, all lawful debts
should first be paid.
Illustration 7 - 4 (Claims against insolvent persons)

Bolalin borrowed P150,000 from Arturo. After a month, the debtor paid P50,000. Before the remaining
balance of P100,000 was paid, Arturo died. Prior to his death, the court declared Bolalin insolvent. The total
assets and total liabilities of the debtor amount to P200,000 and P500,000, respectively. How much bad debt is
deductible from the estate of Arturo?

Considering that Bolalin had been declared insolvent, there is no more chance for Arturo to recover the
debt, except his share in the remaining assets of the debtor which will be applied in paying his debts. Arturo can
deduct an amount of P60,000 computed as follows:

Remaining debt of Bolalin 100,000

Less: Recoverable amount (2/5 x P100,000) 40,000
Bad debt (deductible) 60,000

Illustration 7 - 5 (Unpaid Mortgages)

Morga died leaving a property worth P500,000. The property which is co-owned with Kabakas is
mortgaged with a bank for a loan P200,000. Because the liability is solitary in character, the executor of the estate
of Morga paid the entire loan after her death.

a. How much is the net estate on the estate of Morga?

The net estate would be P150,000, consisting of the following:

Share in the co-ownership (500,000/2) 250,000

Less: Share in the unpaid mortgage 100,000
Net estate 150,000

The receivable from Kabakas for the latters are in the obligation shall not be included anymore as part of
the gross estate although the executor would be surrogated to the rights of the mortgagee.

b. How much would be the gross estate and the deduction therefrom if Morga was a non-resident alien and the
property is situated and mortgaged abroad?

The property is tax exempt. Hence, it is excludible from the gross estate. For the same reason, the unpaid
mortgage shall not also be deductible.
Illustration 7 - 6 (Vanishing Deduction)

Gina Dan, died on October 21, 2014 leaving a parcel of land which she inherited from her mother, Pina
G.A. Dan who died May 20, 2011. The value of the property at the time of death of her mother was P350,000, but
it has appreciated to P475,000 in 2014.

The gross estate, deductions and other data consisted of the following:

Community property 950,000

Exclusive properties of the decedent 650,000
Funeral expenses 40,000
Judicial expenses 25,000
Medical expenses 15,000
Bequest to the government for public purpose 10,000
Claims against the estate 15,000

At the time of death of Pina, the land had an unpaid mortgage of P50,000 of which P20,000 was paid by
Gina.

Required: Compute the vanishing deduction.

Value in estate of prior decedent 350,000

Value in estate of present decedent 475,000
Lower value 350,000
Less: Mortgage paid 20,000
Initial basis 330,000
Less: Deductions (pro-rated)
Funeral expenses 40,000
Judicial expenses 25,000
Transfer for public purpose 10,000
Claims against the estate 15,000
Unpaid mortgage (50,000 - 20,000) 30,000
Total 120,000
Deductible (330,000/1,600,000 x 120,000) 24,750
Base 305,250
Rate (more than 3 years, but not more than 4 years) 40 %
Vanishing deduction 122,100

1. Medical expenses, being a special deduction, is not included as a multiplier deduction for purposes of
computing the vanishing deduction.
2. The denominator of P1,600,000 represents the gross estate which is the total of the community property of
P950,000 and the exclusive property of P650,000.
3. The holding period of the property is computed as follows:

Year Month Day

2014 10 21
2011 5 20
3 5 1

In case an improvement on the inherited property was made by the present decedent prior to his death,
or an accretion tool place while the property was in his possession, the value of such improvement or accretion
shall be disregarded in determining the amount of vanishing deduction.
Illustration 7 - 7 (Vanishing Deduction)

Jess inherited property from his father before marriage. After a year, he was married to Carla. After 3
months, Jess died.

a. To which property shall the vanishing deduction be charged if the spouses were under the conjugal partnership
of gains?

The vanishing deduction shall be chargeable against the exclusive property of the decedent. This is
because the inherited property is classified as an exclusive property of Jess.

b. How about if the spouses were under the absolute community of property regime?

The vanishing deduction would then be chargeable against the community property, because upon
marriage the property inherited by Jess has been reclassified as a community property of the spouses.

Illustration 7 - 8 (Family Home)

The current value of the family home at the time of death of Fat Tai is P1,200,000 white the zonal value is
P1,350,000.

What value of family home is to be included in and deducted from the gross estate?

The amount includible in the gross estate is the zonal value of P1,350,000 because it is higher than the current
value
The family home deductible from the gross estate is P1,000,000 only because it is the maximum amount
allowed under the code
If the family home is a conjugal or community property, the amount deductible is the share of the decedent in
such property, which is equivalent to 1/2 of its value but not exceeding P1,000,000
Thus, if the value of the family home which is a community property is P1,350,000, this entire amount is
includible in the gross estate. However, only P675,000 is deductible because this is the only amount
corresponding to the share of the decedent in such property

Illustration 7 - 9 (Share of surviving spouse in the conjugal/community property)

The following data pertains to a married decedent:

Conjugal property 500,000

Exclusive property 220,000
Charges against conjugal property 85,000
Charges against exclusive property 60,000

How much is the deductible share of the surviving spouse?

Conjugal property 500,000

Less: Conjugal deductions 85,000
Net conjugal 415,000
Multiply by the share of decedent 1/2
Deductible share of surviving spouse 207,500

The conjugal deductions shall not include the standard deductions in computing the share of the surviving
spouse.
 Deductions of Non-resident Aliens

No deduction shall be allowed in the case of a nonresident alien unless the executor, administrator, to
anyone of the heirs, as the case may be, includes in the return the value at the time of his death of that part of his
gross estate not situated in the Philippines.

The deductions allowed are the same items which are deductible from the gross estate of residents or
citizens, except the special deductions such as the family home, standard deduction, medical expenses and the
amount received by heirs under RA 4917.

Vanishing deductions and transfers for public use are allowed as deductions, provided that the property
must be situated in the Philippines and in the case of the latter, the donation must be given to Philippine
Government.

Ordinary deductions (ELIT) such as funeral expenses; judicial expenses, claims against the estate, claims
against insolvent persons, unpaid mortgages, unpaid taxes and losses, are allowed as deductions but shall be
limited to the amount computed by the application of the following formula:

Phil. Gross Estate x Ordinary deductions

Total Gross Estate

The following table summarizes the rule on deductibility or non-deductibility of various items depending
upon the residence and citizenship of the decedent.

Resident or Citizen
Items of Deduction Nonresident Alien Decedent
Decedent

Phil GE x ELIT
1. Expenses, losses, indebtedness and taxes (ELIT) Deductible
Total GE

2. Vanishing deduction Deductible Deductible

3. Transfer for public purpose Deductible Deductible

4. Medical expenses Deductible Not deductible

5. RA 4917 Deductible Not deductible

6. Share of surviving spouse Deductible Deductible

7. Family home Deductible Not deductible

8. Standard deduction Deductible Not deductible

Illustration 7 - 10 (Deductions of Non-resident Aliens)

Cio Lu, Chinese residing in Zhen Zen City, China, died on October 21, 2014. The following are the data
concerning his properties:

Properties:
House in China 1,750,000
Condominium unit in Sampaloc, Manila 1,500,000
Shares of stock in Co Pia Corp., a Chinese Corporation 1,300,000
Car registered in China 450,000
Personal property in the Phils. registered in the name of Cio Lu 500,000
House in Zhen Zen City inherited from his father, Val Hallada on December 1, 2010 2,500,000

Deductions:
Funeral expenses incurred in China 200,000
Judicial expenses 60,000
Unpaid mortgage on house in China 250,000
Losses incurred on stocks trading with the PSE, incurred ten days prior to his death 65,000
Claims against Soo San, insolvent 40,000
Medical expenses incurred before his death 20,000

Required: Compute the net taxable estate on the estate of Cio Lu.

Condominium unit, Sampaloc, Manila 1,500,000

Personal property 500,000
Claims against Soo San, insolvent 40,000
Gross Estate 2,040,000
Less: Deductions
Funeral, actual 200,000
(5% x 2,040,000) 102,000
deductible (lower) 102,000
Judicial Expenses 60,000
Bad debts 40,000
Total 202,000
(2,040,000 / 8,040,000* x 202,000) 51,254
Net taxable estate 1,988,746

*Computation of total gross estate

House, China 1,750,000

Condominium unit, Manila 1,500,000
Shares of stocks, Chinese Corporation 1,300,000
Car, China 450,000
Personal property, Philippines 500,000
House inherited from father 2,500,000
Claims against insolvent person 40,000
Total gross estate 8,040,000

1. Nonresident aliens are taxable only on properties located within the Philippines.
2. Medical expenses and standard deductions are not deductible.
3. The unpaid mortgage on the house in China is not deductible because the house is not included in the gross
estate.
4. Properties situated outside the Philippines are not subject to vanishing deduction.
5. The ordinary deductions are not allowed in full.