Deductions from Gross Income

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Basis Ceiling Rule
Losses
>>> Ordinary Losses
losses incurred in trade, business or limited to the difference requisites:
profession between the value of the -loss must be of taxpayer
property immediately -sustained and charged off
losses incurred of property preceeding the casualty within the taxable year
(connected to business or profession) and its value immediately -incurred in trade, business,
due to casualty, robbery, theft or thereafter, but shall not or profession
embezzlement exceed an amount equal -evidenced by a closed and
to the cost or other completed transaction
adjusted basis of the -not compensated for by
property, or depreciated insurance or form of
cost in the case of indemnity
property used in the
business REDUCED by >salvage value could be
any insurance or other deducted too
compensation received

c1: (lesser amount of

property cost or adjusted
basis and value before
casualty) less value of
property after casualty
less insurance received
equals amount of loss
deductible
` >when property is not
used in business
c2: acquisition cost of
property less acc.
depreciation less insurance
received equals amount of
loss deductible
>when property is used
in business
c3:replacement cost is used
as deductible loss but should not be
more than the net book value
of the property as a whole
immediately before the casualty
>partial destruction
c4: fair market value of property
before theft (not to exceed cost
or adjusted basis) less value of
property after theft
(ZERO consideration) less
insurance received equals deductible loss
>in case of robbery, theft and
embezzlement losses
Deductions from Gross Income
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Basis
Losses
>>>Capital Loses
losses from sales or exchange of
capital assets
losses resulting from securities
becoming worthless and which are
capital assets
losses from short sales of property
property cost or adjusted
losses due to failure to exercise
privileges or options to buy or sell
property
>>>Special kinds of losses
losses from wash sales of stock or
securities
>>>
securities becoming worthless
>>>
losses due to voluntary removal
of buildings, machinery, etc.
incident to renewal or replacement
>>>
losses of the useful value of capital
assets due to some change in
business conditions
>>>
abandonment losses in petroleum
operation
Ceiling Rule
N! capital losses are
deductible only from
capital gains
charged to capital gains
charged to capital gains
charged to capital gains
deductible when loss on
disposal is incurred
N! not deductible for any
losses in fluctuations of
the market until disposed
deductible loss c1:insolvency of company
where securities are invested
c1: demolition incident to
renewal or replacements
> cost of machine
less: acc. depreciation
book value or unrecovered cost
less: sale as crap
deductible loss
c2: demolition with a view of
erecting another building
>NO DEDUCTION; it is presumed that
the value of real estate is equal to
the purchase price of the land and
building plus the cost of removing
any useless building
>cases where force demolition
was made (like per govt orders)
it may be deducted as loss
actual loss sustained -proof required
N! does not apply to >increase in cost or changes
property that gradually in the use of special machine
terminate (depreciation) >new legislations that
and inventory impacted the change
>charged off in the books
>fully explained in returns
c1: contract area is partially
or fully abandoned; exploration
Deductions from Gross Income
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Basis Ceiling Rule
Losses
and development -notice of abandonment
expendituresis shall be filed with the
allowed as deduction commissioner
c2:producing well is -in case abandoned well
subsequently is re-entered and resumed;
abandoned; unamortized said cost shall be included
cost and undepreciated as part of gross income
is allowed as deduction in
the year of abandonment
>>>
Losses in farming operations

livestock purchased actual purchase price livestock -die from disease, exposure,
less:depreciation allowed injury, or killed by order of
less: insurance or indemnity authority; deductible
deductible loss
>>>
cost of other property actual cost with proper
adjustment for
depreciation
>>>
shrinkage shrinkage in inventory -not applicable to the
shrinkage in weight or
physical value or
deterioration in storage if
farm products are held for
favorable markets
>>>
loss by storm, etc not deductible -loss by storm, flood or fire
of prospective crop
>>>
value of animals that perish not deductible -exemption: loss is reflected
in inventory if used
>>>
cost of feed, etc not deductible -expense of operation

>>>
where inventories are used no deduction is to be -gross income is ascertained
made by inventories such livestock
lost during the year are
reflected in the inventory
Deductions from Gross Income
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Basis Ceiling Rule
Losses

Net operating loss carry-over net operating loss shall be carried over as a -for mines other than oil and
NOLCO deduction from gross gas wells, the net operating
income for the next loss incurred in any of the
entitled to deduct: 3 consecutive taxable first ten years of
operation
any individual year immediately following the carry-over period is
estate and trust the year of such loss 5 years
domestic corporation
foreign corporation -any net loss shall not b
private educational institution allowed as deduction if the
hospital taxpayer was exempt in such
regional operating headquarters NOLCO is allowed: taxable year
c1: not less than 75% in -NOLCO incurred prior to
nominal value of outstanding January 1, 1998 is not
not entitled to deduct: issued shares, if the business qualify to avail deduction
Offshore Banking Unit (OBU) – foreign is in the name of a corporation
Foreign Currency Deposit Unit (FCDU) - is held by or on behalf of the
domestic or foreign authorized same person -separate item in the income
by BSP c2: not less than 75% of tax return
Enterprise registered with Board of the paid-up capital of the -corporation subject to MCIT
Investment (BOI) enjoying corporation, if the business (2%) cannot enjoy the
Income Tax Holiday is in the name of a corporation benefit of NOLCO
Enterprise registered with PEZA is held by or on behalf of the
Enterprise registered under RA No 7916 same person -the running of the 3 year
Known as Bases Conversion and period for the expiry of
Development Act of 1992 NOLCO is not interrupted
Foreign Corporation engaged in international by the fact that such
shipping or air carriage in the phil corporation is subject in any
Any person (natural or juridical) enjoying taxable year during such 3-yr
exemption from income tax during period
the period such exemption is
applicable