03 chapter 4 deductions from gross estate part 02
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Transcript of 03 chapter 4 deductions from gross estate part 02
Taxation 2 │DEDUCTIONS FROM GROSS ESTATE
FLABERT VILLASENCIO, CPANotre Dame of Dadiangas University
ORDINARY
SPECIAL
ExpensesLosses
IndebtednessTaxes
Transfer for public useAmount received by heir under RA 4917Vanishing deductionsShare of surviving spouse
Funeral
Judicial Claims against the estate
Claims against insolvent person
Family homeMedical ExpensesStandard deduction
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
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 transfero The property involve is within the Philippineso Tax must have been actually been paid for such
propertyo It must came from a prior decedento No similar deduction must have been allowed to prior
decedent
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
Vanishing DeductionoComputation 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 DeductionInitial Basis less: Proportionate Deduction
5.Percentage of Deduction Level
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:
Vanishing Deduction
Illustration:Community Property 950,000Exclusive Properties 650,000Funeral Expenses 40,000Judicial Expenses 25,000Medical Expenses 15,000Bequests to Phil Govt 10,000Claims 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.
Vanishing DeductionIllustration:Solution:Value in estate of prior decedent 350,000Value in estate of present decedent 475,0001. Lower Value 350,000Less: Mortgage 20,0002.Initial Basi 330,000Less: 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 120,0003. Deductible (330,000/1,600,000 x 120,000) 24,7504. Base 305,2505. Rate (More than 3 years to 4 years) 40 % oVANISHING DEDUCTION 122,100
SEATWORK: (1/2
CW)4-20 TO 4-30
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