Chapter 4 - Deductions From Gross Estate2013

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE
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CHAPTER 4
DEDUCTIONS FROM GROSS ESTATE

Problem 41
1. False could not be claimed as claim against the estate.
2. True
3. False indebtedness is not transferrable to the heirs.
4. True
5. False bank loan is the exception for notarization requirement.
6. True
7. True
8. False unpaid taxes accrued before death only.
9. False not deductible because the loss has been claimed by gross income. No double
deduction is allowed.
10. False not deductible. Donation is deductible if given for Philippine Government and
exclusively for public purposes.
11. True
12. False special deductions are not allowed to nonresident alien decedent.
13. True

Problem 42
1. False value of deduction at the time of death.
2. False not terminated upon the decedents death but shall be paid by the remaining estate.
3. True
4. False judicial expense incurred after death but before the estate tax settlement date is still
deductible from gross estate.
5. False losses that are deductible must have been sustained after death but before the
settlement date of estate tax.
6. True
7. True
8. False not deductible. Only those expenses actually taken from the gross estate are
deductible.
9. False actual or 5% of the gross not exceeding P200,000
10. False this threshold is applicable to funeral expense.
11. False Only those expenses actually taken from the gross estate.
12. True
13. True

Problem 43
1. False special deduction.
2. False neither special nor ordinary deduction.
3. True
4. True
5. True
6. False deductible only if included in the gross estate. The amount deductible from the gross
estate is limited to the amount that cannot be recovered.
7. False either against the gross estate or against gross income. There is no double deduction.
8. False Estate tax is not deductible from gross estate. (Sec. 86, NIRC)
9. True
10. False not deductible because not yet accrued expense.
11. True
12. False Nondeductible because only those related to gathering, preservation and settlement of
the estate is allowed as deductible judicial expense from the gross estate.
13. True
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Problem 44
1. False ordinary deduction.
2. True
3. False of net conjugal estate, after ordinary deductions
4. False no funeral deduction expense is allowed.
5. False funeral expense is deducted first from common property
6. True
7. True
8. True
9. False deductible whether paid or unpaid, the maximum deductible medical expense is
P500,000.
10. False not allowed as deduction is in excess of P500,000
11. False this is in addition to other allowable deductions. Standard deduction is not in lieu of
ordinary deduction.
12. False no receipt is necessary for standard deduction.
13. True

Problem 45 Problem 46 Problem 47 Problem 48
1. C 1. D 1. C 1. D
2. B 2. C 2. A 2. B
3. C 3. D 3. B 3. C
4. D 4. A 4. D 4. A
5. A 5. B 5. D 5. A
6. D 6. A 6. C 6. B
7. C 7. C 7. A 7. A
8. A 8. B 8. B 8. D
9. B 9. A 9. D 9. D
10. A 10. D 10. C 10. C

Problem 49
1. P 0 -. The funeral expenses should first be substantiated with documentary evidences that
they actually incurred before the 5% of the gross estate or the P200,000 whichever is the
lowest of the three is made. If the funeral expenses are not substantiated, such become the
lowest among the three choices.

2. P375,000. Ds administrator could still collect 25% or (P600,000/P2,400,000) of Bs asset.
The remaining uncollectible would be 75% of P500,000 = P375,000.

3. P - 0 -. No vanishing deduction is allowed when the property subjected to previous transfer
taxes is located outside the Philippines.

4. P - 0 -. No deduction is allowed if the estate tax return of a nonresident alien does not
contain properties located outside the Philippines.

5. P - 0 -. Special deductions are not allowed to nonresident alien.

6. P100,000. The excess of unpaid funeral expense shall not be deducted as claimed against the
estate.

7. P1,840,000. The special deduction within is computed as follows:
Family home P1,000,000
Standard deduction (P1,000,000 x 3/5) 600,000
Medical expense (P400,000 x 3/5) 240,000
Total special deduction within P1,840,000
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8. P1,000,000. Only donation to the Philippine Government and nay of its political subdivisions
are allowed to be deducted from the decedents gross estate for Philippine estate tax
purposes.

9. P - 0 -. Losses could only be claimed within 6 months from the date of death.

Problem 410 C
Proportionate ELIT (P500,000 x 3/5) P 300,000
Add: Donation to Philippine government 100,000
Allowable deduction within P400,000

Problem 411 C
Funeral expense (P3,500,000 x 5%) P175,000
Whether paid or unpaid, actual funeral expense is deductible subject to limit.

Problem 412 B
Gross estate (P3,150,000 + P175,000) P3,325,000
Multiplied by funeral rate 5%
Deductible funeral expense P 166,250

Problem 413 A
Gross estate (P2,000,000 + P1,000,000) P3,000,000
Multiplied by funeral rate 5%
Deductible funeral expense P 150,000

Problem 414 NOT IN THE CHOICES
Real property P1,560,000
Cash paid for medical expense from decedents estate 45,000
Cash used for wake expenses from decedents estate 85,000
Memorial plan already paid 40,000
Claims against insolvent person 100,000
Total gross estate P1,830,000
Multiplied by percent of funeral expense 5%
Funeral expense allowed P 91,500

The actual funeral expense is P125,000; the total of P85,000 wake expenses, and P40,000
memorial plan already paid.

Problem 415 D
Funeral expense, lowest amount P130,000

Claims against the estate P - 0 -

The entire amount of P90,000 in excess of P130,000 limit can no longer be deducted as funeral
expense not it can be deducted as judicial expense.

Problem 416 D
Capital gains tax (P1,780,000/89%) x 6% P120,000
Judicial expense (P1,900,000/95%) P1,900,000 100,000
Total judicial expense P220,000

The capital gains tax is considered judicial expense because it is a legitimate and necessary
charge in disposing the property for the settlement of estate.

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Problem 417 C
Agreed contract price (P10M x 10%) P1,000,000
Extra-judicial settlement of the estate 500,000
Total deductible judicial expenses P1,500,000

Problem 418 C
Deductible loss (P48,000/40%) P120,000

Problem 419 A
There is no deductible loss from the gross estate because the car is not anymore available at the
time of death. To be deductible, the loss must be sustained after death but before the filing and
payment of the estate tax.

Problem 420 D
Value of apartment raged by fire P3,000,000
Less: Insurance recovery (P3,000,000 x 60%) P1,800,000
Scrap value 100,000 1,900,000
Deductible loss P1,100,000

Problem 421 A
Unpaid mortgage on the real property included in the gross estate P500,000

Problem 422 D
Loans from Metro Bank (not notarized per banks policy) P500,000
Interest on loans payable in the bank 30,000
Loans from Metro Bank (not notarized per banks policy) P530,000

Problem 423 D
Accounts receivable P500,000
Multiplied by percent of uncollectible (100% - 66.67%) 33.33%
Bad debts deductible P166,667

Percent of collectible is computed as follows:
Assets, net of unpaid taxes (P1,500,000 P500,000) P1,000,000
Divided by liabilities, net of taxes payable (P2,000,000 P500,000) P1,500,000 66.67%

Problem 424 B
Uncollectible amount (P160,000 x 87.50%) P140,000

Percent of the entire amount 100.00%
Less: percent of collectible amount (P50,000/P400,000) 12.50%
Percent of uncollectible 87.50%

Problem 425 B
Exclusive Conjugal
Properties P2,800,000 P3,500,000
Ordinary deductions:
Transfer for public use (400,000)
Unpaid mortgage loan used to finance family business ( 800,000)
Funeral expense . ( 180,000)
Properties after ordinary deductions P2,400,000 P2,520,000

Problem 426 D
Unpaid real property tax incurred prior to date of death P100,000
Donors tax prior to date of death 80,000
Deductible unpaid taxes from gross estate P180,000
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Problem 427 A
Zero. No vanishing deduction is allowed for properties located outside the Philippines.

Problem 428 A
Value taken (lower) P1,000,000
Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000
Final basis P 950,000
Multiplied by percent of vanishing deduction 60%
Amount of vanishing deduction P 570,000

Problem 429 D
Value taken (lower) P2,100,000
Less: Mortgage paid 400,000
Initial basis P1,700,000
Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000
Final basis P1,564,000
Multiplied by percent of vanishing deduction 40%
Amount of vanishing deduction P 625,600

Computation of ELIT:
Funeral expense, limit P200,000
Judicial expense 100,000
Unpaid mortgage 100,000
Total ELIT P400,000

Problem 430 B
Unpaid mortgage (P300,000 P200,000) P100,000
Funeral expense (P3,000,000 x 5%) 150,000
Ordinary deduction subject to proportionate computation P250,000

Problem 431 D
Deductible transfer for public use (P2,000,000/1,000) x 200 P400,000

Problem 432 C
Donation to the City of Manila P200,000

Transfer for public use (Philippine Government) is the only donation allowed deductible from
gross estate.

Problem 433 C
Funeral expense (P3,000,000 x 5%) P150,000
Judicial expense (P250,000 x 60%) 150,000
Bad debts (P150,000/3) 50,000
Ordinary deductions P350,000

Problem 434 B
Funeral expenses P200,000
Add: Medical expenses 650,000
Total P850,000
Less: Limit amounts:
Funeral (P3,000,000 x 5%) P150,000
Medical expenses 500,000 650,000
Nondeductible amount of expenses P200,000

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Problem 435 C
Standard deduction to Filipino and resident alien P1,000,000

Problem 436 D
Nonresident alien does not have standard deduction

Problem 437 D
Maximum amount of family home deductible P1,000,000
The family home is an exclusive property of the decedent.

Problem 438 C
Building conjugal (P1,000,000/2) P500,000
Land exclusive 400,000
Family home - deductible P900,000

Problem 439 D
Exclusive portion of family home P 800,000
Add: Share in the conjugal home
(P2,000,000-P800,000)/2 600,000
Total P1,400,000
Less: Maximum family home 1,000,000
Family home subject to tax P 400,000

Problem 440 C
Deductible medical expense (paid or unpaid) within one year prior to death P300,000

Problem 441 A
The unpaid medical expense in excess of the maximum P500,000 is nondeductible as
claims against the estate.

Problem 442 D
Medical expenses incurred from October 2013 to December 2013 P100,000

Problem 443 A
Exclusive Conjugal
Properties P1,000,000 P2,000,000
Transfer for public use ( 500,000)
Share of surviving spouse (P2,000,000 x 50%) . (1,000,000)
Net estate P 500,000 P1,000,000

Problem 444 B
Conjugal estate P5,000,000
Deductible funeral expense ( 200,000)
Net estate before share of surviving spouse P4,800,000
Multiplied by share of surviving spouse 50%
Share of surviving spouse P2,400,000

Problem 445 D
Standard deduction P1,000,000
Family home (P1,000,000/2) 500,000
Amount received under R.A. 4917 500,000
Special deductions P2,000,000

SUGGESTED ANSWERS

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Problem 446
1. Letter C
Donation to the government P1,000,000
Funeral expense 100,000
Total ordinary deductions P1,100,000

2. Letter D
Family home 1,000,000
Amount receivable R.A. 4917 500,000
Medical expense 400,000
Total special deductions P2,900,000

Problem 447
1. Letter D
Claims against the estate (P3M + P1M) P4,000,000
Transfer for public use (P500k + P200k) 700,000
Medical expenses 500,000
Standard deduction 1,000,000
Total deductions from gross estate P7,200,000

2. Letter C
Claims against the estate (P4,000,000 x 5/8) P2,500,000
Transfer for public use (P500k + P200k) 700,000
Total deductions allowed from gross estate P3,200,000

Problem 448 B
Japan Philippines
Funeral: (P200,000 x 2/5) & (3/5) P 80,000 P 120,000
Unpaid loans 300,000 700,000
Donations to government Philippines 400,000
Judicial expenses (P600,000 x 2/10) & (8/10) 120,000 480,000
Total ordinary deductions P500,000 P1,700,000

Special deductions:
Standard (P1,000,000 x 2/10) & (8/10) P 200,000 P 800,000
Medical (P500,000 x 5/8) & (3/8) 312,500 187,500
Total special deduction P 512,500 P1,987,500

Total deductions P1,012,500 P3,687,500

Problem 449 A
P5,000,000. No deduction shall be allowed in the case of a nonresident decedent alien if his
properties outside the Philippines are not reported in the Philippine estate tax return. [Sec. 86
(D), NIRC]

Problem 450 NOT IN THE CHOICES
Net taxable estate P3,000,000
Add: Standard deduction P1,000,000
Ordinary deductions 1,500,000 4,000,000
Gross estate P7,000,000
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Problem 451 C
Net taxable estate P4,000,000
Add: Share of surviving spouse 2,000,000
Net estate after special deductions P6,000,000
Add: Special deductions
Amount received under R.A. 4917 250,000 2,750,000
Total net estate before ordinary deductions P8,750,000
Less: Net exclusive estate
Family home P1,500,000
Amount received under R.A. 4917 250,000
Gross exclusive estate P1,750,000
Less: Exclusive ordinary deduction 750,000 1,000,000
Net conjugal estate P7,750,000

Problem 452
Burial lot (P50,000 x 80%) P40,000
Expenses for wake before burial 20,000
Telegrams and cable to relatives 1,000
Mourning apparel of the surviving spouse and children 3,000
Entertainment expenses during the rites and burial ceremonies 2,500
Allowable funeral expenses P66,500

Problem 453

1.

January until
October 200A
November until
December 200A

Total
Unpaid taxes:
Income tax P200,000 P200,000
Donors tax 100,000 100,000

Funeral expenses:
Memorial plan 50,000 50,000
Wake expenses 100,000 100,000

Accrued expenses 80,000 80,000
Total ordinary deductions allowed P530,000

2. Special deductions:
Medical expenses:
Hospital bills 400,000 400,000
Total special deduction P2,400,000

Problem 454
Exclusive Conjugal
Real estate property P700,000 P2,200,000
Personal property . 400,000
Total P700,000 P2,600,000
Funeral expense (P700,000 + P2,600,000) x 5% ( 165,000)
Judicial expenses ( 50,000)
Mortgage payable to the bank ( 400,000)
Net estate before share of surviving spouse P1,985,000
Multiplied by percent share of surviving spouse 50%
Share of surviving spouse P 992,500
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Problem 455
October 1 to 20, 2014 from Saint Lukes Hospital:
Diagnostic fee P 60,000
Doctors fee 120,000
Hospital rooms 80,000
Operating costs 50,000
Medicines 90,000
Total medical expense deductible P400,000

Problem 456
Funeral expense, actual
Judicial expense
Medical expense, maximum allowed
Standard deductions
Total deductions
P 150,000
50,000
500,000
1,000,000
P1,700,000

Problem 457
1. Gross estate P3,000,000

2. Actual deductions (P200,000 + 500,000) P700,000

3. Deductible allowance standard deduction P1,000,000

4. Net taxable estate (P3,000,000 P700,000 P1,000,000) P1,300,000

Note: Since the funeral and judicial expense are combined, it is assumed that the limit for funeral
expense amounting to P150,000 or 5% of gross estate is complied and the remaining balance of
P50,000 is for the judicial expense.

Chapter 4 - Deductions From Gross Estate2013

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