BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 19

SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

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

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 20
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

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
1. C
2. B
3. C
4. D
5. A
6. D
7. C
8. A
9. B
10. A

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

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

Problem 48
1.
D
2.
B
3.
C
4.
A
5.
A
6.
B
7.
A
8.
D
9.
D
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
Standard deduction (P1,000,000 x 3/5)
Medical expense (P400,000 x 3/5)
Total special deduction within

P1,000,000
600,000
240,000
P1,840,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 21
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

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)
Add: Donation to Philippine government
Allowable deduction within

P 300,000
100,000
P400,000

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

P175,000

Problem 412
B
Gross estate (P3,150,000 + P175,000)
Multiplied by funeral rate
Deductible funeral expense

P3,325,000
5%
P 166,250

Problem 413
A
Gross estate (P2,000,000 + P1,000,000)
Multiplied by funeral rate
Deductible funeral expense

P3,000,000
5%
P 150,000

Problem 414
NOT IN THE CHOICES
Real property
Cash paid for medical expense from decedents estate
Cash used for wake expenses from decedents estate
Memorial plan already paid
Claims against insolvent person
Total gross estate
Multiplied by percent of funeral expense
Funeral expense allowed

P1,560,000
45,000
85,000
40,000
100,000
P1,830,000
5%
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
Claims against the estate

P130,000
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%
Judicial expense (P1,900,000/95%) P1,900,000
Total judicial expense

P120,000
100,000
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.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 22
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

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

P1,000,000
500,000
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
Less: Insurance recovery (P3,000,000 x 60%)
Scrap value
Deductible loss

P1,800,000
100,000

P3,000,000
1,900,000
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)
Interest on loans payable in the bank
Loans from Metro Bank (not notarized per banks policy)

P500,000
30,000
P530,000

Problem 423
D
Accounts receivable
Multiplied by percent of uncollectible (100% - 66.67%)
Bad debts deductible

P500,000
33.33%
P166,667

Percent of collectible is computed as follows:

Assets, net of unpaid taxes (P1,500,000 P500,000)
Divided by liabilities, net of taxes payable (P2,000,000 P500,000)

P1,000,000
P1,500,000

Problem 424
B
Uncollectible amount (P160,000 x 87.50%)
Percent of the entire amount
Less: percent of collectible amount (P50,000/P400,000)
Percent of uncollectible
Problem 425

Properties
Ordinary deductions:
Transfer for public use
Unpaid mortgage loan used to finance family business
Funeral expense
Properties after ordinary deductions
Problem 426
D
Unpaid real property tax incurred prior to date of death
Donors tax prior to date of death
Deductible unpaid taxes from gross estate

66.67%
P140,000

100.00%
12.50%
87.50%
Exclusive
P2,800,000

Conjugal
P3,500,000

(400,000)
.
P2,400,000

( 800,000)
( 180,000)
P2,520,000
P100,000
80,000
P180,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 23
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 427
A
Zero. No vanishing deduction is allowed for properties located outside the Philippines.
Problem 428
A
Value taken (lower)
Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000
Final basis
Multiplied by percent of vanishing deduction
Amount of vanishing deduction

P1,000,000
50,000
P 950,000
60%
P 570,000

Problem 429
D
Value taken (lower)
Less: Mortgage paid
Initial basis
Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000
Final basis
Multiplied by percent of vanishing deduction
Amount of vanishing deduction

P2,100,000
400,000
P1,700,000
136,000
P1,564,000
40%
P 625,600

Computation of ELIT:
Funeral expense, limit
Judicial expense
Unpaid mortgage
Total ELIT

P200,000
100,000
100,000
P400,000

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

P100,000
150,000
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%)
Judicial expense (P250,000 x 60%)
Bad debts (P150,000/3)
Ordinary deductions
Problem 434
B
Funeral expenses
Add: Medical expenses
Total
Less: Limit amounts:
Funeral (P3,000,000 x 5%)
Medical expenses
Nondeductible amount of expenses

P150,000
150,000
50,000
P350,000
P200,000
650,000
P850,000
P150,000
500,000

650,000
P200,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 24
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

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
The family home is an exclusive property of the decedent.

P1,000,000

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

P500,000
400,000
P900,000

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

800,000

600,000
P1,400,000
1,000,000
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
Problem 443

Properties
Transfer for public use
Share of surviving spouse (P2,000,000 x 50%)
Net estate

P100,000
Exclusive
P1,000,000
( 500,000)
.
P 500,000

Conjugal
P2,000,000
(1,000,000)
P1,000,000

Problem 444
B
Conjugal estate
Deductible funeral expense
Net estate before share of surviving spouse
Multiplied by share of surviving spouse
Share of surviving spouse

P5,000,000
( 200,000)
P4,800,000
50%
P2,400,000

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

P1,000,000
500,000
500,000
P2,000,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 25
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 446
1. Letter C
Donation to the government
Funeral expense
Total ordinary deductions

P1,000,000
100,000
P1,100,000

2. Letter D
Standard deduction
Family home
Amount receivable R.A. 4917
Medical expense
Total special deductions

P1,000,000
1,000,000
500,000
400,000
P2,900,000

Problem 447
1. Letter D
Claims against the estate (P3M + P1M)
Transfer for public use (P500k + P200k)
Medical expenses
Family home
Standard deduction
Total deductions from gross estate
2.

P4,000,000
700,000
500,000
1,000,000
1,000,000
P7,200,000

Letter C
Claims against the estate (P4,000,000 x 5/8)
Transfer for public use (P500k + P200k)
Total deductions allowed from gross estate

Problem 448

Ordinary deductions:
Funeral: (P200,000 x 2/5) & (3/5)
Unpaid loans
Donations to government Philippines
Judicial expenses (P600,000 x 2/10) & (8/10)
Total ordinary deductions
Special deductions:
Standard (P1,000,000 x 2/10) & (8/10)
Family home
Medical (P500,000 x 5/8) & (3/8)
Total special deduction
Total deductions

P2,500,000
700,000
P3,200,000
Japan
P 80,000
300,000
120,000
P500,000
P 200,000

Philippines
P

120,000
700,000
400,000
480,000
P1,700,000

312,500
P 512,500

800,000
1,000,000
187,500
P1,987,500

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
Add: Standard deduction
Family home
Medical expenses
Ordinary deductions
Gross estate

P3,000,000
P1,000,000
1,000,000
500,000
1,500,000

4,000,000
P7,000,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 26
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 451
C
Net taxable estate
Add: Share of surviving spouse
Net estate after special deductions
Add: Special deductions
Standard deduction
Family home
Medical expenses
Amount received under R.A. 4917
Total net estate before ordinary deductions
Less: Net exclusive estate
Family home
Amount received under R.A. 4917
Gross exclusive estate
Less: Exclusive ordinary deduction
Net conjugal estate

P4,000,000
2,000,000
P6,000,000
P1,000,000
1,000,000
500,000
250,000
P1,500,000
250,000
P1,750,000
750,000

Problem 452
Burial lot (P50,000 x 80%)
Expenses for wake before burial
Telegrams and cable to relatives
Mourning apparel of the surviving spouse and children
Entertainment expenses during the rites and burial ceremonies
Allowable funeral expenses
Problem 453
1.

Ordinary deductions:
Unpaid taxes:
Income tax
Donors tax
Funeral expenses:
Memorial plan
Wake expenses
Accrued expenses
Total ordinary deductions allowed

2.

Special deductions:
Standard deduction
Family home
Medical expenses:
Hospital bills
Total special deduction

Problem 454
Real estate property
Personal property
Total
Funeral expense (P700,000 + P2,600,000) x 5%
Judicial expenses
Mortgage payable to the bank
Net estate before share of surviving spouse
Multiplied by percent share of surviving spouse
Share of surviving spouse

2,750,000
P8,750,000

1,000,000
P7,750,000
P40,000
20,000
1,000
3,000
2,500
P66,500

January until November until

October 200A December 200A
P200,000
100,000

Total
P200,000
100,000

50,000
100,000
80,000

50,000
100,000
80,000
P530,000
P1,000,000
1,000,000

400,000

400,000
P2,400,000
Exclusive
P700,000
.
P700,000

Conjugal
P2,200,000
400,000
P2,600,000
( 165,000)
( 50,000)
( 400,000)
P1,985,000
50%
P 992,500

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 27
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 455
October 1 to 20, 2014 from Saint Lukes Hospital:
Diagnostic fee
Doctors fee
Hospital rooms
Operating costs
Medicines
Total medical expense deductible
Problem 456
Funeral expense, actual
Judicial expense
Medical expense, maximum allowed
Standard deductions
Total deductions
Problem 457
1. Gross estate

P 60,000
120,000
80,000
50,000
90,000
P400,000
P

150,000
50,000
500,000
1,000,000
P1,700,000
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.