TRANSFER & BUSINESS TAXES - Ampongan

c. Even if the family home is conjugal, the maximum amount deductible is P 10,000,000 only
d. The share of the surviving spouse in the community property is to be deducted from the
gross estate before computation of the estate tax.

23. One is not entitled to tax credit for taxes paid to foreign country
a. Resident citizen c. Resident alien
b. Non-resident citizen d. Non-resident alien
24. Which of the following statements is true about a family home of a non-resident citizen?
Statement 1: The value of the family home is included in the gross estate.
Statement 2: The value of the family home is not deductible from the gross estate.

a. True, True c. False, False

b. True, False d. False, True

25. Which of the following is true to a property previously taxed?

Statement 1: If it is a subject of an unpaid mortgage, it shall be diminished by the
amount of mortgage indebtedness and vanishing deduction at the same time
Statement 2: If it is a family home, it cannot be the subject of a family home and
vanishing deduction at the same time.

a. True, True c. False, False

b. True, False d. False, True

EXERCISE 7-7. MULTIPLE CHOICE PROBLEM

Items 1 and 2 are based on the following information:

Lucasta, resident, died in 2018 with properties totalling to P 12,500,000. The total
deductible expenses from gross estate amount to P 1,125,000 which excludes actual funeral
expenses incurred of P 240,000

1. The allowable deduction for funeral expenses is:

a. P 625,000 c. 200,000
b. 240,000 d. None
7. Estate Taxation (Deductions From Gross Estate)

2. The net estate subject to tax is:

a. P 10,235,000 c. 10,375,000
b. 6,375,000 d. 10,235,000

Items 3 and 4 are based on the following data:

3. Decedent died February 1, 2018 leaving a family home composed of the following: House,
conjugal property worth P 8,000,000 and the land which he exclusively owned valued at
P2,000,000. He also owns a vacation house in Baguio worth P 2,000,000. The value of
family home in the gross estate is

a. P 8,000,000 c. 12,000,000
b. 10,000,000 d. 7,000,000

4. The deductible amount of family home is

a. P 8,000,000 c. 12,000,000
b. 6,000,000 d. 10,000,000

5. Babsky died intestate. She was survived by her husband and five (5) children. The following
are her properties:
Exclusive real property P 7,500,000
Conjugal real property 8,500,000
Conjugal personal property 4,500,000

The exclusive real property is mortgaged in the amount of P 300,000. Funeral and Judicial
expenses amounted to P 350,000 and P 200,000, respectively.

The taxable net estate of Babsky is—

a. P 20,500,000 c. P 8,850,000
b. 15,200,000 d. 12,850,000
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6. Bernales, resident citizen, single, died during the current year with properties constituting his
gross estate of P 6,000,000. Actual funeral expenses amount to P 510,000 and other
charges against the estate amounted to P 210,000. The net taxable estate is –

a. P 4,640,000 c. P 790,000
b. 4,490,000 d. 590,000

7. Mary, an unmarried resident of the Philippines died leaving real properties in Manila with fair
market value of P8,000,000, 20% of which is the value of the family home Deductions
claimed by the administrator of the decedent's estate are as follows:

Medical expense during the decedent's sickness

out of the decedent's cash - paid P 45,000
Expenses during the wake paid out of the decedent's cash 95,000
Unpaid expenses payable to the funeral parlor 20,000
Coffin donated by friends of decedent 40,000
Claims against insolvent persons 100,000

How much is the total deduction from the gross estate?

a. P 500,000 c. P 1,560,000
b. 560,000 d. 5,560,000

8. The following expenses and obligations were left by Bonnie upon his death:

Notes payable, not notarized P 30,000

Loans payable, PNB 300,000
Accounts receivable, debtor not insolvent 40,000
Accounts receivable, debtor is insolvent 60,000
Death benefits from employer 200,000
Mortgage paid 50,000

The total amount of deduction from the gross estate is:

a. P500,000 c. P 1,560,000
b. 560,000 d. 5,560,000
7. Estate Taxation (Deductions From Gross Estate)

9. Tinong died on August 2018 leaving the following data on deductions:

Unpaid 2017 real estate taxes P 40,000
Unpaid 2018 real property taxes 40,000
Income tax on income from January 1 to August, 2018 35,000
Losses from fire that occurred in July
(60% was compensated by insurance) 800,000
Casualty loss on September 450,000

The total deduction from gross estate is

a. P 885,000 c. P 5,885,000
b. 565,000 d. 5,565,000

10. Dee Ma. Mathay, married under conjugal partnership of gains, died during the leaving a
parcel of land which he inherited from his brother during marriage, valued at P2,000,000 and
a family house, conjugal property, constructed on the inherited land, with a market value of
P8,500,000. The deductible amount of family home is

a. P 1,000,000 c. P 10,000,000
b. 6,250,000 d. 10,500,000

11. Mr. X-men, a resident of Angeles City, died intestate. He was survived by his wife and left
the following estate with their corresponding fair market value:

Conjugal real estate (family home) P 2,500,000

Exclusive real estate 1,950,000
Conjugal personal property 3,000,000
Additional Information:
Actual funeral expenses 120,000
Judicial expenses 7,000
Mortgage on conjugal real estate 350,000
Medical expenses 40,000
TRANSFER & BUSINESS TAXES - Ampongan

The net estate subject to estate tax of the intestate estate of X-Men is:

a. P 850,000 c. P2,275,000
b. None d. (1,725,000)

Alanis, a resident citizen, single but head of family, died during the year leaving the following
data:
Properties:
Real properties (excluding a family home valued
at P1,100,000) P 3,200,000
House and lot in Sydney, Australia 1,500,000
Bank deposit 800,000
Deductions:
Claims against insolvent persons 100,000
Claims against the estate, not notarized 50,000
Unpaid mortgage on the family home 300,000
The personal properties do not include shares of stocks P50000 which were purchased by the
decedent from Astra Company one 144 valued at month prior to his death.

The house and lot in Sydney, Australia was inherited by Alanis from his father who died 2 ½
years ago. Said property was mortgaged for P 200,000 which was paid by the decedent before
his death.

12. The gross estate is a

a. P 4,050,000 c. P 6,650,000
b. 6,750,000 d. 5,550,000

13. The total deductions (excluding standard deductions) is-

a. P 1,330,000 c .P 1,250,000
b. 1,230,000 d. 1,350,000

14. Pedro Ocampo, married, resident of Quezon City, died. He left an estate consisting of the
following:
7. Estate Taxation (Deductions From Gross Estate)

Exclusive real estate P 6,000,000

Conjugal real estate (family home) 3,000,000
Conjugal personal property 800,000

At the time of his death, the conjugal real estate is mortgaged at the Philippine National Bank for
P 90,000. Unpaid taxes of P 124,500 and a judicial expense of P 16,000.

The net estate subject to estate tax is:

a. P 1,292,750 c. None
b. 1,855,000 d. 504,500

15. The following data are available during the death of Nancy, a resident citizen:

Personal property within P 1,700,000

Real property within 2,600,000
Personal property without 2,300,000
Real property without 3,000,000
Funeral expenses 120,000
Unpaid mortgage on property without 120,000
Claims against the estate, creditor is residing abroad 30,000
RA 4917 200,000

Claim against insolvent (20% is collectible) 85,000

The taxable net estate of Nancy is:

a. P 5,570,000 c. P 8,245,000
b. 4,245,000 d. 4,382,000

Items 16 through 18 are based on the following information:

Carmen, married, died on April 25, 2018. An inventory of her properties show the
following:

a. Residential land inherited from her father who died March 31, 2014:
 FMV, March 31, 2014 P 4,000,000
FMV, April 25, 2018 8,500,000

TRANSFER & BUSINESS TAXES - Ampongan

b. Commercial land inherited from her mother who died April 1, 2012:

FMV, April 1, 2012 P 2,000,000

FMV, April 25, 2018 5,000,000

Other properties:

House and lot in Manila, used as family home acquired during marriage, P3,000,000;
House and lot in California, U.S.A. acquired during marriage, P2,000,000: Notes receivable,
debtor resides in U.S.A., P100,000; Notes receivable, debtor resides in the Philippines (40% is
uncollectible), P200,000; Other personal properties - P140,000.

Deductions claimed by the estate: Funeral expenses, P165,000; Legacy given to the
daughter of her beautiful secretary in her will, P200,000; Legacy given to the City Government
of Manila in her will, P200,000.

The spouses are under the regime of conjugal partnership of gains.

16. The gross estate is

a. 18,940,000 c. 14,440,000
b. 11,440,000 d. 15,940,000

17. The vanishing deduction is (round-off all amounts to the nearest peso) –

a. 274,757 c. 74.757
b. 788,173 d. None

18. The net estate subject to estate tax is –

a. 8,691,827 c. 2,747,500
b. 1,747,500 d. 3,782,500

19. Soop, died on November 20, 2018. Some of the properties he left are following:
7. Estate Taxation (Deductions From Gross Estate)

Market Value
Mode Of Date of
Acquisition Acquisition
Assets Date Acquired Death of Soo
Land Donation 7/3/14 500,000 350,000
Car Purchase 10/2/16 800,000 980,000
Other information:

1. The gross estate of the decedent amounts to P 3,000,000.

2. The land was mortgaged for P 50,000 which was deducted in prior estate and Soo paid
the same before he died.
3. The allowable deductions total P 125,000, which includes medical expenses of P
30,000. It excludes the amount of P 50,000. bequest to a charitable institution in the
amount P 50,000

The vanishing deduction is (round-off all amounts to the nearest peso):

a. P 58,100 c. 67,783
b. . 57,500 d. 67,083

Items 20 through 23 are based on the following information:

Dina Mathay, widow, a citizen of the Philippines residing in Vancouver, Canada, died on
December 20, 2018 leaving the following properties:

Real property (Inherited from her husband on

May 3, 2017 valued then at P 2,600,000) 2,960,000

Personal properties in Canada 2,300,000

Real and personal properties in the Philippines 670,000

Family home in Canada 2,500,000

TRANSFER & BUSINESS TAXES - Ampongan

Obligations:

Funeral expenses incurred in Canada 250,000

Other deductible expenses 850,000

20. The gross estate of Dina Mathay is

a. P 7,430,000 c. 6,670,000
b. 8,430,000 d. 670,000

21. The deduction for family home

a. P 2,500,000 c. 1,250,000
b. 1,000,000 d. None

22. The vanishing deduction is

a. P 1,786,056 c. 1,870,273
b. 1,772,059 d. None

23. The net estate subject to tax is

a. P 3,593,944 c. P 709, 727

b. 3,202,865 d. 4, 709, 727

Desiderio, Filipino, died intestate during the year. He left the following properties:

Real estate, conjugal:

House in Cebu City (family home) 4,000,000
House in Japan 2,500,000
Personal properties, separate:
Domestic shares 100,000
 Household appliances in Japan 450,000
Accounts receivable from debtor residing in the Philippines 135,000

7. Estate Taxation (Deductions From Gross Estate)

Expenses:
Cost of cemetery lot 60,000
Expenses of interment 265,000
Accounts payable, notarized
Mortgage on house in Japan
Claims against debtor in Japan, insolvent
Mortgage on house in Cebu City

24. How much is the gross estate?

a. P7,185,000 c. 7,100,000
b. 7,270,000 d. 4,235,000

25. How much is the net taxable estate?

a. P 2,717,000 c. 1,717,500
b. 2,675,000 d. None

Upon the death of Wilson, the following data were made available:

Properties:

Land Inherited from his father 3 ½ years ago time

of death of father (value at the time P1,700,000) 2,500,000

House inherited from mother 4 ½ years ago 4,000,000

Car purchased a year ago (value at time of purchase, P 340,000) 300,000

Family home, conjugal 1,500,000

Other properties 2,500,000

Deductions:
 Funeral expenses 180,000

Judicial expenses 50,000

Claims against Manny, insolvent 50,000

TRANSFER & BUSINESS TAXES - Ampongan

Unpaid mortgage on the land when inherited from his father

(P120.000 was paid by Wilson) 600,000

Medical expenses 20,000

Bequest to City of Naga 30,000

26. The vanishing deduction on the land inherited from father is.

a. P 599,381 c. 598,548
b. 55,800 d. 585,938

27. The vanishing deduction on the house inherited from mother is:
a. P 757,656 c. 74,720
b. 74,400 d. None

28. The net taxable estate is –

a. P 730,360 c. 714,800
b. 1,032,963 d. None

29. The income tax payable is

a. P 510,000 c. 61,978
b. 210,000 d. exempt

30. A married decedent died leaving a family home as the spouses only property, with a value of
P 7,000,000. At the time of his death, it was the subject of a unpaid mortgage amounting to
P 500,000. The family home was inherited from the decedent’s father.

If the vanishing deduction is P 50,000 and the spouses were under the absolute
community of property regime, how much is the taxable portion if the family home?

a. 2,000,000 c. 725,000
b. 1,450,000 d. None
7. Estate Taxation (Deductions From Gross Estate)

EXERCISE 7-8. DISCUSSION QUESTIONS/ PROBLEMS

1. Burden of proof. The executor of the estate of Licupo filed the estate tax return on
January 12, 2018. The BIR disallowed some deductions in the tax return. The executor
challenged the BIR to prove its findings to which the BIR declined. Accordingly, it is the
executor's obligation to establish the validity of the deductions being claimed. Who is
correct?

2. Nature of deduction. When are items classified as conjugal or community property

deductions and when are they considered as separate deductions?

3. The Estate of Gray Case. One of the claims against the estate of Mr. Gray is a debt
owed by the decedent from a corporation. The debt was represented by a promissory
note and it appears from the records of both parties that the decedent had made some
payments against the alleged creditor. It was found out, however, that (1) the decedent
controlled 82.49% of the corporation (2) there were no restrictions on how the corporation
could lend the decedent; (3) the corporation had made no effort to collect the loans; (4)
the notes issued were past due and had not been treated with substance because their
terms had been ignored; (5) there was no fixed repayment schedule; and that (6) there
was no security for the loan. Is the claim allowable as deduction from the gross estate of
Mr. Gray?

4. Claims against the estate. After the death of Cleto, his heirs discovered that various
claims have been filed against his estate. Which of the following claims are deductible
from the gross estate of Cleto?

a. Salary loan from Government Service Insurance System (GSIS), only 15% of
which have been paid.
b. Indebtedness which had already prescribed
c. Income taxes and property taxes that have accrued after the death of the
decedent.
 d. Court ruling that has become final and executory a day before the decedent's
death, requiring the decedent to indemnify his victim in a car accident.
e. Balance of the purchase price on a land which appears to have been bought by
the decedent. The property was actually inherited by him from a close relative.

TRANSFER & BUSINESS TAXES - Ampongan

5. Claim against an insolvent person. Pamaan is a good friend of Pamugat. At one 150
time, Pamaan was encountering liquidity problem. Pamugat extended a loan of P
300,000 on condition that Pamaan will pay his debt after six months. After a week,
however, Pamugat died of a heart attack. Should the executor of the estate of Pamugat
be allowed to claim the P 300,000 as deduction from gross income under "claims against
insolvent persons"?

6. Claims against insolvent persons. What is the reason for setting up a requirement that
the amount of "claims against insolvent persons must be included as part of the gross
estate?

7. Deductibility of bad debts. Mac Caerak has a claim against Mayo of P 100,000 at the
time of death. A day before Mac Caerak's death, Mayo informed him that the latter is
already insolvent because he has more liabilities than assets which made him insolvent.
Should the heir of Mac claim the P1 00,000 as a deduction from Mac's gross estate as
"claim against insolvent person?

8. Unpaid mortgages. Dalahera mortgaged her coconut land valued at P 950.000 located
in San Antonio, Iriga City for P 300,000. After a month, she died without paying the
mortgage. Is the mortgage indebtedness deductible from gross estate for purposes of
computing the estate tax? What requisites are necessary for its deductibility?

9. Unpaid income and property taxes. Rufino, an employee of government, died on June
30, 2018, leaving a real estate in La Carlota City. The real estate taxes that have accrued
in the year of his death amount to P12.000. His income tax on income earned from
January to June 201 P 15,500, while the tax on the income of his estate from July 1 to
December 31 amounts to P 7,350. Based on the information given how much taxes are
deductible from gross estate.
10. Losses due to shipwreck. Carpenter, an American residing in Olonggapo City, shipped
his car worth P 1,200,000 from the United States to the Philippines. The following day, he
arrived in the Philippines via Northwest Airline riding a bus going to Olongapo City, he
met an accident and dead instantaneously. Two weeks after his death, the ship carrying
somewhere in the Pacific Ocean towards Philippine islands. The insurance paid 50% of
the value of the car.

a. Is the loss deductible from the gross estate of Carpenter? How much
b. How about if the loss occurred ahead of Carpenters death?