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





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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 Standard deduction P1,000,000 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 Family home 1,000,000 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 Ordinary deductions: 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 Family home 1,000,000 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 Family home 1,000,000 Medical expenses 500,000 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 Standard deduction P1,000,000 Family home 1,000,000 Medical expenses 500,000 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.

Ordinary deductions:

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: Standard deduction P1,000,000 Family home 1,000,000 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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Transcript of Chapter 4 - Deductions From Gross Estate2013