Chapter 4 - Deductions From Gross Estate

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

CHAPTER 4

DEDUCTION FROM GROSS ESTATE Problem 4–1 1. True 2. True 3. True 4. False – not deductible. Only those expenses actually taken from the gross estate. 5. False – actual or 5% of the gross not exceeding P200,000 6. False – funeral expense 7. False – Only those expenses actually taken from the gross estate. 8. True – brokerage fee is part of judicial expense if necessary for the administration of the estate. 9. True 10. False – not terminated upon death but shall be paid by the remaining estate. Problem 4–2 1. True 2. True 3. False – deductible only if included in the gross estate. 4. False – either against the gross estate or against income 5. False – included after death 6. True 7. False – not deductible because not yet accrued expense. 8. True 9. False – only those related to gathering, preservation and settlement of the estate. 10. True Problem 4–3 1. True 2. False – ½ of net, after ordinary deductions and exemptions 3. True 4. True 5. True 6. False – whether paid or unpaid, the maximum deductible medical expense is P500,000. 7. False – not allowed as deduction is in excess of P500,000 8. False – this is in addition to other allowable deductions. 9. False – no receipt is necessary for standard deduction. 10. True Problem 4–4 1. A 2. A 3. C 4. D 5. A 6. B

Problem 4–5 1. A & B 2. C 3. A 4. D 5. D 6. D

Problem 4–6 1. A 2. A 3. B 4. A 5. D 6. D

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

7. A 8. C 9. B 10. A

7. C 8. A 9. A 10. D

7. C 8. D

Problem 4–7 A Allowable deductions against Philippine gross estate (P500,000 x 3/5)

P 300,000

Problem 4–8 D None, because the decedent is a nonresident alien and the amount of gross estate located in the Philippines is not defined. Problem 4–9 C Funeral expense (P3,000,000 x 5%) Judicial expense (P250,000 x 60%) Bad debts (P150,000/3) Ordinary deductions

P150,000 150,000 50,000 P350,000

Problem 4–10 D Standard deduction Family home Special deductions

P1,000,000 1,000,000 P2,000,000

Problem 4–11 B Gross estate (P3,150,000 + P175,000) Multiplied by funeral rate Deductible funeral expense

P3,325,000 5% P 166,250

Problem 4–12 B Gross estate Multiplied by funeral rate Deductible funeral expense

P3,500,000 5% P 175,000

Problem 4–13 C Real properties Claims against insolvent persons Gross estate Multiplied by funeral expense rate Funeral expense

P1,560,000 100,000 P1,660,000 5% P 83,000

Problem 4–14 C Judicial expense (P1,900,000/95%) – P1,900,000

P100,000

Problem 4–15 C Deductible loss (P48,000/40%)

P120,000

Problem 4–16 A Unpaid mortgage on the real property included in the gross estate

P500,000

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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 4–17 C Loans from Metro Bank (not notarized per bank’s policy)

P500,000

Problem 4–18 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 4–19 C Collectible from a debtor Problem 4–20

66.67%

P160,000

B

Properties Ordinary deductions: Unpaid mortgage loan used to finance family business Funeral expense Properties after ordinary deductions

Exclusive P2,800,000

Conjugal P3,500,000

. P2,800,000

( 800,000) ( 180,000) P2,520,000

Problem 4–21 B Unpaid real property tax incurred prior to date of death

P100,000

Problem 4–22 D Deductible transfer for public use (P2,000,000/1,000) x 200

P400,000

Problem 4–23 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 4–24 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:

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Funeral expense, limit Judicial expense Unpaid mortgage Total ELIT Problem 4–25

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

A

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

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

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

Problem 4–26 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 4–27 C Standard deduction to Filipino and resident alien

P1,000,000

Problem 4–28 D Nonresident alien does not have standard deduction Problem 4–29 C Deductible medical expense (paid or unpaid) within one year prior to death

P300,000

Problem 4–30 A The unpaid medical expense in excess of the maximum P500,000 is nondeductible as claims against the estate. Problem 4–31 D Medical expenses incurred from October 2004 to December 2004 Problem 4–32 D Maximum amount of family home deductible The family home is an exclusive property of the decedent. Problem 4–33 C Building – conjugal (P1,000,000/2) Land – exclusive Family home - deductible Problem 4–34 1. D

P100,000

P1,000,000

P500,000 400,000 P900,000

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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

2.

Donation to the government Benefits received under RA 4917 Funeral expense Total ordinary deductions

P1,000,000 500,000 100,000 P1,600,000

C Standard deduction Family home Medical expense Total special deductions

P1,000,000 1,000,000 400,000 P2,400,000

Problem 4–35 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

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

Problem 4–36 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 Problem 4–37 October 1 to 20, 2005 from Saint Luke’s Hospital: Diagnostic fee Doctors’ fee Hospital rooms Operating costs Medicines Total medical expense deductible

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

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

Problem 4–38 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 4–39 1. Gross estate

P3,000,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

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.