Chapter 4 - Deductions From Gross Estate

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<p>Problem 2-1</p> <p>PAGE 17BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA &amp; ROXAS)</p> <p>SUGGESTED ANSWERS</p> <p>Chapter 4: DEDUCTIONS FROM GROSS ESTATE </p> <p>CHAPTER 4</p> <p>DEDUCTION FROM GROSS ESTATE</p> <p>Problem 41 </p> <p>1. True</p> <p>2. True</p> <p>3. True</p> <p>4. False not deductible. Only those expenses actually taken from the gross estate.</p> <p>5. False actual or 5% of the gross not exceeding P200,000</p> <p>6. False funeral expense</p> <p>7. False Only those expenses actually taken from the gross estate.</p> <p>8. True brokerage fee is part of judicial expense if necessary for the administration of the estate.</p> <p>9. True</p> <p>10. False not terminated upon death but shall be paid by the remaining estate.</p> <p>Problem 42 </p> <p>1. True</p> <p>2. True</p> <p>3. False deductible only if included in the gross estate.</p> <p>4. False either against the gross estate or against income</p> <p>5. False included after death</p> <p>6. True</p> <p>7. False not deductible because not yet accrued expense.</p> <p>8. True</p> <p>9. False only those related to gathering, preservation and settlement of the estate.</p> <p>10. True</p> <p>Problem 43 </p> <p>1. True</p> <p>2. False of net, after ordinary deductions and exemptions</p> <p>3. True</p> <p>4. True</p> <p>5. True</p> <p>6. False whether paid or unpaid, the maximum deductible medical expense is P500,000.</p> <p>7. False not allowed as deduction is in excess of P500,000</p> <p>8. False this is in addition to other allowable deductions.</p> <p>9. False no receipt is necessary for standard deduction.</p> <p>10. True</p> <p>Problem 44 Problem 45 Problem 46 </p> <p>1. A1. A &amp; B1. A</p> <p>2. A2. C2. A</p> <p>3. C3. A3. B</p> <p>4. D4. D4. A</p> <p>5. A5. D5. D</p> <p>6. B6. D6. D</p> <p>7. A7. C7. C</p> <p>8. C8. A8. D</p> <p>9. B9. A</p> <p>10. A10. D</p> <p>Problem 47 A</p> <p>Allowable deductions against Philippine gross estate (P500,000 x 3/5)P 300,000</p> <p>Problem 48 D</p> <p>None, because the decedent is a nonresident alien and the amount of gross estate located in the Philippines is not defined.</p> <p>Problem 49C</p> <p>Funeral expense (P3,000,000 x 5%)P150,000</p> <p>Judicial expense (P250,000 x 60%)150,000</p> <p>Bad debts (P150,000/3) 50,000</p> <p>Ordinary deductionsP350,000</p> <p>Problem 410D </p> <p>Standard deductionP1,000,000</p> <p>Family home 1,000,000</p> <p>Special deductionsP2,000,000</p> <p>Problem 411B</p> <p>Gross estate (P3,150,000 + P175,000)P3,325,000</p> <p>Multiplied by funeral rate 5%</p> <p>Deductible funeral expenseP 166,250</p> <p>Problem 412B</p> <p>Gross estate P3,500,000</p> <p>Multiplied by funeral rate 5%</p> <p>Deductible funeral expenseP 175,000</p> <p>Problem 413C</p> <p>Real propertiesP1,560,000</p> <p>Claims against insolvent persons 100,000</p> <p>Gross estateP1,660,000</p> <p>Multiplied by funeral expense rate 5%</p> <p>Funeral expenseP 83,000</p> <p>Problem 414C</p> <p>Judicial expense (P1,900,000/95%) P1,900,000P100,000</p> <p>Problem 415C</p> <p>Deductible loss (P48,000/40%)P120,000</p> <p>Problem 416 A</p> <p>Unpaid mortgage on the real property included in the gross estateP500,000</p> <p>Problem 417C </p> <p>Loans from Metro Bank (not notarized per banks policy)P500,000</p> <p>Problem 418D</p> <p>Accounts receivableP500,000</p> <p>Multiplied by percent of uncollectible (100% - 66.67%) 33.33%</p> <p>Bad debts deductibleP166,667</p> <p>Percent of collectible is computed as follows:</p> <p>Assets, net of unpaid taxes (P1,500,000 P500,000)P1,000,000</p> <p>Divided by liabilities, net of taxes payable (P2,000,000 P500,000)P1,500,00066.67%</p> <p>Problem 419C</p> <p>Collectible from a debtorP160,000</p> <p>Problem 420B</p> <p> ExclusiveConjugal</p> <p>PropertiesP2,800,000P3,500,000</p> <p>Ordinary deductions:</p> <p> Unpaid mortgage loan used to finance family business( 800,000)</p> <p> Funeral expense .( 180,000)</p> <p>Properties after ordinary deductionsP2,800,000P2,520,000</p> <p>Problem 421B</p> <p>Unpaid real property tax incurred prior to date of deathP100,000</p> <p>Problem 422D </p> <p>Deductible transfer for public use (P2,000,000/1,000) x 200P400,000</p> <p>Problem 423A</p> <p>Value taken (lower)P1,000,000</p> <p>Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000</p> <p>Final basisP 950,000</p> <p>Multiplied by percent of vanishing deduction 60%</p> <p>Amount of vanishing deductionP 570,000</p> <p>Problem 424 D</p> <p>Value taken (lower)P2,100,000</p> <p>Less: Mortgage paid 400,000</p> <p>Initial basisP1,700,000</p> <p>Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000</p> <p>Final basisP1,564,000</p> <p>Multiplied by percent of vanishing deduction 40%</p> <p>Amount of vanishing deductionP 625,600</p> <p>Computation of ELIT:</p> <p>Funeral expense, limitP200,000</p> <p>Judicial expense100,000</p> <p>Unpaid mortgage 100,000</p> <p>Total ELITP400,000</p> <p>Problem 425A</p> <p>ExclusiveConjugal</p> <p>PropertiesP1,000,000P2,000,000</p> <p>Transfer for public use( 500,000)</p> <p>Share of surviving spouse (P2,000,000 x 50%) .(1,000,000)</p> <p>Net estateP 500,000P1,000,000</p> <p>Problem 426B</p> <p>Conjugal estateP5,000,000</p> <p>Deductible funeral expense( 200,000)</p> <p>Net estate before share of surviving spouseP4,800,000</p> <p>Multiplied by share of surviving spouse 50%</p> <p>Share of surviving spouseP2,400,000</p> <p>Problem 427C</p> <p>Standard deduction to Filipino and resident alienP1,000,000</p> <p>Problem 428D</p> <p>Nonresident alien does not have standard deduction</p> <p>Problem 429C</p> <p>Deductible medical expense (paid or unpaid) within one year prior to deathP300,000</p> <p>Problem 430A</p> <p>The unpaid medical expense in excess of the maximum P500,000 is nondeductible as</p> <p>claims against the estate.</p> <p>Problem 431D</p> <p>Medical expenses incurred from October 2004 to December 2004P100,000</p> <p>Problem 432 D </p> <p>Maximum amount of family home deductibleP1,000,000</p> <p>The family home is an exclusive property of the decedent.</p> <p>Problem 433C</p> <p>Building conjugal (P1,000,000/2)P500,000</p> <p>Land exclusive 400,000</p> <p>Family home - deductibleP900,000</p> <p>Problem 434</p> <p>1. D</p> <p>Donation to the governmentP1,000,000</p> <p>Benefits received under RA 4917500,000</p> <p>Funeral expense 100,000</p> <p>Total ordinary deductionsP1,600,000</p> <p>2. C</p> <p>Standard deductionP1,000,000</p> <p>Family home 1,000,000</p> <p>Medical expense 400,000</p> <p>Total special deductionsP2,400,000</p> <p>Problem 435 </p> <p>Burial lot (P50,000 x 80%)P40,000</p> <p>Expenses for wake before burial20,000</p> <p>Telegrams and cable to relatives1,000</p> <p>Mourning apparel of the surviving spouse and children3,000</p> <p>Entertainment expenses during the rites and burial ceremonies 2,500</p> <p>Allowable funeral expensesP66,500</p> <p>Problem 436 </p> <p>ExclusiveConjugal</p> <p>Real estate propertyP700,000P2,200,000</p> <p>Personal property . 400,000</p> <p>Total P700,000P2,600,000</p> <p>Funeral expense (P700,000 + P2,600,000) x 5%( 165,000)</p> <p>Judicial expenses( 50,000)</p> <p>Mortgage payable to the bank( 400,000)</p> <p>Net estate before share of surviving spouseP1,985,000</p> <p>Multiplied by percent share of surviving spouse 50%</p> <p>Share of surviving spouseP 992,500</p> <p>Problem 437</p> <p>October 1 to 20, 2005 from Saint Lukes Hospital:</p> <p> Diagnostic feeP 60,000</p> <p> Doctors fee120,000</p> <p> Hospital rooms80,000</p> <p> Operating costs50,000</p> <p> Medicines 90,000</p> <p>Total medical expense deductibleP400,000</p> <p>Problem 438</p> <p>Funeral expense, actual</p> <p>Judicial expense</p> <p>Medical expense, maximum allowed</p> <p>Standard deductions</p> <p>Total deductionsP 150,000</p> <p>50,000</p> <p>500,000</p> <p> 1,000,000</p> <p>P1,700,000</p> <p>Problem 439</p> <p>1.Gross estateP3,000,000</p> <p>2.Actual deductions (P200,000 + 500,000)P700,000</p> <p>3.Deductible allowance standard deductionP1,000,000</p> <p>4.Net taxable estate (P3,000,000 P700,000 P1,000,000)P1,300,000</p> <p>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.</p>