chapter 4 - deductions from gross estate

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

Chapter 4: DEDUCTIONS FROM GROSS ESTATE

CHAPTER 4

DEDUCTION FROM GROSS ESTATE

Problem 4–1 1. True2. True3. True4. False – not deductible. Only those expenses actually taken from the gross estate.5. False – actual or 5% of the gross not exceeding P200,0006. False – funeral expense7. 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. True10. False – not terminated upon death but shall be paid by the remaining estate.

Problem 4–2 1. True2. True3. False – deductible only if included in the gross estate.4. False – either against the gross estate or against income5. False – included after death6. True7. False – not deductible because not yet accrued expense.8. True9. False – only those related to gathering, preservation and settlement of the estate.10. True

Problem 4–3 1. True2. False – ½ of net, after ordinary deductions and exemptions3. True4. True5. True6. False – whether paid or unpaid, the maximum deductible medical expense is P500,000.7. False – not allowed as deduction is in excess of P500,0008. False – this is in addition to other allowable deductions.9. False – no receipt is necessary for standard deduction.10. True

Problem 4–4 Problem 4–5 Problem 4–6 1. A 1. A & B 1. A2. A 2. C 2. A3. C 3. A 3. B4. D 4. D 4. A5. A 5. D 5. D6. B 6. D 6. D7. A 7. C 7. C8. C 8. A 8. D9. B 9. A10. A 10. D

Problem 4–7 AAllowable deductions against Philippine gross estate (P500,000 x 3/5) P 300,000

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Problem 4–8 DNone, because the decedent is a nonresident alien and the amount of gross estate located in the Philippines is not defined.

Problem 4–9 CFuneral expense (P3,000,000 x 5%) P150,000Judicial expense (P250,000 x 60%) 150,000Bad debts (P150,000/3) 50,000 Ordinary deductions P350,000

Problem 4–10 D Standard deduction P1,000,000Family home 1,000,000 Special deductions P2,000,000

Problem 4–11 BGross estate (P3,150,000 + P175,000) P3,325,000Multiplied by funeral rate 5% Deductible funeral expense P 166,250

Problem 4–12 BGross estate P3,500,000Multiplied by funeral rate 5% Deductible funeral expense P 175,000

Problem 4–13 CReal properties P1,560,000Claims against insolvent persons 100,000 Gross estate P1,660,000Multiplied by funeral expense rate 5% Funeral expense P 83,000

Problem 4–14 CJudicial expense (P1,900,000/95%) – P1,900,000 P100,000

Problem 4–15 CDeductible loss (P48,000/40%) P120,000

Problem 4–16 AUnpaid mortgage on the real property included in the gross estate P500,000

Problem 4–17 C Loans from Metro Bank (not notarized per bank’s policy) P500,000

Problem 4–18 DAccounts receivable P500,000Multiplied 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) P1,000,000Divided by liabilities, net of taxes payable (P2,000,000 – P500,000)

P1,500,000 66.67%

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Chapter 4: DEDUCTIONS FROM GROSS ESTATEProblem 4–19 CCollectible from a debtor P160,000

Problem 4–20 B Exclusive ConjugalProperties P2,800,000 P3,500,000Ordinary deductions: Unpaid mortgage loan used to finance family business ( 800,000) Funeral expense . ( 180,000)Properties after ordinary deductions P2,800,000 P2,520,000

Problem 4–21 BUnpaid 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 AValue taken (lower) P1,000,000Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000 Final basis P 950,000Multiplied by percent of vanishing deduction 60% Amount of vanishing deduction P 570,000

Problem 4–24 DValue taken (lower) P2,100,000Less: Mortgage paid 400,000 Initial basis P1,700,000Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000 Final basis P1,564,000Multiplied by percent of vanishing deduction 40% Amount of vanishing deduction P 625,600

Computation of ELIT:Funeral expense, limit P200,000Judicial expense 100,000Unpaid mortgage 100,000 Total ELIT P400,000

Problem 4–25 AExclusive Conjugal

Properties P1,000,000 P2,000,000Transfer 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 4–26 BConjugal estate P5,000,000Deductible funeral expense ( 200,000)Net estate before share of surviving spouse P4,800,000Multiplied by share of surviving spouse 50% Share of surviving spouse P2,400,000

Problem 4–27 CStandard deduction to Filipino and resident alien P1,000,000

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Problem 4–28 DNonresident alien does not have standard deduction

Problem 4–29 CDeductible medical expense (paid or unpaid) within one year prior to death P300,000

Problem 4–30 AThe unpaid medical expense in excess of the maximum P500,000 is nondeductible asclaims against the estate.

Problem 4–31 DMedical expenses incurred from October 2004 to December 2004

P100,000

Problem 4–32 D Maximum amount of family home deductible P1,000,000The family home is an exclusive property of the decedent.

Problem 4–33 CBuilding – conjugal (P1,000,000/2) P500,000Land – exclusive 400,000 Family home - deductible P900,000

Problem 4–34 1. D

Donation to the government P1,000,000Benefits received under RA 4917 500,000Funeral expense 100,000 Total ordinary deductions P1,600,000

2. CStandard deduction P1,000,000Family home 1,000,000Medical expense 400,000 Total special deductions P2,400,000

Problem 4–35 Burial lot (P50,000 x 80%) P40,000Expenses for wake before burial 20,000Telegrams and cable to relatives 1,000Mourning apparel of the surviving spouse and children 3,000Entertainment expenses during the rites and burial ceremonies 2,500 Allowable funeral expenses P66,500

Problem 4–36 Exclusive Conjugal

Real estate property P700,000 P2,200,000Personal property . 400,000 Total P700,000 P2,600,000Funeral 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 P1,985,000Multiplied by percent share of surviving spouse 50% Share of surviving spouse P 992,500

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Problem 4–37October 1 to 20, 2005 from Saint Luke’s 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 4–38 Funeral expense, actualJudicial expenseMedical expense, maximum allowedStandard deductionsTotal deductions

P 150,00050,000

500,000 1,000,000 P1,700,000

Problem 4–391.

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.

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chapter 4 - deductions from gross estate

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