BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)19SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATEC&A'TER $DEDUCTIONS FRO% GROSS ESTATEProblem 411. 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 doublededuction is allowed. 10.False not deductible. Donation is deductible if given for Philippine Government andexclusively for public purposes. 11.True 12.False special deductions are not allowed to nonresident alien decedent. 13.True Problem 421. 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 stilldeductible from gross estate. 5. False losses that are deductible must have been sustained after death but before thesettlement date of estate tax. 6. True 7. True 8. False not deductible. Only those expenses actually taken from the gross estate aredeductible. 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 431. 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 grossestate 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 ofthe estate is allowed as deductible judicial expense from the gross estate. 13.True BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)20SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATEProblem 441. 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 frst from common property 6. True 7. True 8. True 9. False deductible whether paid or unpaid, the maximum deductible medical expense isP500,000. 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 ofordinary deduction. 12.False no receipt is necessary for standard deduction. 13.True Problem 45 Problem 46 Problem 47 Problem 481. C 1.D 1. C 1. D2. B 2. C 2.A 2. B3. C 3.D 3. B 3. C4.D 4.A 4.D 4. A5.A 5. B 5.D 5. A6.D 6.A 6. C 6. B7. C 7. C 7.A 7. A8.A 8. B 8. B 8. D9. B 9.A 9.D 9. D10. A 10. D 10. C 10. CProblem 491. P 0 -. The funeral expenses should frst be substantiated with documentary evidences thatthey actually incurred before the 5% of the gross estate or the P200,000 whichever is thelowest of the three is made. If the funeral expenses are not substantiated, such become thelowest 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 transfertaxes is located outside the Philippines. 4. P - 0 -. No deduction is allowed if the estate tax return of a nonresident alien does not containproperties 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 theestate. 7. P1,840,000. The special deduction within is computed as follows: Family home P1,000,000Standard deduction (P1,000,000 x 3/5) 600,000Medical expense (P400,000 x 3/5) 240,000Total special deduction within P1,840,000BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)21SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATE8. P1,000,000. Only donation to the Philippine Government and nay of its political subdivisionsare allowed to be deducted from the decedents gross estate for Philippine estate taxpurposes. 9. P- 0-. Losses could only be claimed within 6 months from the date of death. Problem 410 CProportionate ELIT (P500,000 x 3/5) P 300,000Add: Donation to Philippine government 100,000Allowable deduction within P400,000Problem 411 CFuneral expense (P3,500,000 x 5%) P175,000Whether paid or unpaid, actual funeral expense is deductible subject to limit.Problem 412 BGross estate (P3,150,000 + P175,000) P3,325,000Multiplied by funeral rate 5%Deductible funeral expense P 166,250Problem 413 AGross estate (P2,000,000 + P1,000,000) P3,000,000Multiplied by funeral rate 5%Deductible funeral expense P 150,000Problem 414 NOT IN THE CHOICESReal property P1,560,000Cash paid for medical expense from decedents estate 45,000Cash used for wake expenses from decedents estate 85,000Memorial plan already paid 40,000Claims against insolvent person 100,000Total gross estate P1,830,000Multiplied by percent of funeral expense 5%Funeral expense allowed P 91,500The actual funeral expense is P125,000; the total of P85,000 wake expenses, and P40,000 memorial plan already paid.Problem 415 DFuneral expense, lowest amount P130,000Claims against the estate P-0-The entire amount of P90,000 in excess of P130,000 limit can no longer be deducted as funeralexpense not it can be deducted as judicial expense.Problem 416 DCapital gains tax (P1,780,000/89%) x 6% P120,000Judicial expense (P1,900,000/95%) P1,900,000 100,000Total judicial expense P220,000The capital gains tax is considered judicial expense because it is a legitimate and necessarycharge in disposing the property for the settlement of estate.BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)22SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATEProblem 417 CAgreed contract price (P10M x 10%) P1,000,000Extra-judicial settlement of the estate 500,000Total deductible judicial expenses P1,500,000Problem 418 CDeductible loss (P48,000/40%) P120,000Problem 419 AThere is no deductible loss from the gross estate because the car is not anymore available at thetime of death. To be deductible, the loss must be sustained after death but before the fling andpayment of the estate tax.Problem 420 DValue of apartment raged by fre P3,000,000Less: Insurance recovery (P3,000,000 x 60%) P1,800,000Scrap value 100,000 1,900,000Deductible loss P1,100,000Problem 421 AUnpaid mortgage on the real property included in the gross estate P500,000Problem 422 DLoans from Metro Bank (not notarized per banks policy) P500,000Interest on loans payable in the bank 30,000Loans from Metro Bank (not notarized per banks policy) P530,000Problem 423 DAccounts receivable P500,000Multiplied by percent of uncollectible (100% - 66.67%) 33.33%Bad debts deductible P166,667Percent 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%Problem 424 BUncollectible amount (P160,000 x 87.50%) P140,000Percent of the entire amount 100.00%Less: percent of collectible amount (P50,000/P400,000) 12.50%Percent of uncollectible 87.50%Problem 425 BExclusive ConjugalProperties P2,800,000 P3,500,000Ordinary deductions:Transfer for public use (400,000)Unpaid mortgage loan used to fnance family business (800,000)Funeral expense . (180,000)Properties after ordinary deductions P2,400,000 P2,520,000Problem 426 DUnpaid real property tax incurred prior to date of death P100,000Donors tax prior to date of death 80,000Deductible unpaid taxes from gross estate P180,000BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)23SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATEProblem 427 AZero. No vanishing deduction is allowed for properties located outside the Philippines.Problem 428 AValue taken (lower) P1,000,000Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000Final basis P 950,000Multiplied by percent of vanishing deduction 60%Amount of vanishing deduction P 570,000Problem 429 DValue taken (lower) P2,100,000Less: Mortgage paid 400,000Initial basis P1,700,000Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000Final basis P1,564,000Multiplied by percent of vanishing deduction 40%Amount of vanishing deduction P 625,600Computation of ELIT:Funeral expense, limit P200,000Judicial expense 100,000Unpaid mortgage 100,000Total ELIT P400,000Problem 430 BUnpaid mortgage (P300,000 P200,000) P100,000Funeral expense (P3,000,000 x 5%) 150,000Ordinary deduction subject to proportionate computation P250,000Problem 431 DDeductible transfer for public use (P2,000,000/1,000) x 200 P400,000Problem 432 CDonation to the City of Manila P200,000Transfer for public use (Philippine Government) is the only donation allowed deductible fromgross estate.Problem 433 CFuneral expense (P3,000,000 x 5%) P150,000Judicial expense (P250,000 x 60%) 150,000Bad debts (P150,000/3) 50,000Ordinary deductions P350,000Problem 434 BFuneral expenses P200,000Add: Medical expenses 650,000Total P850,000Less: Limit amounts:Funeral (P3,000,000 x 5%) P150,000Medical expenses 500,000 650,000Nondeductible amount of expenses P200,000BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)24SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATEProblem 435 CStandard deduction to Filipino and resident alien P1,000,000Problem 436 DNonresident alien does not have standard deductionProblem 437 DMaximum amount of family home deductible P1,000,000The family home is an exclusive property of the decedent.Problem 438 CBuilding conjugal (P1,000,000/2) P500,000Land exclusive 400,000Family home - deductible P900,000Problem 439 DExclusive portion of family home P 800,000Add: Share in the conjugal home(P2,000,000-P800,000)/2 600,000Total P1,400,000Less: Maximum family home 1,000,000Family home subject to tax P 400,000Problem 440 CDeductible medical expense (paid or unpaid) within one year prior to death P300,000Problem 441 AThe unpaid medical expense in excess of the maximum P500,000 is nondeductible asclaims against the estate.Problem 442 DMedical expenses incurred from October 2013 to December 2013 P100,000Problem 443 AExclusive ConjugalProperties 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 P1,000,000Problem 444 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 P2,400,000Problem 445 DStandard deduction P1,000,000Family home (P1,000,000/2) 500,000Amount received under R.A. 4917 500,000Special deductions P2,000,000BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)25SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATEProblem 4461. Letter CDonation to the government P1,000,000Funeral expense 100,000Total ordinary deductions P1,100,0002. Letter DStandard deduction P1,000,000Family home 1,000,000Amount receivable R.A. 4917 500,000Medical expense 400,000Total special deductions P2,900,000Problem 4471. Letter DClaims against the estate (P3M + P1M) P4,000,000Transfer for public use (P500k + P200k) 700,000Medical expenses 500,000Family home 1,000,000Standard deduction 1,000,000Total deductions from gross estate P7,200,0002. Letter CClaims against the estate (P4,000,000 x 5/8) P2,500,000Transfer for public use (P500k + P200k) 700,000Total deductions allowed from gross estate P3,200,000Problem 448 BJapan PhilippinesOrdinary deductions:Funeral: (P200,000 x 2/5) & (3/5) P 80,000 P 120,000Unpaid loans 300,000 700,000Donations to government Philippines 400,000Judicial expenses (P600,000 x 2/10) & (8/10) 120,000 480,000Total ordinary deductions P500,000 P1,700,000Special deductions:Standard (P1,000,000 x 2/10) & (8/10) P 200,000 P 800,000Family home 1,000,000Medical (P500,000 x 5/8) & (3/8) 312,500 187,500Total special deduction P 512,500 P1,987,500Total deductions P1,012,500 P3,687,500Problem 449 AP5,000,000. No deduction shall be allowed in the case of a nonresident decedent alien if hisproperties outside the Philippines are not reported in the Philippine estate tax return. [Sec. 86(D), NIRC]Problem 450 NOT IN THE CHOICESNet taxable estate P3,000,000Add: Standard deduction P1,000,000Family home 1,000,000Medical expenses 500,000Ordinary deductions 1,500,000 4,000,000Gross estate P7,000,000BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)26SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATEProblem 451 CNet taxable estate P4,000,000Add: Share of surviving spouse 2,000,000Net estate after special deductions P6,000,000Add: Special deductionsStandard deduction P1,000,000Family home 1,000,000Medical expenses 500,000Amount received under R.A. 4917 250,000 2,750,000Total net estate before ordinary deductions P8,750,000Less: Net exclusive estateFamily home P1,500,000Amount received under R.A. 4917 250,000Gross exclusive estate P1,750,000Less: Exclusive ordinary deduction 750,000 1,000,000Net conjugal estate P7,750,000Problem 452Burial 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 2,500Allowable funeral expenses P66,500Problem 453January until November until1. Ordinary deductions: October 200A December 200A TotalUnpaid taxes:Income tax P200,000 P200,000Donors tax 100,000 100,000Funeral expenses:Memorial plan 50,000 50,000Wake expenses 100,000 100,000Accrued expenses 80,000 80,000Total ordinary deductions allowed P530,0002. Special deductions:Standard deduction P1,000,000Family home 1,000,000Medical expenses:Hospital bills 400,000 400,000Total special deduction P2,400,000Problem 454Exclusive ConjugalReal estate property P700,000 P2,200,000Personal property . 400,000Total 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 992,500BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)27SUGGESTED ANSWERSCh!t"# $: DEDUCTIONS FRO% GROSS ESTATEProblem 455October 1 to 20, 2014 from Saint Lukes Hospital:Diagnostic fee P 60,000Doctors fee 120,000Hospital rooms 80,000Operating costs 50,000Medicines 90,000Total medical expense deductible P400,000Problem 456Funeral expense, actual P 150,000Judicial expense 50,000Medical expense, maximum allowed 500,000Standard deductions 1,000,000Total deductions P1,700,000Problem 4571. Gross estate P3,000,0002. Actual deductions (P200,000 + 500,000) P700,0003. Deductible allowance standard deduction P1,000,0004. Net taxable estate (P3,000,000 P700,000 P1,000,000) P1,300,000Note: 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.