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03 chapter 4 deductions from gross estate part 02

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03 chapter 4 deductions from gross estate part 02

  1. 1. Taxation 2 │ DEDUCTIONS FROM GROSS ESTATE FLABERT VILLASENCIO, CPA Notre Dame of Dadiangas University
  2. 2. ORDINARY SPECIAL Expense sLosses Indebtedness Taxes Transfer for public use Amount received by heir under RA 4917 Vanishing deductions Share of surviving spouse Funeral Judicial Claims against the estate Claims against insolvent person Family home Medical Expenses Standard deduction    
  3. 3. Transfer for Public Use oAll bequests, legacies, devises or transfers to or for the use of the Philippine Government oOther than the Philippine Government, NOT allowed as deduction oMust be through TESTAMENTARY succession oDeductible from exclusive portion of the estate; otherwise it is conjugal (must have written consent of the other spouse) oDeemed to have been done by the husband alone; otherwise there should be express stipulation that the wife joins the donation oIf silent, it should be taken as an exclusive property
  4. 4. Vanishing Deduction oTo lessen the burden of paying tax due to the short period of property transfers by reason of early deaths oSame Property must be included in the gross estate oTo be deductible: o Present decedent died within 5 years from the receipt of property through gratuitous transfer o The property involve is within the Philippines o Tax must have been actually been paid for such property o It must came from a prior decedent o No similar deduction must have been allowed to prior decedent
  5. 5. Vanishing Deduction oRate of Vanishing Deduction 100% - if within 1 year 80% - if > 1 year to 2 years 60% - if > 2 years to 3 years 40% - if > 3 years to 4 years 20% - if > 4 years to 5 years
  6. 6. Vanishing Deduction oComputation of Vanishing Deduction 1.Value to be taken- previous transfer vs present (Lower) 2.Initial Basis- Value taken less mortgage paid 3.Proportionate Deduction from Initial Basis = ELIT + TPU x (Initial Basis / Gross Estate) 4.Basis of Vanishing Deduction Initial Basis less: Proportionate Deduction 4.Percentage of Deduction Level
  7. 7. Vanishing Deduction Illustration: Gina Dan, died on Oct 21, 2013 leaving a parcel of land which she inherited from her mother, Pina G.A Dan who died May 20, 2010. The value of the property at the time of death of her mother was 350,000 but it appreciated to 475,000 in 2013. The gross estate, deductions and other data consisted of the following:
  8. 8. Vanishing Deduction Illustration: Community Property 950,000 Exclusive Properties 650,000 Funeral Expenses 40,000 Judicial Expenses 25,000 Medical Expenses 15,000 Bequests to Phil Govt 10,000 Claims against the Estate 15,000 At the time of death of Pina, the parcel of land had an unpaid mortgage of 50,000 of which 20,000 was paid by Gina.
  9. 9. Vanishing Deduction Illustration: Solution: Value in estate of prior decedent 350,000 Value in estate of present decedent 475,000 1. Lower Value 350,000 Less: Mortgage 20,000 2.Initial Basi 330,000 Less: Deductions (Pro-rated) Funeral Exp 40,000 Judicial Exp 25,000 Transfer for Pub Use 10,000 Claims against Estate 15,000 Unpaid Mortgage 30,000 Total 120,000 3. Deductible (330,000/1,600,000 x 120,000) 24,750 4. Base 305,250 5. Rate (More than 3 years to 4 years) 40 % oVANISHING DEDUCTION 122,100
  10. 10. SEATWORK: (1/2 CW) 4-20 TO 4-30 #DO IT INDIVIDUALLY #SHOW YOUR SOLUTIONS #WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE

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