Solution manual transfer and business taxes by valencia CHAPTER 4 DEDUCTIONS FROM GROSS ESTATE

Only those expenses actually taken from the gross estate.. False – Only those expenses actually taken from the gross estate.. True – brokerage fee is part of judicial expense if necessar

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 Problem 4–5 Problem 4–6

1 A 1 A & B 1 A

9 B 9 A

10 A 10 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%) P150,000 Judicial expense (P250,000 x 60%) 150,000 Bad debts (P150,000/3) 50,000 Ordinary deductions P350,000

Problem 4–10 D

Standard deduction P1,000,000

Special deductions P2,000,000

Problem 4–11 B

Gross estate (P3,150,000 + P175,000) P3,325,000 Multiplied by funeral rate 5% Deductible funeral expense P 166,250

Problem 4–12 B

Multiplied by funeral rate 5% Deductible funeral expense P 175,000

Problem 4–13 C

Claims against insolvent persons 100,000

Multiplied by funeral expense rate 5% Funeral expense 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

Problem 4–17 C

Loans from Metro Bank (not notarized per bank’s policy) P500,000

Problem 4–18 D

Accounts receivable P500,000 Multiplied 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) P1,000,000

Divided by liabilities, net of taxes payable (P2,000,000 –

Collectible from a debtor P160,000

Problem 4–20 B

Exclusive Conjugal Properties P2,800,000 P3,500,000 Ordinary 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 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) P1,000,000 Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000

Multiplied by percent of vanishing deduction 60% Amount of vanishing deduction P 570,000

Problem 4–24 D

Value taken (lower) P2,100,000 Less: Mortgage paid 400,000

Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000

Multiplied by percent of vanishing deduction 40% Amount of vanishing deduction P 625,600 Computation of ELIT:

Funeral expense, limit P200,000

Unpaid mortgage 100,000

Problem 4–25 A

Exclusive Conjugal Properties P1,000,000 P2,000,000 Transfer 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 B

Deductible funeral expense ( 200,000) Net estate before share of surviving spouse P4,800,000 Multiplied by share of surviving spouse 50% Share of surviving spouse 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

Problem 4–32 D

Maximum amount of family home deductible P1,000,000 The family home is an exclusive property of the decedent

Problem 4–33 C

Building – conjugal (P1,000,000/2) P500,000 Land – exclusive 400,000 Family home - deductible P900,000

Problem 4–34

1 D

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

2 C

Standard deduction P1,000,000

Medical expense 400,000 Total special deductions P2,400,000

Problem 4–35

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

Problem 4–36

Exclusive Conjugal Real estate property P700,000 P2,200,000 Personal property 400,000

Funeral 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 P1,985,000 Multiplied by percent share of surviving spouse 50% Share of surviving spouse P 992,500

October 1 to 20, 2005 from Saint Luke’s Hospital:

Total medical expense deductible 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

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