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

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 14 Chapter 4: DEDUCTIONS FROM GROSS ESTATE CHAPTER DEDUCTION FROM GROSS ESTATE Problem 4–1 True True True False – not deductible Only those expenses actually taken from the gross estate False – actual or 5% of the gross not exceeding P200,000 False – funeral expense False – Only those expenses actually taken from the gross estate True – brokerage fee is part of judicial expense if necessary for the administration of the estate True 10 False – not terminated upon death but shall be paid by the remaining estate Problem 4–2 True True False – deductible only if included in the gross estate False – either against the gross estate or against income False – included after death True False – not deductible because not yet accrued expense True False – only those related to gathering, preservation and settlement of the estate 10 True Problem 4–3 True False – ½ of net, after ordinary deductions and exemptions True True True False – whether paid or unpaid, the maximum deductible medical expense is P500,000 False – not allowed as deduction is in excess of P500,000 False – this is in addition to other allowable deductions False – no receipt is necessary for standard deduction 10 True Problem 4–4 A A C D A B A C B 10 A Problem 4–5 A & B C A D D D C A A 10 D Problem 4–6 A A B A D D C D Problem 4–7 A Allowable deductions against Philippine gross estate (P500,000 x 3/5) P 300,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 15 Chapter 4: DEDUCTIONS FROM GROSS ESTATE 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%) Judicial expense (P250,000 x 60%) Bad debts (P150,000/3) Ordinary deductions P150,000 150,000 50,000 P350,000 Problem 4–10 D Standard deduction Family home Special deductions P1,000,000 1,000,000 P2,000,000 Problem 4–11 B Gross estate (P3,150,000 + P175,000) Multiplied by funeral rate Deductible funeral expense P3,325,000 5% P 166,250 Problem 4–12 B Gross estate Multiplied by funeral rate Deductible funeral expense P3,500,000 5% P 175,000 Problem 4–13 C Real properties Claims against insolvent persons Gross estate Multiplied by funeral expense rate Funeral expense P1,560,000 100,000 P1,660,000 5% 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 Multiplied by percent of uncollectible (100% - 66.67%) Bad debts deductible P500,000 33.33% P166,667 Percent of collectible is computed as follows: Assets, net of unpaid taxes (P1,500,000 – P500,000) Divided by liabilities, net of taxes payable (P2,000,000 – P500,000) P1,000,000 P1,500,000 66.67% BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 16 Chapter 4: DEDUCTIONS FROM GROSS ESTATE Problem 4–19 C Collectible from a debtor Problem 4–20 P160,000 B Properties Ordinary deductions: Unpaid mortgage loan used to finance family business Funeral expense Properties after ordinary deductions Exclusive P2,800,000 Conjugal P3,500,000 P2,800,000 ( 800,000) ( 180,000) 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) Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 Final basis Multiplied by percent of vanishing deduction Amount of vanishing deduction P1,000,000 50,000 P 950,000 60% P 570,000 Problem 4–24 D Value taken (lower) Less: Mortgage paid Initial basis Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 Final basis Multiplied by percent of vanishing deduction Amount of vanishing deduction P2,100,000 400,000 P1,700,000 136,000 P1,564,000 40% P 625,600 Computation of ELIT: Funeral expense, limit Judicial expense Unpaid mortgage Total ELIT Problem 4–25 P200,000 100,000 100,000 P400,000 A Properties Transfer for public use Share of surviving spouse (P2,000,000 x 50%) Net estate Exclusive P1,000,000 ( 500,000) P 500,000 Conjugal P2,000,000 (1,000,000) P1,000,000 Problem 4–26 B Conjugal estate Deductible funeral expense Net estate before share of surviving spouse Multiplied by share of surviving spouse Share of surviving spouse P5,000,000 ( 200,000) P4,800,000 50% P2,400,000 Problem 4–27 C Standard deduction to Filipino and resident alien P1,000,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 17 Chapter 4: DEDUCTIONS FROM GROSS ESTATE 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 2004 P100,000 Problem 4–32 D Maximum amount of family home deductible The family home is an exclusive property of the decedent P1,000,000 Problem 4–33 C Building – conjugal (P1,000,000/2) Land – exclusive Family home - deductible P500,000 400,000 P900,000 Problem 4–34 D Donation to the government Benefits received under RA 4917 Funeral expense Total ordinary deductions P1,000,000 500,000 100,000 P1,600,000 C Standard deduction Family home Medical expense Total special deductions P1,000,000 1,000,000 400,000 P2,400,000 Problem 4–35 Burial lot (P50,000 x 80%) Expenses for wake before burial Telegrams and cable to relatives Mourning apparel of the surviving spouse and children Entertainment expenses during the rites and burial ceremonies Allowable funeral expenses P40,000 20,000 1,000 3,000 2,500 P66,500 Problem 4–36 Real estate property Personal property Total Funeral expense (P700,000 + P2,600,000) x 5% Judicial expenses Mortgage payable to the bank Net estate before share of surviving spouse Multiplied by percent share of surviving spouse Share of surviving spouse Exclusive P700,000 P700,000 Conjugal P2,200,000 400,000 P2,600,000 ( 165,000) ( 50,000) ( 400,000) P1,985,000 50% P 992,500 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 18 Chapter 4: DEDUCTIONS FROM GROSS ESTATE Problem 4–37 October to 20, 2005 from Saint Luke’s Hospital: Diagnostic fee Doctors’ fee Hospital rooms Operating costs Medicines Total medical expense deductible Problem 4–38 Funeral expense, actual Judicial expense Medical expense, maximum allowed Standard deductions Total deductions Problem 4–39 Gross estate P 60,000 120,000 80,000 50,000 90,000 P400,000 P 150,000 50,000 500,000 1,000,000 P1,700,000 P3,000,000 Actual deductions (P200,000 + 500,000) P700,000 Deductible allowance – standard deduction P1,000,000 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  ... deduction to Filipino and resident alien P1,000,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 17 Chapter 4: DEDUCTIONS FROM GROSS ESTATE Problem 4 28 D Nonresident.. .BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 15 Chapter 4: DEDUCTIONS FROM GROSS ESTATE Problem 4 8 D None, because the decedent... 50% P 992,500 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 18 Chapter 4: DEDUCTIONS FROM GROSS ESTATE Problem 4 37 October to 20, 2005 from Saint Luke’s Hospital: