Hurdling estate tax obligations

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By Roberto A. Capili

Real Estate Updates

Sunday, March 17, 2013


WE HAVE been asked many times, questions on obligations to be paid when transferring properties, and the most ticklish issue to tackle is the questions on obligations relating to estate taxes. For one, the tax cannot be paid by the decedent (the deceased individual) for obvious reasons. Thus, it has to be assumed by the executor or administrator, who, in most instances are the heirs or the closest relatives.

To be clear about our topic, “estate” refers to the properties, rights and obligations of a decedent individual (one who has died or passed away) that will be passed on to his heirs through hereditary succession. Our tax laws define estate tax as “the tax on the right to transmit property at death and on certain transfers made by the stature, the equivalent of testamentary disposition and measured by the value of the property.”

It explains that estate tax is not a direct tax on property, as is commonly understood. Neither is it a “capitation tax,” that is, the tax laid neither on the property nor on the transferor or the transferee. In other words, it is more of an excise tax or privilege tax where the main purpose or object is to tax the shifting of economic benefits and enjoyment from the dead to the living. Remember that the property transferred by the decedent shall accrue to the benefit of the surviving heirs; in the case of a married man, his wife and children.

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Every decedent, whether resident or non-resident of the Philippines are required to file the required estate tax, the basis for the computation of the tax is the Value of Net Estate. In the case of the former (referring to resident or Filipino decedent), the Gross Estate shall include real property, tangible and intangible personal property wherever situated; while the latter (that is, non-resident decedent), only real and personal properties located in the Philippines.

To arrive at the Net Estate, the following are allowable deductions from the Gross Estate:

1. Ordinary Deductions in the form of:

a. Funeral expenses equal to 5% of the Gross Estate or P 200,000.00, whichever is lower;

b. Judicial expenses of the testamentary or intestate proceedings;

c. Claims against the estate as long as the indebtedness was contracted within three (3) years before the death of the decedent;

d. Claims of the estate against insolvent persons;

e. Unpaid mortgage;

f. Unpaid taxes;

g. Casualty losses

2. Family home not to exceed P 1,000,000.00.

3. A Standard Deduction equivalent to P 1,000,000.00.

4. Transfers exclusively for public use or purposes.

5. Medical expenses not more than P500,000.00 incurred within one (1) year prior to death of the decedent and duly supported by receipts.

6. Net Share of the Surviving Spouse in the Conjugal Partnership Property (in the case of married persons).

7. Property previously taxed (Vanishing Deductions).

8. Amount received by heirs under R. A. No. 4917 – amount received from the decedent’s employer.

In case of properties, the estate shall be appraised at its “fair market value” at the time of death. The appraised value of real property at the time of death shall be: the fair market value determined by the Commissioner (BIR Zonal Value) or the fair market value in the schedule of values fixed by the Provincial and City Assessors, whichever is higher.

The general steps in the computation of the estate tax as follows:

1. Determine Gross Estate. State valuation of Gross Estate after excluding non-taxable properties or transfers.

2. From the Gross Estate, deduct the allowable or authorized deductions, thereby arriving at the Net Estate.

3. From the Net Estate, deduct the exemption of P 200,000.00, to arrive at the Taxable Net Estate. Compute the estate tax based on the following graduated rates: (See table below)

(To be continued)

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(The writer is a Certified Public Accountant and president of the Baguio Realtors Board, Inc. Apart from being a recognized Real Estate Practitioner as a Real Estate Broker and Educator, Lecturer and Resource Person, he is likewise a Business Management/ NGO/Cooperative Consultant, Project Development Consultant, Financial Advisor/Loan Broker and Columnist. For comments and more information of Real Estate Updates and Studies, you may get in touch with him at No. 04 Old Forestry Compound, Baguio City 2600, Tel. No (074) 427-1971/ Cell Nos. 09109302753/09163188274 or email: bert_capili@yahoo.com/ bertcapili65@hotmail.com).

Published in the Sun.Star Baguio newspaper on March 18, 2013.

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