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Vanishing deduction is one of the ordinary deductions allowed as a deduction in the

computation of net estate taxable of a resident and nonresident citizen decedent in the


Vanishing deduction is computed with the following format:

Value to take (the lower the amount of the fair market value of properties


at the time of inheritance between at the time of death of the decedent)

Less: Mortgage paid assumed (1st deduction) (xxxx)

Initial Basis xxxx

Less: Proportionate deduction (2nd deduction) (xxxx)

Initial Basis

x ELITe + Transfer for Public Use = Proportionate deduction

Gross Estate

Final Basis xxxx

Multiply by Vanishing deduction rate (%) xxxx

Vanishing deduction xxxx

The vanishing deduction rates is based on the period from receipt to decedent's death as follows: (1) within 1 year-100%; (2) beyond 1 year to 2 years-80%; (3) beyond 2 years to 3 years-60%; (4) beyond 3 years to 4 years-40%; and (5) beyond 4 years to 5 years-20%.

PROCEDURE IN COMPUTING THE VANISHING DEDUCTION: a) Determine the initial value of the property previously taxed; Rule - Value of "Property previously Taxed" in computing the estate tax or donor's tax of the prior transfer or that of the present decedent's estate, whichever is lower.


b) Deduct any mortgage or lien on the "Property

Previously Taxed" paid by the present

decedent prior to his death, where such mortgage or lien was a deduction from the gross estate of the prior decedent or gift of the donor. This is the "Initial Basis".

TOP c) The "Initial Basis" in Step (b) shall be further reduced by the following ratio of the expenses, losses, indebtedness, taxes or transfer for public purposes:

Initial Basis

--- X Expenses, losses, indebtedness Gross estate taxes, transfer for public use d) Compute the final basis of PPT:

Initial Basis (Step (b) x x x Less: Limitation (Step (c ) x x x

Final Basis (Amount subject to vanishing deduction) x x x

e) Determine the year interval between the date of death of the prior and present decedent or date of gift and death of present decedent to find the applicable percentage deduction:

0 - 1 year - 100% 1 - 2 " - 80% 2 - 3 " - 60% 3 - 4 " - 40% 4 - 5 " - 20% 5 over - 0%

The final basis (Step (d) multiplied by the percentage deduction (Step (e) will be the vanishing deduction allowable.


"A" a Filipino, married and resident of the Philippines died on July 31, 1998 leaving the following properties:


Conjugal properties --- P7,000,000.00 Conjugal family home--- 3,000,000.00 Property valued for P4,000,000 was inherited from his

father who died on June 30, 1997 together with a mortgage loan of P1,000,000 which

was paid by "A" on April 30, 1998 --- 5,000,000.00 Gross estate --- P15,000,000.00 Less: Deductions:

Expenses, losses, indebtedness, taxes

& transfer for public use --- P2,000,000 Share of surviving spouse:

Conjugal properties --- P10,000,000 Less: Conjugal deduction 2,000,000 Net conjugal estate --- P 8,000,000

1/2 share of surviving spouse --- 4,000,000 Family home --- 1,000,000 Vanishing deduction (80%)

Inherited property --- P 4,000,000 Less: Mortgage paid --- 1,000,000 Initial basis [Step (b)]--- 3,000,000 Less:3,000,000 x P2,000,000 -- 400,000 15,000,000

Final basis [Step (d)] --- P 2,600,000

80% Vanishing deduction [Step (e)] --- 2,080,000

Total deductions --- 9,080,000 Net taxable estate --- P5,920,000 Computation of estate tax:

P5,000,000 --- P465,000 920,000 @ 15% --- 138,000

Total estate tax due --- P 603,000



SHALL BE PLUS OVER Exempt Below P200,000 5% P200,000 P15,000 8% 500,000 135,000 11% 2,000,000 465,000 15% 5,000,000 1,215,000 20% 10,000,000

4. Share of the surviving spouse in the net conjugal properties 5. Family Home - Amount allowable is equivalent to the current or fair

market value or zonal value of the decedent's family home, whichever

is higher, but not exceeding P1,000,000.

a) Must not exceed the value included in the gross estate or P1,000,000, whichever is lower.

b) The amount in excess of P1,000,000 shall be subject to estate tax.

c) Must be the decedent's family home as certified to by the Barangay Captain in the locality.

d) Only one (1) family home may be claimed. 6. Standard Deduction of P1,000,000.

7. Medical Expenses incurred within one year from death in an amount

not exceeding P500,000.00.

8. Amount Received by heirs under RA No. 4917.

9. Deductions allowable to a non-resident decedent who is not a citizen

of the Philippines:

a) A proportion of the expenses, losses, indebtedness and taxes:



Phil. Gross Estate Expenses, losses --- X indebtedness & taxes World Gross estate

b) Transfer for public purposes c) Vanishing deduction

d) Share of surviving spouse - Depending on the property relationship

of the husband and wife in the country where they are national. L. Tax Credit For Estate Taxes Paid To A Foreign Country: 1. The estate tax due shall be credited with the amount of estate tax imposed by a foreign country on property located in said foreign country and included in the decedent's gross estate in the Philippines.

2. Limitation on credit - The amount of credit for estate tax paid to a foreign country shall not exceed the proportion of the tax due in the Philippines which the decedent's net estate situated within such country bears to his entire net estate.

3. The total amount of credit shall not exceed the proportion of the tax here in the Philippines which the decedent's net estate situated outside the Philippines bears to his entire net estate.

M. Reciprocity Provision On Transfer Tax Imposition: 1. The property involved is intangible personal property.

2. The decedent or donor at the time of death or donation was a citizen and resident of a foreign country.

3. That the foreign country did not impose a transfer tax of any character in respect of intangible personal property owned by a Filipino citizen not residing in said foreign country, or

4. The laws of the foreign country allow a similar exemption from transfer taxes or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country.



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