Unpaid mortgages, taxes and casualty losses as deductions from gross estate

[1] Unpaid mortgages upon, or any indebtedness in respect to, property where the value of the decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate. The deduction herein allowed in the case of claims against the estate, unpaid mortgages or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money’s worth.

[2] Taxes which have accrued as of the death of the decedent which were unpaid as of the time of death. This deduction will NOT include income tax upon income received after death, or property taxes not accrued before his death, or the estate tax due from the transmission of his estate.

[3] There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or embezzlement, when such losses are not compensated for by insurance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income tax return, and provided that such losses were incurred not later than the last day for the payment of the estate tax as prescribed in Subsection (A) of Section 91.

In case unpaid mortgage payable is being claimed by the estate, verification must be made as to who was the beneficiary of the loan proceeds. If the loan is found to be merely an accommodation loan where the loan proceeds went to another person, the value of the unpaid loan must be included as a receivable of the estate. If there is a legal impediment to recognize the same as receivable of the estate, said unpaid obligation/mortgage payable shall not be allowed as a deduction from the gross estate.

In all instances, the mortgaged property, to the extent of the decedent’s interest therein, should always form part of the gross taxable estate. (Section 6. Computation of the Net Estate of a Decedent Who Is either a Citizen or Resident of the Philippines. Revenue Regulation No. 12-2018. January 25, 2018)

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