Vanishing Deductions – Property Previously Taxed
- Purpose – to minimize the effects of a double taxation on the same property within a short period of time.
- Conditions for allowance;
A. There is a property forming a part of the gross estate of the present decedent situated in the Philippines.
B. The present decedent acquired property by inheritance or donation within 5 years prior to his death.
C. The property subject to vanishing deduction can be identified as the one received from prior decedent, or from the donor or can be identified as having acquired in exchange of the property so received.
D. The property acquired formed part of the gross estate of the prior decedent, or of the taxable gift of the donor.
E. The estate of the prior decedent has not previously availed of the vanishing deduction.
Percentage of Vanishing Deduction:
More Than Not More than Percentage
x x 1 yr 100%
1 of 2 yrs 80%
2 yrs 3 yrs 60%
3 yrs 4 yrs 40%
4 yrs 5 yrs 20%
5 yrs xx xxx
Procedures in Computing Vanishing Deduction
a. Determine the initial value by comparing the FMV of the property used in computing the first transfer tax paid with the FMV of the property in the present decedent. The lower of the two is the initial value.
b. From the initial value taken, deduct any mortgage or lien on the property previously taxed which was paid by the present decedent prior to his death. This is the initial basis.
c. The initial value taken, as reduced by Step B, shall further reduced by prorated deductions for Expenses, Losses, Indebtedness and Taxes and transfers for public purpose only, allocated to the property previously taxed as follows:
Initial Basis / Gross Estate x Deductions = Portion Deductible
D. Final basis. Determine the time interval between the present decedent and death prior to decedent and date of gift (if the property was acquired by donation) to find the applicable percentage of vanishing deduction.
E. Multiply the final basis by the percentage of vanishing deduction to arrive at the vanishing deduction.