Article 21p. 21

NATIONAL INTERNAL REVENUE CODE TAXATION, TARIFF and CUSTOMS LAWS

from the sale or exchange, on the last day of

such taxable year, of capital assets.

(5) Losses From Wash Sales of Stock or Securities.

- Losses from ' wash sales ' of stock or securities as

provided in Section 38.

(6)

Wagering

Losses.

-

Losses

from

wagering

transactions shall be allowed only to the extent of

the gains from such transactions.

(7) Abandonment Losses. -

(a)

In

the

event

a

contract

area

where

petroleum

operations

are

undertaken

is

partially or wholly abandoned, all accumulated

exploration

and

development

expenditures

pertaining

thereto

shall

be

allowed

as

a

deduction:

Provided,

That

accumulated

expenditures incurred in that area prior to

January 1, 1979 shall be allowed as a deduction

only from any income derived from the same

contract

area.

In

all

cases,

notices

of

abandonment

shall

be

filed

with

the

Commissioner.

(b) In case a producing well is subsequently

abandoned, the un-amortized costs thereof, as

well as the un-depreciated costs of equipment

directly used therein , shall be allowed as a

deduction in the year such well, equipment or

facility

is

abandoned

by

the

contractor:

Provided,

That

if

such

abandoned

well

is

re-entered and production is resumed, or if

such

equipment

or facility is restored into

service, the said costs shall be included as part

of gross income in the year of resumption or

restoration

and

shall

be

amortized

or

depreciated, as the case may be.

(E) Bad Debts. -

(1) In General. - Debts due to the taxpayer actually

ascertained to be worthless and charged off within

the taxable year except those not connected with

profession, trade or business and those sustained in

a

transaction

entered

into

between

parties

mentioned

under

Section

36

(B)

of this Code:

Provided, That recovery of bad debts previously

allowed as deduction in the preceding years shall be

included as part of the gross income in the year of

recovery to the extent of the income tax benefit of

said deduction.

(2)

Securities Becoming Worthless. - If securities,

as defined in Section 22 (T), are ascertained to be

worthless and charged off within the taxable year

and are capital assets, the loss resulting therefrom

shall, in the case of a taxpayer other than a bank or

trust company incorporated under the laws of the

Philippines a substantial part of whose business is

the receipt of deposits, for the purpose of this Title,

be considered as a loss from the sale or exchange,

on the last day of such taxable year, of capital assets.

(F) Depreciation. -

(1) General Rule. - There shall be allowed as a

depreciation deduction a reasonable allowance for

the exhaustion, wear and tear (including reasonable

allowance for obsolescence) of property used in the

trade or business. In the case of property held by

one

person

for

life

with remainder to another

person, the deduction shall be computed as if the

life tenant were the absolute owner of the property

and shall be allowed to the life tenant. In the case of

property held in trust, the allowable deduction shall

be apportioned between the income beneficiaries

and the trustees in accordance with the pertinent

provisions of the instrument creating the trust, or in

the absence of such provisions, on the basis of the

trust income allowable to each.

(2) Use of Certain Methods and Rates. - The term

' reasonable allowance ' as used in the preceding

paragraph

shall include, but not limited to, an

allowance computed in accordance with rules and

regulations prescribed by the Secretary of Finance,

upon recommendation of the Commissioner, under

any of the following methods:

(a) The straight-line method;

(b) Declining-balance method, using a rate not

exceeding twice the rate which would have

been used had the annual allowance been

computed

under

the

method described in

Subsection (F) (1);

(c) The sum-of-the-years-digit method; and

(d) Any other method which may be prescribed

by

the

Secretary

of

Finance

upon

recommendation of the Commissioner.

(3)

Agreement

as

to

Useful

Life

on

Which

Depreciation Rate is Based. - Where under rules

and

regulations

prescribed

by the Secretary of

Finance

upon

recommendation

of

the

Commissioner, the taxpayer and the Commissioner

have

entered

into

an

agreement

in

writing

specifically dealing with the useful life and rate of

depreciation of any property, the rate so agreed

upon shall be binding on both the taxpayer and the

national Government in the absence of facts and

circumstances not taken into consideration during

the adoption of such agreement. The responsibility

of establishing the existence of such facts and

circumstances shall rest with the party initiating the

modification. Any change in the agreed rate and

useful life of the depreciable property as specified in

the agreement shall not be effective for taxable

years prior to the taxable year in which notice in

writing by certified mail or registered mail is served

by the party initiating such change to the other

party to the agreement:

Provided, however, that where the taxpayer has

adopted such useful life and depreciation rate for

any

depreciable

and

claimed

the

depreciation

expenses

as

deduction

from his gross income,

without any written objection on the part of the

Commissioner

or

his

duly

authorized

representatives,

the

aforesaid

useful

life

and

depreciation rate so adopted by the taxpayer for the

aforesaid

depreciable

asset

shall

be considered

binding for purposes of this Subsection.

(4) Depreciation of Properties Used in Petroleum

Operations.

-

An

allowance for depreciation in

respect

of

all

properties

directly

related

to

production of petroleum initially placed in service in

a

taxable

year

shall

be

allowed

under

the

straight-line

or

declining-balance

method

of

depreciation at the option of the service contractor.

However, if the service contractor initially elects the

declining-balance

method,

it

may

at

any

subsequent date, shift to the straight-line method.

The useful life of properties used in or related to

production of petroleum shall be ten (10) years of

such

shorter

life

as

may be permitted by the

Commissioner.

Properties not used directly in the production of

petroleum

shall

be

depreciated

under

the

straight-line method on the basis of an estimated

useful life of five (5) years.

(5) Depreciation of Properties Used in Mining

Operations.

-

an

allowance

for

depreciation in

respect of all properties used in mining operations

other than petroleum operations, shall be computed

as follows:

(a) At the normal rate of depreciation if the

expected life is ten (10) years or less; or

(b)

Depreciated

over

any number of years

between five (5) years and the expected life if

the latter is more than ten (10) years, and the

depreciation

thereon

allowed

as

deduction

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