Section 2Sec./Art. 2

Section 79(a) of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

"(a) In the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate -

"(1)Expenses, losses, indebtedness, and taxes. Such amounts -

"(A) For actual funeral expenses or in an amount equal to five per centum of the gross estate, whichever is lower, but in no case to exceed P 100,000;

"(B) For judicial expenses of the testamentary or intestate proceedings;

"(C) For claims against the estate:Provided, That at the time the indebtedness was incurred the debt instrument was duly notarized and, if the loan was contracted within three years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceed of the loan;

"(D) For claims of the deceased against insolvent persons where the value of decedent's interest therein is included in the value of the gross estate; and

"(E) For unpaid mortgages upon, or any indebtedness in respect to property, where the value of decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate, but not including any income taxes upon income received after the death of the decedent, or property taxes not accrued before his death, or any estate tax. 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 contractedbona fideand for an adequate and full consideration in money or money's worth.

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 sub-section (a) of Section 84.

"(2)Property previously taxed.- An amount equal to the value specified below of any property forming a part of the gross estate situated in the Philippines of any person who died within five years prior to the death of the decedent, or transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received:

"One hundredper centumof the value if the prior decedent died within one year prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

"Eightyper centumof the value if the prior decedent died more than one year but not more than two years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

"Sixtyper centumof the value if the prior decedent died more than two years but not more than three years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

"Fortyper centumof the value if the prior decedent died more than three years but not more than four years prior to the death of decedent, or if the property was transferred to him by gift within the same period prior to his death; and

"Twentyper centumof the value if the prior decedent died more than four years but not more than five years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death.1шphi1

"These deductions shall be allowed only where a gift tax, or estate tax imposed under this Title were finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be and only in the amount finally determined as the virtue of such property in determining the value of the gift, or, the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate, and only if in determining the value of the estate of the prior decedent no deduction was allowable under paragraph (2) in respect of the property or properties given in exchange therefor.

Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which were paid in whole or in part prior to the decedent's death then the deduction allowable under said paragraph shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this subsection as the amount otherwise deductible under said paragraph (2) bears to the value of the decedent's estate. Where the property referred to consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduction.

"(3)Transfers for public use.- The amount of all bequests, legacies, devises, or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes.

"(4)The family home. - An amount equivalent to the current or fair market value or zonal value of the decedent's family home, whichever is higher:Provided, however,That, if the said current or fair market value or zonal value exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax. As asine qua noncondition for the exemption or deduction, said family home must have been the decedent's family home as certified by the barangay captain of the locality."