E the naked ownership has been transferred to the

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Reservation of usufruct in favor of the donor (i.e., the naked ownership has been transferred to the donee); Donor reserved certain properties for himself (so he still had something to live by); The donee accepted the donation (no need for acceptance if donation mortis causa). (Sps. Gestopa vs CA, GR. No. 111904, Oct. 5, 2000) Also considered as gifts are the following: 1. Transfers for insufficient consideration; and 2. Cancellation of indebtedness. C. TRANSFERS FOR INSUFFICIENT CONSIDERATION A transfer of real/personal property will be considered a donation/gift and subject to the donor’s tax when: SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property, other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the
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1) The transfer was for less than the adequate and full consideration; 2) Such transfer was effective during his lifetime (inter vivos), and 3) Other than real property in Section 24 (d), i.e., the property was not subject to final capital gain’s tax (capital asset). In cases like this, the amount by which the value of the property exceeded the consideration received shall be considered a donation. Java Da Hupp sold to Jango Fatt his pod cruiser for P100K. It had FMV of P280K. The P180K will be considered a donation and thus subject to tax. What are the implications if the real property sold was a capital asset as against an ordinary asset? For example, the real property had a cost of P100K, a FMV of P200K, but sold for only P170K. If it were classified as a capital asset, it will be taxed 6% of the FMV (remember, the base is either the consideration or the FMV, whichever is higher). If it were classified as an ordinary asset, it will be taxed twice. First, it will be taxed for income tax purposes (tax base of P70K). Second, it will be taxed for donor’s tax (tax base of 30K). In this case, donor’s tax will be attracted unwittingly. D. CANCELLATION OF INDEBTEDNESS If a creditor desires to benefit a debtor, and without consideration therefore, cancels the debt (and the debtor “accepts”), the amount of the debt is a donation by the creditor to the debtor. (Sec. 50, R.R. 2- 1940) E. VALUE OF THE GIFTS The fair market value of the property donate/given at the time of the donation shall be the value of the gross gifts. SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in property, the fair market value thereof at the time of the gift shall be
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F. DEDUCTIONS FROM GROSS GIFTS RESIDENT OR CITIZEN DONORS These “exemptions of certain gifts” should be taken to mean the deductions allowed by law to arrive at the taxable net gifts. The deductions allowed for a resident or citizen donor : 1. Dowries or gifts made on account of marriage and before its celebration, or within one year thereafter, by parents to each of their legitimate, recognized natural or adopted children Only to the extent of P10,000
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