What is Debt Deduction? Detailed explanation of debts that are not subject to debt deduction?

What is Debt tax Relief?

When inheriting the assets of a deceased person, in addition to positive assets such as real estate and deposits, negative assets such as debts may be inherited. Inheritance tax is calculated by subtracting the negative property from the positive property. This is called “debt tax relief”.

 One can reduce inheritance tax by deducting debt without omission. Now, here are details  the debtors  that are not eligible for inheritance tax debt deduction.

1. What is inheritance tax debt deduction?

·         What is Debt Deduction

Inheritance tax is calculated by subtracting debts such as debts left by the decedent (the person who died leaving the property) and funeral expenses from the value of the inherited property. This is called what is debt tax relief.

·         Debt relief scope

Debts eligible for debt deduction are limited to those that actually exist at the time of commencement of inheritance and are recognized as certain.

2. Borrowed money

Let’s take a closer look at the loans that are eligible for debt deductions and those that are not.

• Borrowings from third parties such as financial institutions are eligible for debt deduction because they are certain obligations at the time of inheritance.
• A joint and several obligors is an obligation in which each obligor bears full and independent responsibility for the same obligation, and if one obligor fulfills the obligation, all of them will be exempted from the obligation.
• A guaranteed obligation is an obligation owed by a guarantor to perform on behalf of the principal obligor if the principal obligor fails to perform the obligation.
• A mortgage is a loan from a financial institution and can be deducted as a liability.

3. Accrued expenses

• If the decedent dies in the middle of the year, the heir must file a quasi-final income tax return within four months, and the heir must pay the income tax.
• There are many cases where one can receive treatment at a hospital or were hospitalized just before you died, but if the one had paid for the medical expenses, one can deduct the debt.
• If the deceased was an individual business owner, accounts payable and accounts payable in the business at the time of death, and security deposits deposited by the tenant in the case of leasing real estate are subject to debt deduction.