I3.231 Deduction of liabilities generally
Most of the rules considered below apply to both lifetime transfers and transfers on death, but are of much greater importance on death, because most liabilities are deductible from the estate in ascertaining its value both before and after a lifetime transfer1. These liabilities will therefore not affect the value transferred unless the transfer in some way affects the amount or value of the liability.
For the rules as to liabilities deductible and non-deductible on death see I4.141–I4.154.
General rule
The general rule is that liabilities, other than those imposed by law, shall be deducted to the extent that they were incurred by the transferor for consideration in money or money's worth2. Note that this is not an all or nothing requirement that a liability has to be incurred for full consideration to be deducted. If there is less than full consideration, there will be a deduction to the extent appropriate to that amount. An example of a liability which would not be allowed as a deduction
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