BIR Ruling

May 9, 1968 Attorney A. Pison, Jr. P.O. Box 127 Manila S i r : This refers to your letter dated April 29, 1968 wherein you posed the following query: "My late father who died in 1963 left an estate which consists mainly of rice lands and other real properties. When he was still alive, my father subdivided some of the rice lands and sold the subdivided lots. When my father died, my mother, sisters, and brothers inherited the unsold subdivided lots as well as some rice lands which were not subdivided. The intestate estate proceedings involving these properties have not yet been closed since there are still obligations remaining to be paid. At present, there is a prospective buyer for one of the properties of the estate consisting of rice land and covered by a separate title. This rice land has not been sub-divided, and in fact, since my father acquired the same up to the present time, it has always been used as rice land. The intestate estate itself has not subdivided any of the rice lands for sale as subdivided lots. "If the sale goes through, I should like to request your opinion on the following: 1. Whether the gains to be realized from the proposed sale of the rice land are considered as ordinary gains or capital gains; 2. Does the fact that the estate previously has sold some of the subdivided lots make it a real estate dealer, thereby affecting the rice land by making the same an ordinary and not a capital assets; 3. Whether any gains realized in the sale of the subdivided lots are capital gains or ordinary gains." In reply, I have the honor to inform you as follows: The statutory definition of a "capital asset" excludes from its scope real property held by a taxpayer primarily for sale to customers in the ordinary course of his trade or business. An individual who subdivides real property for sale in the course of business is considered a real estate dealer and the property used in his business is considered as an ordinary asset pursuant to Section 34(a) of the National Internal Revenue Code. In view thereof, this Office believes and so holds that the profits realized by your father in the sale of the subdivided lots, said property having been held primarily for sale to customers in the ordinary course of his business, are ordinary gains, and, therefore, taxable in full. Moreover, for purposes of settling one's debts, the personality of a person may be extended beyond his death and in which case, as in the instant case, his estate is considered an extension of the personality of the deceased. That being the case, the profits realized or to be realized from the sale of the subdivided lots by the estate will likewise give rise to an ordinary gain taxable in full. However, the proceeds from the sale of the rice land will give rise to a capital gain, said property remaining a capital asset. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue